Knowing your farm costs helps determine the path it will take

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Dairy Jeopardy for $1,000: The answer is -437, -254, and -183.

The question: How many Total herds, Grade A herds and Manufacturing Grade herds did Ohio lose between February 2005 and April 2011?

Dairy Double Jeopardy: The answer is +3,000.

The question: How did cow numbers change in the same time period? The first answer is discouraging and the second looks OK, but is misleading if we don’t take a closer look.

In that same period, cow numbers in Ohio grew to over 282,000 in 2008 before declining to today’s 270,000 head. In 2008, we were already down 279 herds, but cows were shifting to other herds and the whole Ohio herd grew.

Economic impact

The good news is that milk sales, cow and calf sales, and all the economic impact of input purchases, hired labor and other the activities that send dollars out to work in Ohio’s economy are important. Add the handling, processing and marketing of those dairy products and we have an even bigger impact.

If our milk is processed and sold in Ohio, which the majority is, it is even a “local food”. How much better can it get? OK, it is possible to get a little carried away there, but farm level milk sales of $728 million in 2010 is no pint-size milk chug.

Downward trend. A serious question is raised by these numbers: How do we positively impact the continued downward trend in farm numbers?

Certainly industry pressures, if unchanged, will continue to favor milking more cows to spread fixed costs over more cows. I also think herds reach a certain size where it is possible to afford a person who spends a significant portion of their time on price risk assessment and management.

Volatility has not been in short supply during between 2005 and 2011. We in Ohio need to look at both the bigger industry issues and our own businesses. On the industry level, pay attention to the plans under consideration for changing milk pricing. Be proactive with your concerns (don’t just complain, discuss with someone who can voice those concerns at a higher level).

Market volatility

Consider tools to manage milk and input price risk if you don’t have deep cash reserves to ride out market volatility. On the farm level, look beyond the everyday demands and really look at how your farm is doing.

The single most important thing I tell people who want to start or take over management of dairy farms is that it does not pay to be average in the dairy business.

If you can’t be better than average, don’t even start. Some of the herds that left the industry since 2005 left because they wanted to. Some were good dairy farmers who were in the wrong place at the wrong time (too much debt, lost a farm lease, etc.). Others just weren’t good enough.

Know where you stand

A dairy netting less than $500 per cow per year is fighting an uphill battle. First, you have to know if you are (or are not) better than average. Thinking or feeling and knowing are two different things.

Push the numbers yourself, or contact me and we’ll get you enrolled in the 2010 National Farm Benchmarking program. You will know your numbers when you are done with your farm’s analysis.

You can’t know what to change until you know what is. 2006 was bad. 2009 was bad. 2011 is not going to be a peach if your farm purchases much feed.

Even really good farms can only take so many bad years. Make time to know where you are and give your dairy time to make thoughtful, planned changes before the next 437 dairy farms exit Ohio’s dairy industry.

Don’t be one of them unless you want to be.

About the Author

(Dianne Shoemaker is an OSU Extension dairy specialist located at the extension center in Wooster, Ohio.) More Stories by Dianne Shoemaker

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