Dr. Don Breece, Farm Management Specialist, OSU Extension
Analysis of dairy enterprises found in the Ohio Farm Business Summary1 reveals feed cost as the number one reason for the difference in profitability of Ohio dairy farms. In the past seven years, the feed cost per hundredweight of milk sold has averaged about $2.20 difference between the lower and highest profit third of producers participating in the summary. At 19,970 LB of milk sold (2002 DHIA average), that would suggest a difference of $433 in net return per cow.
An attainable goal is $6.50 feed cost per hundredweight of milk produced, including purchased feed and the value of home grown feed. About a third of this feed cost is used for raising the replacement heifer. When feed cost per hundredweight of milk is too high, often it is found that the cost of raising replacements is out of line. Therefore, separate enterprise analysis of the replacement herd would assist producers in identifying problems.
The Ohio Farm Business Summary reports data from Ohio farms using the FINPACK computer program FINAN for year end analysis. The summary is published by Ohio State University Extension. Participation in this summary is voluntary, through educational programs offered by Ohio State University Extension and several Farm Business Planning and Analysis programs.
FINPACK is a comprehensive financial planning and analysis system developed and supported by the Center for Farm Financial Management, University of Minnesota. It is designed to help farmers understand their financial situation and to make informed decisions. RANKEM was the summary program used to compile the data and describe the averages for all farms, the lower third, and upper third of farms. The whole farm analysis is sorted by net farm income. Enterprise data are sorted by return to overhead.
Homegrown feed is valued at the opportunity cost. Opportunity cost is the cost of using a resource in one way based on the return that could be obtained from using it in the best alternative way. For example, feeding shelled corn that could otherwise be sold for an average of $2.24 per bushel (2002).
Tables 1 and 2 describe differences in milk production costs of a sample of Ohio dairy farms over a seven-year period. The data within the summary report, however, were not collected from a scientifically chosen sample. Therefore, the financial information cannot necessarily be used to generalize the situation of Ohio farmers. It is useful, however, to identify the resulting differences in cost control, production management, and marketing that separates the most profitable from the average operations.
Table 3 compares the 2002 Ohio data with a larger number of dairy farms from Minnesota. These numbers are very comparable and are useful to assist a producer to establish benchmarks. An enterprise analysis of farm records, therefore, will provide comparative numbers to bounce off of these benchmarks. A team of OSU Extension agents from across Ohio are available to assist producers in completing an enterprise analysis, using the FINPACK computer program. Contact your local Extension office for assistance.
1The Ohio Farm Business Summary Report coordinator is Donald J. Breece, Ph.D., Agriculture and Natural Resources Specialist - Farm Management, Ohio State University Extension - West District, 1219 West Main Cross, Suite 202, Findlay, Ohio 45840, (419) 422-6106.
Table 1. Average costs per hundredweight of milk for Ohio dairy farms using Finpack analysis.
|
1996
|
1997
|
1998
|
1999
|
2000
|
2001
|
2002
|
|
| Dairy farms1 |
29
|
15
|
14
|
11
|
16
|
13
|
10
|
| Cows/farm |
99.0
|
97.4
|
82.9
|
135.4
|
91.4
|
100.4
|
94.9
|
| Milk yield (LB/cow) |
18,791
|
19,039
|
19,268
|
21,535
|
17,434
|
18,325
|
19,828
|
| Milk price ($/cwt) |
15.23
|
13.45
|
15.11
|
15.62
|
13.20
|
15.46
|
12.70
|
| Feed costs ($/cwt of milk; includes replacement) |
8.21
|
8.67
|
7.15
|
6.16
|
6.95
|
7.52
|
6.94
|
| Hired labor ($/cwt of milk) |
1.38
|
0.83
|
0.69
|
2.18
|
1.73
|
1.77
|
1.60
|
| Total direct expense ($/cwt of milk) |
11.12
|
11.03
|
10.24
|
9.40
|
10.21
|
11.20
|
10.25
|
|
Overhead costs ($/cwt of milk) |
3.19
|
2.68
|
2.26
|
4.13
|
2.99
|
2.95
|
3.26
|
| Total costs ($/cwt of milk) |
14.32
|
13.71
|
12.50
|
13.53
|
13.19
|
14.15
|
13.51
|
| Net return ($/cwt of milk) |
1.90
|
-0.83
|
2.97
|
2.05
|
1.35
|
3.44
|
1.32
|
| Net return ($/cow) |
358
|
-158
|
572
|
442
|
235
|
630
|
261
|
1Not necessarily the same farms each year.
Table 2. Costs for high-profit third of Ohio farms using Finpack.
|
1996
|
1997
|
1998
|
1999
|
2000
|
2001
|
2002
|
|
| Dairy farms |
10
|
5
|
5
|
No data
|
5
|
4
|
4
|
| Cows/farm |
90.7
|
97.2
|
69.0
|
No data
|
108.4
|
---
|
81.8
|
| Milk yield (LB/cow) |
20,429
|
20,547
|
19,832
|
No data
|
17,815
|
---
|
21,528
|
| Milk price ($/cwt) |
14.84
|
13.25
|
15.34
|
No data
|
13.44
|
---
|
13.16
|
| Feed costs ($/cwt of milk; includes replacement) |
6.99
|
7.35
|
6.75
|
No data
|
6.47
|
5.92
|
6.07
|
| Hired labor ($/cwt of milk) |
1.41
|
1.19
|
0.77
|
No data
|
1.53
|
2.00
|
1.29
|
| Total direct expense ($/cwt of milk) |
9.40
|
9.09
|
9.26
|
No data
|
8.83
|
10.53
|
10.06
|
|
Overhead costs ($/cwt of milk) |
3.13
|
3.38
|
2.59
|
No data
|
3.21
|
2.72
|
2.79
|
| Total costs ($/cwt of milk) |
12.52
|
12.48
|
11.85
|
No data
|
12.04
|
13.26
|
12.85
|
| Net return ($/cwt of milk) |
3.37
|
1.73
|
4.59
|
No data
|
3.03
|
5.77
|
3.09
|
| Net return ($/cow) |
689
|
176
|
911
|
No data
|
539
|
1,037
|
665
|
|
Feed Values1
|
|||||||
| Corn ($/bushel) |
3.90
|
2.73
|
2.24
|
1.98
|
1.92
|
1.93
|
2.24
|
| Alfalfa hay ($/ton) |
125
|
185
|
125
|
116
|
120
|
117
|
137
|
1Feed prices used for enterprise analysis were the annual average commodity prices received by Ohio farmers, Ohio Agricultural Statistics Service, National Agricultural Statistics Service, January-December.
Table 3. Average costs to produce milk in 2002 for Ohio and Minnesota farms using a Finpack analysis.
|
Ohio
|
Minnesota
|
|
| Dairy farms |
10
|
349
|
| Cows/farm |
94.9
|
101.9
|
| Milk yield (LB/cow) |
19,828
|
20,249
|
| Milk price ($/cwt) |
12.70
|
12.58
|
| Feed costs ($/cwt of milk; includes replacement) |
6.94
|
6.261
|
| Hired labor ($/cwt of milk) |
1.60
|
1.27
|
| Total direct expense ($/cwt of milk) |
10.25
|
9.41
|
|
Overhead costs ($/cwt of milk) |
3.26
|
3.52
|
| Total costs ($/cwt of milk) |
13.51
|
12.92
|
| Net return ($/cwt of milk) |
1.32
|
1.14
|
| Net return ($/cow) |
261
|
232
|
1Feed costs for Minnesota herds ranged from $7.47/cwt of milk for the lowest profit herds to $5.86/cwt of milk for the highest profit, a $1.61/cwt of milk
difference when divided in 20th percentile groups.