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 2008 DFBS averages for the Western and Central Plain (W&CP) Region as a whole to a group of most profitable businesses help identify financial and other business performance characteristics of the most profitable dairy farm businesses. .

Based upon the 2008 preliminary results and group averages, the top performing group was very similar to the region as a whole when looking at size of business factors, rate of production factors, and milk receipts per cow. For the top performing group, the combination of better than average performance with respect to labor efficiency, and cost control factors helped the group achieve higher levels of profitability.

Selected Farm Business Factors

Let’s look at some comparisons between 43 W&CP Region DFBS cooperators and a group of 11 most profitable businesses from the region for 2008:

• Rate of return on capital: The average rate of return on all capital without appreciation, a measure of profitability, for 43 W&CP Region DFBS cooperators was 6.4 percent. That compares to 11.3 percent for the group of 11 most profitable businesses from the region. These represent the top 25 percent of farms based upon this same measure of profitability.
• Average number of cows: 600 for the top performing group versus 610 for the region as a whole.
• Average milk sold per cow: 23,441 pounds for the most profitable group from the region compared to 23,936 pounds on average for the region as a whole.
• Cost of production: Averages for these measures among the group of top performers from the region were lower than averages for the region as a whole (Table 1).

Table 1. Per Cow and Per Hundredweith Cost of Producing Milk Measures, W&CP Region and Most Profitabel W&CP Region Dairy Farms, 2008 - April 2009 Data.

a Operating cost of producing milk is estimated by deducting non milk receipts from total accrual operating expenses including expansion livestock purchased.
b Purchased input cost of producing milk is estimated by adding depreciation to the operating cost.
c Total cost of producing milk is estimated as the sum of the operating cost, depreciation, the value of unpaid family labor, the value of operators' labor and management, plus the interest charge for using equity capital.



Table 2. Dollars Per Hundredweight and Differences by Expense Item, W&CP Region and Most Profitable W&CP Region Farms, 2008-April 2009 data.

• Accrual Receipts and Expenses: Net farm income without appreciation, a measure of profitability, is equal to accrual receipts minus accrual expenses. The top performing group had a $1.88 per cwt. advantage for this measure. The measure averaged $4.37 per cwt. compared to $2.49 for the region as a whole.
• Total operating receipts: The top performing group averaged $22.62 per hundredweight compared to $22.21 for the region as a whole -- a difference of $0.41. A large share of the advantage held by the top performing group was due to higher receipts per hundredweight for crops and dairy cattle.
• Total accrual expenses: Expenses for all operating inputs, plus expansion livestock and machinery and building depreciation for the most profitable group averaged $18.26 per hundredweight compared to $19.72 per hundredweight for the region as whole. Top performers had a $1.46 advantage.

See Table 2 for details on the five expense items that account for a large share of the expense advantage of the top performing businesses: dairy grain & concentrate; hired labor; fuel, oil, & grease; machine repair & vehicle expense; interest paid.

Take action
To identify and address limiting factors, answer the following questions:

• How do the performance levels achieved by my farm business compare to those of a group of most profitable farm businesses?
• Why do performance levels differ? Try to uncover the underlying reasons for differences.
• Do the underlying reasons suggest possible changes to the farm business?
• Will possible changes improve profitability?

Although monitoring and examination of all receipt and expense items and other business factors is valuable, results suggest that focusing initially on a few items might prove useful. 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.

To learn more …
Visit our website for a more complete picture of the group of top performers from the region <www.nwnyteam.org>
If you can’t answer the first question above, because you don’t measure financial performance, then make the decision to participate in the Dairy Farm Business Summary and contact John Hanchar.
Return to AgFocus Page