Cornell University Cooperative Extension’s Dairy Farm Business Summary (DFBS) Program allows producers to benchmark business performance against others and prioritize areas for improvement. Dairy producers find it particularly valuable to compare their businesses to a group of most profitable dairies. Comparisons of 2007 average DFBS data for the Western and Central Plain (W&CP) Region as a whole to a group of most profitable dairy businesses from the region help identify financial and other business performance characteristics of the most profitable dairy businesses.

The most profitable dairies tend to be operated by owners who are able to identify factors that limit their business’ ability to achieve above average, but not necessarily top milk production, while achieving near average expenses per cow. By doing this, these dairies have greater receipts per cow and per hundredweight, lower costs of producing milk per hundredweight and higher levels of profitability.

Selected Farm Business Factors
Let’s look at some comparisons between 55 W&CP Region DFBS cooperators and a group of 14 most profitable businesses from the region for 2007:
• Rate of return on capital: The average rate of return on all capital without appreciation, a measure of profitability, for the 55 W&CP Region DFBS cooperators was 14.1%. That compares to 20.2% for the group of 14 most profitable businesses from the region. These represent the top 25% of farms from the region based upon this measure of profitability.
• Average number of cows: 779 for the top performing group versus 544 for the region as a whole.
• Average milk sold per cow: 24,745 pounds for the most profitable group from the region compared to 23,343 pounds on average for the region as a whole. Notably, the most profitable group’s production was less than the average for the top 20% of dairies from the region when sorted by milk sold per cow – 26,297 pounds of milk sold per cow.
• Cost of production: Averages for this measure among the group of top performers from the region were lower than averages for the region as a whole (Table 1).
• Accrual Receipts and Expenses: Net farm income without appreciation, a measure of profitability, equals accrual receipts minus accrual expenses. The top performing group had a $1.16 cwt. advantage in this measure. It averaged $6.12 per cwt. compared to $4.96 for the region as whole.
• Total operating receipts: The top performing group averaged $22.78 per cwt. compared to $22.56 for the region as a whole – a difference of $0.22. A large share of the advantage held by the top performing group was due to higher milk receipts per hundredweight -- $20.41 versus $20.22.
• Total accrual expenses: Expenses for all operating inputs, plus expansion livestock and machinery and building depreciation, for the most profitable group averaged $16.66 per cwt. compared to $17.60 per cwt. for the region as whole. Top performers had a 94-cent advantage.

See Table 2 for details on the eight expense items that account for a large share of the expense advantage of the top performing businesses: dairy grain and concentrate; interest paid; machinery depreciation; machinery repairs and vehicle expense; fuel, oil and grease; fertilizer and lime; machinery hire, rent and lease; veterinary and medicine (Table 2).
See Flier

Take action
To identify and address limiting factors, answer the following questions:
• How do the performance levels achieved by my dairy business compare to those of a group of most profitable dairy businesses?
• Why do performance levels differ? Try to uncover the underlying reasons for differences.
• Do the underlying reasons suggest possible changes to my dairy business?
• Will possible changes improve profitability?

Although monitoring all receipt and expense items and other business factors is valuable, it’s been shown that your business may benefit more from focusing initially on a few items. I suggest you emphasize milk receipts and the underlying factors of milk sold per cow and net milk receipts per hundredweight. Focus initially on the expense items listed in table 2.

John Hanchar is a farm business management specialist based in Livingston County. Contact him at 585-658-3250. Ext. 112. Email: jjh6@cornell.edu

To learn more…
Visit our website for a more complete picture of the group of top performers from the region: www.nwnyteam.org
To participate in the Dairy Farm Business Summary, contact John Hanchar
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