Dianne Shoemaker, Agriculture Agent
This month: Debt per cow
Competitive Level: Less than $2000 per cow
Less than $3000 per cow during an expansion
Calculation: Total farm debt/(lactating cows + dry cows)
Example: $800,000 debt / 300 cows (249 lactating + 51 dry) = $2,667 debt per cow
Often farmers ask: how much debt can my dairy handle? While the debt to asset ratio looks at the overall debt position of the farm, debt per cow looks at how the farm will repay the debt. As the profit center of a dairy, cows generate the money needed to make principal payments.
If debt per cow is too high
When debt per cow is above $2000, businesses may have difficulty making all principal and interest payments.
-sell unproductive assets and pay down debt
-increase number of cows with little additional debt
-increase net income per cow and pay down debt
-withdraw less from the farm for family living and pay down debt (this is not a good first choice!)
If debt per cow is too low
- If debt per cow is very low and the business is profitable, the management team should assess the business to see if moderate investments could increase efficiency and profitability. While a common goal in our grandparent's generation was to pay off all debt, that is not necessarily a practical goal today. Continuing to invest in new technologies and improved facilities will be an important strategy for growing Ohio dairy businesses as they compete with dairymen around the world.