Dairy Farm Business Summary cooperators measure 2007’s financial condition and performance

Dairy farm business owners can measure many factors to help manage their businesses. Cow-side benchmarks to monitor range from milk sold per cow to calving interval, somatic cell counts, feed intakes, cull rate, crop yields and days in milk. On the business side, measures such as profitability, liquidity and solvency help producers track performance.

A reason to measure aspects of your dairy business’ performance can be found in these words of wisdom: “If you can’t measure it, you can’t manage it.” Measurement of performance allows a dairy business owner to:
• Identify strengths and possible areas for improvement.
• Evaluate possible business changes designed to improve results.
• Establish objectives and goals.
• Monitor progress towards objectives and goals.

The Cornell University Cooperative Extension’s Dairy Farm Business Summary (DFBS) is one tool several hundred New York dairy businesses use annually to track their businesses’ financial condition and performance. From DFBS data, dairies can analyze their production and financial status, set goals and make sound financial decisions. Dairies can also use the DFBS to compare their business performance to that of other dairies.

Every year, DFBS cooperators meet to review summary results and compare their performance to others. That meeting for cooperators in the Western and Central Plain (W&CP) Region took place April 10. The W&CP Region includes these counties: Niagara, Erie, Orleans, Genesee, Wyoming, Monroe, Livingston, Wayne, Ontario, Yates, Seneca and Cayuga.

On the whole, the 51 participating dairies in the W&CP Region saw increased profits in 2007, even though production costs increased. Results represent averages for this group of dairies that participated in both the 2006 and 2007 DFBS.

Profits Up
The dairies’ rate of return farms rose from 2.9 percent in 2006 to 14.6 percent in 2007. Net farm income per hundredweight, another measure of profitability, rose from $0.80 per cwt. in 2006 to $4.96 per cwt. in 2007.

Receipts Rise
Accrual operating receipts per hundredweight of milk rose by $6.02 from $16.54 in 2006 to $22.56 in 2007. The total value for the increase was $6.43 per cwt. Of that, $6.42 was due to milk receipts; they rose from $13.08 to $20.22.

Very favorable supply and demand conditions in dairy product markets generated historically high prices for milk in 2007. Receipt items decreasing in dollar value totaled $0.41 per cwt. Over half of the decrease – $0.22 – was due to decreasing miscellaneous receipts, such as government receipts and custom work.

Accrual operating receipts include milk, dairy cattle, dairy calves, other livestock, crops and miscellaneous.

Production Expenses Rise
Accrual operating expenses per hundredweight of milk sold rose by $1.74 from $14.32 in 2006 to $16.06 in 2007. If you total the changes per hundredweight of all expense items that increased, the total would be $1.75 per cwt. from 2006 to 2007. Of that, the increase in grain and concentrate accounted for $0.83 per cwt. from one year to the next – or almost half the increase. (See Pie Chart.) From 2006 to 2007, the expense per hundredweight for dairy grain and concentrate rose from $3.85 per cwt. to $4.68. Only one item – veterinary and medicine – decreased, but only by a penny.

What do you measure in your dairy business? If you have financial objectives and goals, do you measure financial condition and performance? If you don’t but still expect to achieve you goals, then give the DFBS a try. Remember: You can’t manage what you don’t measure.

Note: Machinery inputs include machinery hire, rent and lease, machinery and vehicle repairs and maintenance, and fuel and lube. Crop inputs include fertilizers and lime, seeds and plants, and spray and other crop inputs.

FYI
John Hanchar is farm business management specialist. Contact him at 585-658-3250. Email: jjh6@cornell.edu
A summary of characteristics of a top performing group of dairy business based upon profitability will appear in July’s Ag Focus.
Find complete preliminary results for the Western and Central Plain Region on the Northwest New York Dairy, Livestock & Field Crops Team’s website: www.nwnyteam.org.

Receipts and Expenses per CWT Flyer

Progress of the Farm Business Flyer

Need-to-know terms

Profit: The amount left after subtracting the costs of inputs used in the production of goods and services from the total value of goods and services produced. Operating inputs include such items as dairy grain and concentrates, hired labor, machinery hire, rent, and repairs and fuel. Goods and services include such things as milk sold, cattle, calves, crops and government receipts.
Rate of return on all capital without appreciation is a widely used measure of profit for comparing businesses of different size and equity position in a year and over time.
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