Dairy Excel: Do you know your farm’s numbers

The 1999 New York dairy summary of business and financial records contains much information of interest to progressive milk producers. The N.Y. analysis measures farm profitability, cash flow, financial performance, and costs of producing milk of 314 New York dairy farm businesses.

Labor and management income per operator measures the return to one full-time operator’s labor and management. In the first seven years of the 1990s, labor and management income per operator never exceeded $20,000. Labor and management income per operator in 1998 jumped to an all-time high of $55,000. 1999 was also a good year for many milk producers with labor and management income per operator of nearly $43,000.

Records are not yet available for 2000 but it is unlikely that profits were similar to 1998 or 1999. Therefore one must be careful when comparing year 2000 records with 1999 records.

It is also important to note that the average herd size of participants in the summary increased from 107 cows to 224 cows during the last decade.

Dairy cows per farm in New York increased 273 percent between 1969 and 1999 and more than one-third of that increase occurred in the last 10 years. The farms in the project averaged 224 cows per farm in 1999, which is larger than the average dairy farm in New York and Ohio.

Milk output per cow increased nearly 70 percent, with the largest increase between 1989 and 1999. In 1999, the average farm had production of 21,439 pounds of milk sold per cow, which is above the average management level for New York and Ohio dairy farms.

Labor efficiency is up 34 percent even though there was practically no change from 1969 to 1979. The farms in the 1999 summary had an average of 40 cows per worker.

The operating cost of producing milk has increased more than 430 percent, with the big jump occurring between 1969 and 1979.

Operating cost was $11.26 per cwt. milk in the summary. However, there were major differences between farms.

There is a strong relationship between milk output per cow and the cost of producing milk. Farms selling less than 18,000 pounds of milk per cow had average total costs of production of $16.70 per cwt. while those selling 18,000 pounds and over averaged $14.54 – a difference of $2.16 per cwt.

Total cost of production generally declines as herd size increases because the cost of the operator’s resources are spread over more units of production. At the extremes, farms with less 50 cows had average total cost per cwt. of $18.36 while those with 600 cows and over had average total costs of $13.29 per cwt.

There is a large increase in farm capital invested per farm, up 1,076 percent since 1969. Farm capital investment per cow averaged $6,534 in 1999.

Farm net worth, excluding deferred taxes, has increased 761 percent over the last 30 years and now stands at $952,724. Net farm income per farm has increased 35 percent (adjusted for 1999) dollars) but return on capital has not improved since 1969. Net farm income per farm averaged $129,237 (without appreciation) while return on capital was 8 percent without appreciation and 10 percent with appreciation.

Labor and management income per operator is down 30 percent in the last 30 years when adjusted for 1999 dollars.

Differences in profitability between farms continue to widen. The top 10 percent of farms average net farm income excluding appreciation was $578,366, while the lowest 10 percent was a negative $10,114.

Rates of return on equity with appreciation ranged from 36 percent to negative 31 percent from the highest 10 percent to the lowest 10 percent of farms.

Farms adopting bovine somatotropin (bST) experienced greater increases in milk production, had larger herds and were more profitable than farms not adopting bST.

Farms adopting rotational grazing generally produced less milk per cow than non-grazing farms, but had somewhat lower costs of production and higher profitability.

However, one should not conclude that adoption of these technologies alone were responsible for differences in performance. Cornell Extension Bulletin 2000-11 contains detailed information on New York farms using intensive grazing.

Large freestall farms averaged the highest milk output per cow and per worker, the lowest total cost of production and investment per cow, and the greatest returns to labor, management and capital.

Farms milking three times a day (3x) were larger, produced more milk per cow and were more profitable than herds milking two times per day (2x). The average size of farms milking 2x was 124 cows versus 477 cows for those milking 3x. Operating cost per cwt. of milk was $ 0.03/cwt. higher for 3x than 2x milking herds, while output per cow was 19,086 for 2x and 23,245 for 3x, a difference of 4,159 pounds.

Net farm income (without appreciation) was $61,985 for the 2x herds and $276,491 for the 3x herds. Again, much of the difference in farm income had to do with the difference in farm size.

It is important to occasionally compare one’s own business with other similar businesses. However, it is even more important to look at the progress of one’s own business over time.

Is the net worth of your business growing? If so, is it growing from earnings or inflation. Are the families involved in the operation living well, making financial progress and enjoying life?

What are the trends in farm debt? Is debt less than 40 percent of farm assets and $3,000 per cow? If debt is growing is it because the business is growing or because earnings are falling short? Are scheduled debt payments (principal and interest) less than 20 percent of gross farm income? Most farms should have numbers below all three benchmarks.

Are expenses under control? Are operating expenses (all expenses other than interest and depreciation) less than 70 percent of gross farm income in most years? If not, look first to see if gross income is too low. Does gross farm income per cow regularly exceed $3,000 per cow and in 1998 and 1999 was it over $3,500 per cow?

If income is adequate, are total feed costs (value of raised and purchased) regularly less than $6 per cwt. of milk produced?

Taking a different tact, are you trying to control debt and expenses by not buying any new machinery and equipment to the point where everything on your farm is getting pretty well worn out?

Take a look at your own financial trends. They can tell you a lot about the progress on your farm.

For a more detailed look at dairy benchmarks, get a copy of OSU Extension Bulletin, #864, Dairy Excel’s 15 Measures of Dairy Farm Competitiveness, it is available from your local OSU county extension office or online at: www.ag.ohio-state.edu/~ohioline/b864/index.html.

Complete copies of the New York report are available for $12 from: Faye Butts, Department of Agricultural, Resource, and Managerial Economics, 358 Warren Hall, Cornell University, Ithaca, NY 14853; e-mail: fsb@cornell.edu; fax: 607-255-1589; phone: 607-254-7412.

(The author is the northeastern Ohio farm management specialist with OSU Extension. Questions or comments can be sent in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)