Looking for Profitability: Managing Dairy Production Costs

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1 Looking for Profitability: Managing Dairy Production Costs 2017 Ag Lender Seminar at Wooster Dianne Shoemaker Field Specialist, Dairy Production Economics $25 US Dairy Support Price, Class 3, and All Milk price: $20 $15 $10 $5 AllMilk MW C3 Support $0 Wayne County OSU Extension 10/27/17 1

2 $25 US Dairy Support Price, Class 3, and All Milk price: $20 $15 Price driven by Dairy Support Price Dairy Stabilization Act / DH Buyout 2014 MPP $10 $5 $0 Price support flatlined MILC Federal Order Reform AllMilk MW C3 Support Trends in Ohio Net Return per Cow Average Feed cost/ $12.68 $11.78 $12.10 $13.03 $11.88 cwt of milk Net return per cow** $317 $231 $544 $1,266 $36 Top 20% Average Feed cost/ cwt of milk Net return per cow** $11.18 $10.45 $11.31 $11.36 $10.42 $1,290 $1,145 $1,501 $1,976 $905 **no labor and management charge Ohio Farm Business Analysis Program 419/1363 Wayne County OSU Extension 10/27/17 2

3 To be average or not to be average, that is the question Not William Shakespeare. It doesn t pay to be average! Average High Third Cows Net Return Per Cow $419 $1,100 Net Return Per Farm $125,700 $330,000 $204,300 Wayne County OSU Extension 10/27/17 3

4 Avg = $2.93/cwt, Top 10% $2.70/cwt New York Dairy Farm Business Summary, 2016 Wayne County OSU Extension 10/27/17 4

5 2015 Top 10 costs per cwt. 1. Feed 55% 2. Hired labor 11.4% 3/4. Depreciation 4.3% 3/4. Supplies 4.3% 5. Custom Hire 3.2% 6. Veterinary 2.9% 7/8. Miscellaneous 2.4% 7/8. Hauling & trucking 2.4% 9/10. Repairs 2.2% 9/10. Utilities 2.2% % of total direct and overhead expenses, average of all farms 2015 Average Feed Costs/cwt* New York $ 8.25 Northeast $ 8.51 Illinois $ 9.18 Ohio $11.88 * NYDFBS, NE, Illinois, and Ohio Dairy Farm business Summaries Wayne County OSU Extension 10/27/17 5

6 Feed costs per cwt: what are they measuring? Illinois* 40 to 79 Cows 80+ Cows 2015 $10.70 $ $12.73 $ $14.81 $ $16.85 $ $15.10 $ Year Avg. $14.11 $11.23 Purchased feed +Raised feed valued at state average prices * Krapf, B.M., et al. Summary of Illinois Farm Business Records 2015, University of Illinois. 35 Feed costs per cwt: what are they measuring? New York* All Farms >300 Cows Year All Farms High 10% All Farms High 20% 2015 $8.25 $7.55 $8.24 $ $9.12 $8.83 $9.09 $ $8.17 $7.59 $8.89 $ $8.52 $7.86 $8.53 $ $7.62 $6.84 $7.56 $ Year Avg. $8.34 $7.73 $8.46 $8.06 Dairy grain and concentrate + purchased dairy roughage + purchased non dairy feeds + crop costs (fertilizer, lime, seed, spray, other crop supplies) *Knoblaugh, et al. New York Dairy Farm Business Summaries, Cornell University 174 Wayne County OSU Extension 10/27/17 6

7 Feed costs per cwt: what are they measuring? Northeast* All Farms High 25% 2015 $8.51 $ $9.54 $ $9.36 $ $9.01 $ $8.07 $ Year Avg. $8.90 $8.35 Purchased feed + purchased non dairy feeds + crop costs (seed, plants, fertilizer, chemical, spray) * Northeast Dairy Farm Summaries, Farm Credit East, ACA and Yankee Farm Credit 481 Feed costs per cwt: what are they measuring? Ohio All Farms High 20% 2015 $11.88 $ $13.03 $ $12.10 $ $11.78 $ $10.88 $ Year Avg. $11.93 $10.58 Purchased feed +Raised feed valued at total cost of production 37 Wayne County OSU Extension 10/27/17 7

8 Wayne County OSU Extension 10/27/17 8

9 Feed costs per cwt: what are they measuring? Ohio All Farms High 20% 2015 $11.88 $ $13.03 $ $12.10 $ $11.78 $ $10.88 $ Year Avg. $11.93 $10.58 Purchased feed +Raised feed valued at total cost of production 37 Total feed cost per cwt. of milk sold Fact: ~50% of total direct and indirect costs Issues: What are we really measuring? Why are farms different? Wayne County OSU Extension 10/27/17 9

10 2015 Ohio FBA Feed cost/cwt 12 Number of Farms Dollars per cwt What else influences feed prices? Weather Regional Local Wayne County OSU Extension 10/27/17 10

11 Weather impact on perennial crops Weather Regional Local Weather leading to crop failure Replanting Depressed Yields cost per ton/bu Duplicate input costs Purchase of replacement feeds Wayne County OSU Extension 10/27/17 11

12 Productivity potential Soil Management system Conventional Organic Management ability Other influences on feed costs Investment decisions Shrink Wayne County OSU Extension 10/27/17 12

13 Total feed cost per cwt. of milk sold Fact: ~50% of total direct and indirect costs Issues: What are we really measuring? Why are costs different? Relationship with net return Feed Cost per cwt vs Net Return per Cow 37 Conventional Ohio Dairy Herds, Feed cost per cwt of milk ,500 1, ,500 Net Return per Cow Wayne County OSU Extension 10/27/17 13

14 Feed Cost per cwt vs Net Return per Cow 37 Conventional Ohio Dairy Herds, Feed cost per cwt of milk ,500 2,000 1,500 1, ,000 1,500 Net Return per Cow Feed Cost per cwt vs Net Return per Cow 37 Conventional Ohio Dairy Herds, Feed cost per cwt of milk ,500 1, ,500 Net Return per Cow Wayne County OSU Extension 10/27/17 14

15 Variation in feed costs Know how they are being measured Benchmark with similarly calculated costs Compare to net returns Benefits of farm business analysis for your farmers High quality financial statements Multiple internal accuracy checks Program review process Multiple uses Document and review past performance Cash flow planning and budgeting Base plan for analyzing business changes Wayne County OSU Extension 10/27/17 15

16 Ohio Farm Business Analysis and Benchmarking Program Helping Ohio s farm families achieve financial success in today s challenging marketplace Opportunities for Lenders: Farm fees Scholarships Reimbursements Loan fee reduction with completed analysis Whole Farm Analysis Personalized Reports Annual Summaries Enterprise Analysis Annual Summaries Cost of Production per Acre, Ton and CWT Interest rate adjustment Extension For More Information About Farm Business Analysis : Visit: Dianne Shoemaker Field Specialist Dairy Production shoemaker.3@osu.edu This work is supported by the Farm Business Management and Benchmarking Grant (GRT ), from the USDA National Institute of Food and Agriculture. Wayne County OSU Extension 10/27/17 16