December 22, 2025

Embracing change: Innovation is key to dairy farm profitability

By Dan Kaufman
GreenStone Farm Credit Services

Change is an inevitable part of life, and in dairy, change is constant. While the cost of inputs continue to rise with inflation, milk prices have not kept pace, putting pressure on margins and long-term sustainability.

Historically, dairy farmers have responded by expanding herd sizes to achieve economies of scale and by adopting innovations to reduce production costs. However, adding more cows is no longer a viable option for many. Constraints such as limited processor capacity, high capital expenditures and geographic limitations have eroded the options for expansion. As a result, the focus must shift toward strategic innovation to maintain, and grow, profitability.

In the dairy industry, what’s considered state of art today often becomes standard practice tomorrow. This rapid pace of change highlights the importance of staying ahead of the curve. Producers who proactively seek out and implement new opportunities are consistently better positioned to succeed.

Over my years at GreenStone, I’ve witnessed high-performing operations lose their competitive edge because they failed to innovate as quickly as the industry evolved. On the other hand, I’ve seen struggling farms refocus their efforts and become top-tier performers. To be clear, innovation doesn’t always mean chasing the latest technology. It can be as simple as refining management practices, aligning employee focus, adjusting risk management strategies, improving financial reporting, streamlining processes, challenging assumptions and cultivating a forward-thinking mindset.

This translates directly to stronger financial performance for dairy operations, resulting in higher earnings and a more sustainable, long-term business model.

Take, for example, the early adopters of beef-on-dairy breeding strategies. These producers not only tapped into a new revenue stream before their peers but maximized returns during peak market conditions. By carefully managing heifer inventories and targeting premiums for beef-on-dairy calves, they were able to generate up to $1,500 per calf, contributing to non-milk income at or above $4.00/cwt for many dairy farms (around twice the normal income) from cattle sales including cull cows, beef-on-dairy calves and heifer replacements.

Similarly, dairies that have prioritized genetic selection and nutritional strategies to enhance butterfat and protein content in milk have reaped the rewards. As some processors begin to implement caps on butterfat levels, those who were slow to adapt may find themselves missing out on the full benefits of a higher mailbox milk check from increasing their milk components.

The difference in outcomes is stark. We regularly observe a $2,000 per cow net income gap between the most and least profitable operations. In today’s fast-moving industry, falling behind is easier than ever—and catching up is increasingly difficult.

Looking ahead, the convergence of artificial intelligence, data collection, advanced cattle genetics and evolving equipment technologies combined with lower milk price forecasts, potentially slower milk processor expansion and challenges in developing new dairy sites sets the stage for innovation to be the primary driver of profitability.

Every dairy farm is unique and has a unique approach to producing high-quality milk. The future of the industry will be defined by farms that tailor innovation to their specific operations, continuously improving and adapting to meet the demands of a changing industry.

Dan Kaufman, VP of Agribusiness Lending, GreenStone Farm Credit Services, a Corporate Member of Professional Dairy Producers^®.