A LATEA ~..J JUNE 96 E Wayne A. Knoblauch Linda D. Putnam Carl A. Cri II oa S. Pet D J me ac raid Ao L Clar har e H. u k ndall. ndr w.

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1 JUNE 96 E 9609 CE A LATEA : 'CHA0T UQUA CAITARAUGUS LLE ~..J STEUBEN z Wayne A. Knoblauch Linda D. Putnam Carl A. Cri II oa S. Pet D J me ac raid Ao L Clar har e H. u k ndall ndr w. Dufr n DepartmentofAgricultural Re our e and n er al conorni Colle ofagriculture nd Life S ienc Corn II Uni ity, ew Y r 14

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3 1995 DAIRY FARM BUSINESS SUMMARY Western and Central Plateau Table or Contents INfRODUCfION Program Objectives Fonnat Features SUMMARY AND ANALYSIS OF THE FARM BUSINESS Business Characteristics Income Statement. Profitability Analysis Fann and Family Financial Status ~ Statement of Owner Equity Cash Flow Statement. Repayment Analysis Cropping Analysis Dairy Analysis Capital and Labor Efficiency Analysis COMPARATIVE ANALYSIS OF THE FARM BUSINESS Progress of the Fann Business Regional Fann Business Chart New York State Fann Business Chart. Financial Analysis Chart Comparisons by Type of Barn and Herd Size Herd Size Comparisons IDENTIFY AND SET GOALS GLOSSARY AND LOCATION OF COMMON TERMS INDEX

4 Business Characteristics 2 SUMMARY AND ANALYSIS OF THE FARM BUSINESS Planning the optimal management strategies is a crucial component of operating a successful farm. Various combinations of farm resources, enterprises, business arrangements, and management techniques are used by the dairy farmers in this region. The following table shows important farm business characteristics and the number of farms with each characteristic. BUSINESS CHARACfERISTICS 62 Western & Central Plateau Region Dairy Farms, 1995 TyPe offarm Number Milking System Number Dairy 62 Bucket & carry 0 Part-time dairy 0 Dumping station 3 Dairy cash-crop 0 Pipeline 31 Part-time cash-crop dairy 0 Herringbone parlor 20 Other parlor 8 Type of Ownership Number Owner 57 Production Records Number Renter 5. DHIC 47 Owner-Sampler 5 Type of Business Number Other 3 Single Proprietorship 46 None 7 Partnership 14 Corporation 2 bst Usage Number Used on <25% of herd 7 Type of Bam Number Used on 25-75% of herd 9 Stanchion or Tie-Stall 31 Used on >75% of herd 2 Freestall 27 Stopped using in Combination 4 Not used in Milking Frequency Number Business Record System Number 2 times per day 53 Account Book 27 3 times per day 6 Agrifax (mail-in only) 9 Other 3 On-farm computer 16 Other 10 The averages used in this report were compiled using data from all the participating dairy farms in this region unless noted otherwise. There are full-time dairy farms, part-time farms, dairy cash-crop farms, farm renters, partnerships, and corporations included in the average. Average data for these specific types of farms are presented in the State Business Summary. Income Statement In order for an income statement to accurately measure farm income, it must include cash transactions and accrual adjustments (changes in accounts payable, accounts receivable, inventories, and prepaid expenses). Cash paid is the actual cash outlay during the year and does not necessarily represent the cost of goods and services ac tually used in Change in inventory: Increases in inventories of supplies and other purchased inputs are subtracted in computing accrual expenses because they represent purchased inputs not actually used during the year. Decreases in purchased inventories are added to expenses because they represent inputs purchased in a prior year and used this year.

5 3 CASH AND ACCRUAL FARM EXPENSES 62 Western & Central Plateau Region Dairy Farms, 1995 Change in Inventory Change in Cash or Prepaid + Accounts = Accrual Expense Item Paid Expense Payable Expenses Hired Labor 33,965 0 «0 33,965 Feed Dairy grain & concentrate 73,274-1,134 2,266 76,674 Dairy roughage 4, ,614 Nondairy o 53 Machinery Machinery hire, rent & lease 4,768 o «44 4,812 Machinery repairs & farm vehicle expo 15, ,963 Fuel, oil & grease 6, ,085 Livestock Replacement livestock 2,827 o «o 2,827 Breeding 3, ,587 Veterinary & medicine 8, ,340 Milk marketing 11,611 o «-6 11,605 Bedding 1, ,818 Milking supplies 6, ,206 Cattle lease & rent 199 «o 199 Custom boarding 1,483 o «o 1,483 Other livestock expense 6, ,671 Crops Fertilizer & lime 6, ,238 Seeds & plants 4, ,335 Spray, other crop expense 3, ,586 Real Estate Land, building, & fence repair 3, ,651 Taxes 6, «973 7,284 Rent & lease 5,875 o «465 6,340 Other Insurance 4, «o 4,828 Utilities (farm share) 9,067 «4 9,071 Interest paid 18,501 o «o 18,501 Miscellaneous 3, ,122 Total Operating 246, , ,858 Expansion livestock 4,011 o «o 4,001 Machinery depreciation 15,042 Building depreciation 9,416 TOTAL ACCRUAL EXPENSES 280,317 Change in prepaid expenses (noted above by «) is a net change in non-inventory expenses that have been paid in ad vance of their use. If 1995 funds used to prepay 1996 leases exceed the amount of 1995 leases prepaid in 1994, the amount of this excess is excluded from 1995 accrual lease expenses. The excess prepaid lease is charged against the future year's business operation. A decrease in prepaid lease is added to accrual expenses because it represents use of re sources during this year that were paid for in past years. Change in accounts payable: An increase in accounts payable from beginning to end of year is added when calculating accrual expenses because these expenses were incurred (resources used) in 1995 but not paid for. A decrease is subtracted because the resource was used before Accrual expenses are the costs of inputs actually used in this year's production. They are the cash paid, less changes in inventory and prepaid expenses, plus accounts payable.

6 4 CASH AND ACCRUAL FARM RECEIPTS 62 Western & Central Plateau Region Dairy Farms, 1995 Change in Cash + Change in + Accounts = Accrual Receipt Item Receipts Inventory Receivable Receipts Milk sales 263,770 1, ,665 Dairy cattle 11,398 12, ,467 Dairy calves 2, ,552 Other livestock Crops 1, ,463 Government receipts 5, ,887 Custom machine work Gas tax refund Other 2, ,946 Less nonfarm noncash capital** (-) 0 (-) 0 Total Receipts 288,710 11,584 1, ,224 *Change in advanced government receipts. **Gifts or inheritances of cattle or crops included in inventory. Cash receipts include the gross value of milk checks received during the year plus all other payments received from the sale of farm products, services, and government programs. Nonfarm income is not included in calculating farm profitability. Changes in inventory of assets produced by the business are calculated by subtracting beginning of year values from end of year values excluding apj>reciation. Increases in livestock inventory caused by herd growth and/or quality are added, and decreases caused by herd reduction and/or quality are subtracted. Changes in inventories of crops grown are also included. An annual increase in advanced government receipts is subtracted from cash income because it represents income received in 1995 for the 1996 crop year in excess of funds earned for Likewise, a decrease is added to cash government receipts because it represents funds earned for 1995 but received in Changes in accounts receivable are calculated by subtracting beginning year balances from end year balances. The January milk check for this December's marketings compared with the previous January's check is included as a change in accounts receivable. Accrual receipts represent the value of all farm commodities produced and services actually generated by the farm business during the year. Profitability Analysis Farm operators contribute labor, management, and equity capital to their businesses and the combination of these resources, and the other resources used in the business, determines profitability. Farm profitability can be measured as the return to all family resources or as the return to one or more individual resources such as labor and management. Operators are the individuals who are integrally involved in the operation and management of the farm business. They are not limited to those who are the owner of a sole proprietorship or are formally a member of the partnership or corporation.

7 5 Net farm income is the return to the farm operators and other unpaid family members for their labor, management, and equity capital. It is the farm family's net annual return from working, managing, financing, and owning the farm business. This is not a measure of cash available from the year's business operation. Cash flow is evaluated later in this report. Net farm income is computed both with and without appreciation. Appreciation represents the change in values caused by annual changes in prices of livestock, machinery, real estate inventory, and stocks and certificates (other than Farm Credit). Appreciation is a major factor contributing to changes in farm net worth and must be included for a complete profitability analysis. NET FARM INCOME 62 Western & Central Plateau Region Dairy Farms, 1995 Average My Farm Item Total Per Cow Total Per Cow Total accrual receipts Appreciation: Livestock Machinery Real Estate Other Stock & Certificates Total Including Appreciation Total accrual expenses Net Farm Income (with appreciation) Net Farm Income (without appreciation) 302,224-5,385 3,959 15, , ,797 21, The chart below shows the relationship between net farm income per cow (with appreciation) and pounds of milk sold per cow. Generally, farms with a higher production per cow have higher profitability per cow. Net Farm Income/Cow and Milk/Cow 62 Western & Central Plateau Farms, , ~~ "" = woo 'i o '~. ~ ~!. ~ :::!: ~ ~ Jo I '.--= ,:-:: ' ~ ~ -500 "'t Pounds Milk Sold Per Cow

8 6 Labor and management income is the return which farm operators receive for their labor and management used in operating the farm business. Appreciation is not included as part of the return to labor and management because it results from ownership of assets rather than management of the farm business. Labor and management income is calculated by deducting a charge for family labor unpaid and the opportunity cost of using equity capital, at a real interest rate of five percent, from net farm income excluding appreciation. The interest charge of five percent reflects the long-term average rate of return above inflation that a farmer might expect to earn in comparable risk investments. LABOR AND MANAGEMENT INCOME 62 Western & Central Plateau Region Dairy Farms, 1995 Item Average My Farm Net farm income without appreciation Family labor 1,450 per month Interest on 437,882 average equity 5% real rate Labor & Management Income per farm (1.37 Operators/farm) Labor & Management Income per OperatorlManager 21,907-4, ,250-3, Labor and management income per operator averaged -3,102 on these 62 farms in The range in labor and management income per operator was from less than -97,000 to more than 61,000. Returns to labor and management were negative on 57% of the farms. Labor and mangement income per operator ranged from 0 to 20,000 on 27% of the farms while 16% showed labor and mangement incomes of 20,000 or more per operator. Distribution of Labor & Management Incomes per Operator 62 Western & Central Plateau Dairy Farms, '" 20 ~ ' c: Cl) u ~ Q., < to-1o -10 to 0 Oto to to 30 >30 Income (thousand dollars)

9 7 Return on eguity capital measures the net return remaining for the farmer's equity or owned capital after a charge has been made for the owner-operator's labor and management. The earnings or amount of net farm income allocated to labor and management is the opportunity cost of operators' labor and management estimated by the cooperators. Return on equity capital is calculated with and without appreciation. The rate of return on equity capital is determined by dividing the amount returned by the average farm net worth or equity capital. Return on total capital is calculated by adding interest paid to the return on equity capital and then dividing by average farm assets to calculate the rate of return on total capital. RETURN ON EQUITY CAPITAL AND RETURN ON TOTAL CAPITAL 62 Western & Central Plateau Region Dairy Farms, 1995 Item Average My Farm Net farm income with appreciation Family labor per month 35,797 4, Value of operators' labor & management 32,665 Return on equity capital with appreciation Interest paid Return on total capital with appreciation + -1, , Return on equity capital without appreciation Return on total capital without appreciation Rate of return on average equity capital: -15,021 3, with appreciation -0.3% ---_% without appreciation Rate of return on average total capital: -3.4% ---_% with appreciation without appreciation 2.5% 0.5%. ---_% ---_% Farm and Family Financial Status The first step in evaluating the financial position of the farm is to construct a balance sheet which identifies all the assets and liabilities of the business. The second step is to evaluate the relationship between assets, liabilities, and net worth and changes that occurred during the year. Financial lease obligations are included in the balance sheet. The present value of all future payments is listed as a liability since the farmer is committed to make the payments by signing the lease. The present value is also listed as an asset. representing the future value the item has to the business. For 1995, lease payments were discounted by 9.25 percent to obtain their present value. Advanced government receipts are included as current liabilities. Government payments received in 1995 that are for participation in the 1996 program are the end year balance and payments received in 1994 for participation in the 1995 program are the beginning year balance. Current Portion or principal due in the next year for intermediate and long term debt is included as a current liability.

10 FARM BUSINESS & NONFARM BALANCE SHEET 62 Western & Central Plateau Region Dairy Hums, 1995 Fann Assets Jan. 1 Dec. 31 Fann Liabilities & Net Worth Jan. 1 Dec. 31 Current Fann cash, checking & savings Accounts receivable Prepaid expenses Feed & supplies Total Current 3,732 20, ,794 78,969 4,820 22, ,680 80,767 Current Accounts payable Operating debt Short Term Advanced govt. receipts Current Portion: Intermediate Long Term Total Current 9,283 5,681 1, ,673 6,272 38,249 14,226 10, ,061 7,761 51,731 Intermediate Dairy cows: owned leased Heifers Bulls & other livestock Mach. & equip. owned Mach. & equip. leased Fann Credit stock Other stock & certificate Total Intermediate Long Term Land & buildings: owned leased Total Long Term 115, ,870 1, ,921 1,984 2,374 2, , ,280 9, , , ,240 1, ,019 2,006 2,156 2, , ,248 9, ,269 Intermediate Structured debt 1-10 years Financial lease (cattle/machinery) Fann Credit stock Total Intermediate Long Term Structured debt >10 years Financial lease (structures) Total Long Term 90,851 2,243 2,374 95, ,756 9, ,450 85,207 2, , ,802 9, ,823 Total Fann Assets 678, ,777 Total Fann Liab. FARM NETWORTII 246, , , ,733 Nonfann Assets, Liabilities & Net Worth (Average of 43 fanns reporting) Assets Jan. 1 Dec. 31 Liabilities & Net Worth Jan. 1 Dec. 31 Personal cash, checking Nonfann Liabilities 8,997 8,983 & savings Cash value life insurance Nonfann real estate Auto (personal share) Stocks & bonds Household furnishings All other Donfann assets 2,970 6,024 10,488 3,067 4,749 11,274 4,237 2,855 6,469 13,000 4,841 6,572 11,670 3,426 Total Nonfann Assets 42,811 48,833 NONFARM NETWORTII 33,813 39,850 Fann & Nonfann Assets, Liabilities, and Net Worth* Jan. 1 Dec. 31 Total Assets Total Liabilities TOTAL FARM & NONFARM NET WORTII 721, , , , ,583 *Assumes that average nonfann assets and liabilities for the nonreporting fanns were the same as for those reporting.

11 9 The following condensed balance sheet, including deferred taxes, contains average data from only those farmers who elected to provide the additional information required to compute deferred taxes. Deferred taxes represent an estimate of the taxes that would be paid if the farm were sold at year end fair market values and date on the balance sheet. Accuracy is dependent on the accuracy of the market values and the tax basis data provided. Any tax liability for assets other than livestock, machinery, land, buildings and nonfarm assets is excluded. It is assumed that all gain on purchased livestock and machinery is ordinary gain and that listed market values are net of selling costs. The effects of investment tax credit carryover and recapture, carryover of operating losses, alternative minimum taxes and other than average exemptions and deductions are excluded because they have only minor influence on the taxes of most farms. However, they could be important CONDENSED BALANCE SHEET INCLUDING DEFERRED TAXES December 31, New York Dairy Farms, 1995 Assets Liabilities & Net Worth Current debts & payables 100,866 Current deferred taxes 83,864 Total Current Assets 140,077 Total Current Liabilities 184,729 Intermediate debts & leases 144,152 Intermediate deferred taxes Total Inter. Assets 508,605 Total Intermediate Liabilities 278,297 Long term debts & leases 151,600 Long term deferred taxes 73,307 Total Long Term Assets Total Long Term Liab. 224,907 TOTAL FARM ASSETS 1,106,756 TOTAL FARM LIABILITIES 687,933 Farm Net Worth 418,822 Percent Equity (Farm) 38% Nonfarm debts 610 Nonfarm deferred taxes 13,010 Total Nonfarm Assets 52,854 Total Nonfarm Liabilities 13,620 TOTAL ASSETS 1,159,609 TOTAL LIABILITIES 701,553 Total Net Worth 458,056 Percent Equity (Total) 40%

12 10 Balance sheet analysis involves examination of relative asset and debt levels for the business. Percent equity is calculated by dividing end of year net worth by end of year assets and multiplying by 100. The debt to asset ratio is compiled by dividing liabilities by assets. Low debt to asset ratios reflect business solvency and the potential capacity to borrow. Debt levels per productive unit represent old standards that are still useful if used with measures of cash flow and repayment ability. BALANCE SHEET ANALYSIS 62 Western & Central Plateau Region Dairy Farms, 1995 Item Average My Farm Financial Ratios - Farm: Percent equity Debt & asset ratio: total long-term intermediate & current 63% % Farm Debt Analysis: Accounts payable as % of total debt Long-term liabilities as a % of total debt Current & inter. liabilities as a % of total debt 5% 46% 54% % % % Farm Debt Levels: Total farm debt Long-term debt Intermediate & long term Intermediate & current debt Per Cow 2,248 1,041 1,806 1,207 Per Tillable Acre Owned 1, , Per Cow -- Per Tillable Acre Owned -- Farm inventory balance is an accounting of the value of assets used on the balance sheet and the changes that occur from the beginning to end of year. Changes in the livestock inventory are included in the dairy analysis. Net investment indicates whether the capital stock is being expanded (positive) or depleted (negative). FARM INVENTORY BALANCE 62 Western & Central Plateau Region Dairy Farms, 1995 Item Average of Region's Farms Real Estate Machinery & Equipment Value beginning of year 294, ,921 Purchaes Gift & inheritance Lost capital Sales Depreciation + 21,547* 0 5,582 1,829 9,416 12, ,042 Net investment Appreciation = + 4,720 15,249 = + -2,861 3,959 Value end of year 314, ,019 *6,953 land and 14,594 buildings and/or depreciable improvements.

13 11 The Statement of Owner Equity has two purposes. It allows (1) verification that the accrual income statement and market value balance sheet are interrelated and consistent (in accountants terms, they reconcile) and (2) identification of the causes of change in equity that occurred on the farm during the year. The Statement of Owner Equity allows you to determine to what degree the change in equity was caused by (1) earnings from the business, and nonfarm income, in excess of withdrawals being retained in the business (called retained earnings), (2) outside capital being invested in the business or farm capital being removed from the business (called contributed/withdrawn capital) and (3) increases or decreases in the value (price) of assets owned by the business (called change in valuation equity). Retained earnings is an excellent indicator of farm generated financial progress. STATEMENT OF OWNER EQUITY (RECONCILIATION) 62 Western & Central Plateau Region Dairy Farms, 1995 Item Average My Farm Beginning of year farm net worth 432, Net farm income without appreciation +Nonfarm cash income -Personal withdrawals & family expenditures excluding nonfarm borrowings RETAINED EARNINGS 21, ,778-30, Nonfarm noncash transfers to farm +Cash used in business from nonfarm capital -Note or mortgage from farm real estate sold (nonfarm) CONTRIBlITEDIWITHDRAWN CAPITAL 0 + 5, , Appreciation -Lost capital CHANGE IN VALUATION EQUITY 13, , IMBALANCFlERROR End of year net worth* = 443,733 =-- Change in net worth w/appreciation 11, Change in Net Worth Without appreciation -2, With appreciation 11, *May not add due to rounding.

14 12 Casb Flow Statement Completing an annual cash flow statement is an important step in understanding the sources and uses of funds for the business. Understanding last year's cash flow is the first step toward planning and managing cash flow for the current and future years. The annual cash flow statement is structured to show net cash provided by operating activities, investing activities, financing activities and from reserves. All cash inflows and outflows, including beginning and end balances, are included. Therefore, the sum of net cash provided from all four activities should be zero. Any imbalance is the error from incorrect accounting of cash inflows/outflows. ANNUAL CASH FLOW STATEMENT 62 Western & Central Plateau Region Dairy Farms, 1995 Item Average Cash Flow from Operating Activities Cash farm receipts 288,710 Cash farm expenses 246,075 = Net cash farm income 42,634 Nonfarm income 7,778 Personal withdrawals & family expenses including nonfarm debt payments + Net cash nonfarm income -23,335 = Net Provided by Operating Activities 19,299 Cash Flow From Investing Activities Sale of assets: machinery real estate 1,829 + other stock & cert 0 = Total asset sales Capital purchases: expansion livestock 4,001 2,324 + machinery 12,676 + real estate 21,547 + other stock & cert 29 Total invested in farm assets 38,253 = Net Provided by Investment Activities -35,929 Cash Flow From Financing Activities Money borrowed (intermediate & long term) 46,997 + Money borrowed (short term) Increase in operating debt 4,530 + Cash from nonfarm capital used in business 5,239 + Money borrowed - nonfarm 665 = Cash inflow from financing 57,827 Principal payments (intermediate & long term) 37,718 + Principal payments (short term) 1,314 + Decrease in operating debt 0 Cash outflow for financing 39,032 = Net Provided by Financing Activities 18,795 Cash Flow From Reserves Beginning farm cash, checking & savings 3,732 Ending farm cash, checking & savings 4,820 = Net Provided from Reserves -1,088 Imbalance (error) 1,077

15 13 ANNUAL CASH FLOW STATEMENT Item Cash Flow from Operating Activities Cash farm receipts Cash farm expenses = Net cash farm income Nonfarm income Personal withdrawals & family expenses including nonfarm debt payments + Net cash nonfarm income = Net Provided by Operating Activities Cash Flow From Investing Activities Sale of assets: machinery + real estate + other stock & cert = Total asset sales Capital purchases: expansion livestock + machinery + real estate + other stock & cert Total invested in farm assets = Net Provided by Investment Activities Cash Flow From Financing Activities Money borrowed (intermediate & long term) + Money borrowed (short term) + Increase in operating debt + Cash from nonfarm capital used in business + Money borrowed - nonfarm = Cash inflow from financing Principal payments (intermediate & long term) + Principal payments (short term) + Decrease in operating debt Cash outflow for financing = Net Provided by Financing Activities Cash Flow From Reserves Beginning farm cash, checking & savings Ending farm cash, checking & savings = Net Provided from Reserves Imbalance (error) ---

16 14 RepaYment Analysis A valuable use of cash flow analysis is to compare the debt payments planned for the last year with the amount actually paid. The measures listed below provide a number of different perspectives on the repayment performance of the business. However, the critical question to many farmers and lenders is whether planned payments can be made in The cash flow projection worksheet on the next page can be used to estimate repayment ability, which can then be compared to planned 1996 debt payments shown below. FARM DEBT PAYMENTS PLANNED Same 39 Western & Central Plateau Region Dairy Farms, 1994 & 1995 Debt Payments Average 1995 Payments Planned Made My Farm Planned 1995 Payments Planned 1996 Planned Made 1996 Long term 18,636 25,325 21,985 Intermediate term 32,122 43,980 31,901 Short term 1,414 2, Operating (net reduction) 3, ,723 Accounts payable (net reduction) 4, Total 60,024 71,433 61, Per cow Per cwl 1995 milk Percent of total 1995 farm receipts 17% 20% Percent of 1995 milk receipts 19% 23% The cash flow coverage ratio measures the ability of the farm business to meet its planned debt payment schedule. The ratio sbows the percentage of payments planned for 1995 (as of December 31, 1994) that could have been made with the amount available for debt service in Farmers who did not participate in DFBS in 1994 have their 1995 cash flow coverage ratio based on planned debt payments for CASH FLOW COVERAGE RATIO Same 39 Western & Central Plateau Region Dairy Farms, 1994 & 1995 Item Average My Farm.Cash farm receipts - Cash farm expenses + Interest paid - Net personal withdrawals from farm* 341, ,502 21,229 24,717 (A) = (B) = (AlB) Amount Available for Debt Service Debt Payments Planned for 1995 (as of December 31,1994) = Cash Flow Coverage Ratio for ,356 60, *Personal withdrawals and family expenditures less nonfarm income and nonfarm money borrowed. If family withdrawals are excluded, or inaccurately included, the cash flow coverage ratio will be incorrecl

17 15 ANNUAL CASH FLOW WORKSHEET My Farm Regional Average Per Cowl Expected 1996 Item Per Cow PerCwL PerCwL Change Projection Average no. of cows 110 Total cwl of milk sold 20,675 Accrual Oper. Receipts Milk 2, Dairy cattle Dairy calves Other livestock Crops Misc. Receipts Total , Accrual Operating Expenses Hired labor Dairy grain & concentrate Dairy roughage Nondairy feed Mach. hire, rent & lease Mach. repair & vehicle expo Fuel, oil & grease Replacement livestock Breeding Vet & medicine Milk marketing Bedding Milking supplies Cattle lease Custom boarding Other livestock expo Fertilizer & lime Seeds & plants Spray & other crop expo Land, bldg., fence repair Taxes Real estate rent & lease Insurance Utilities Miscellaneous Total Less Interest Paid 2, Net Accrual Operating Income Total (without interest paid) 68,867 - Change in livestock/crop inventory* 11,584 - Change in accounts receivable - Change in feed/supply inventory** + Change in accounts payable*** 1, ,939 NET CASH FLOW 61,136 - Net family withdrawals 22,670 Available for Farm 38,466 - Farm debt payments 56,600 Available for Farm Investment -18,134 - Capital purchases 38,253 Additional Capital Needed *Includes change in advance government receipts. **Includes change in prepaid expenses. ***Excludes change in interest account payable.

18 16 Cropping Analysis The cropping program is an important part of the dairy farm business and often represents opportunities for improved productivity and profitability. A complete evaluation of what the available land resources are, how they are being used, how well crops are producing, and what it costs to produce them is important to evaluating alternative cropping and feed purchasing alternatives. LAND RESOURCES AND CROP PRODUCTION 62 Western & Central Plateau Region Dairy Farms, 1995 Item Average My Farm.Y.llit Owned Tillable 205 Nontillable 53 Other nontillable 119 Total 377 Rented Total Crop Yields Farms Hay crop 62 Com silage 53 Other forage 7 Total forage 62 Com grain 22 Oats 10 Wheat 2 Other crops 7 Tillable pasture 27 Idle 23 Total Tillable Acres 62 Acres* Prod/Acre 2.17 tn DM tn 4.17 tn DM 1.95 tn DM 2.79 tn DM 124 bu 42 bu 42 bu Prod/Acre tndm tn tndm tndm tndm bu bu bu *This column represents the average acreage for the farms producing that crop. Average acreages including those farms not producing were hay crop 179, com silage 83, com grain 21, oats 5, tillable pasture 16, and idle 11. Average crop acres and yields compiled for the region are for the farms reporting each crop. Yields of forage crops have been converted to tons of dry matter using dry matter coefficients reported by the farmers. Grain production has been converted to bushels of dry grain equivalent based on dry matter information provided. The following crop/dairy ratios indicate the relationship between forage production, forage production resources, and the dairy herd. CROPIDAIRY RATIOS 62 Western & Central Plateau Region Dairy Farms, 1995 Item Average My Farm Total tillable acres per cow 2.95 Total forage acres per cow 2.41 Harvested forage dry matter, tons per cow 6.73

19 Cropning Analysis (continued) 17 A number of cooperators have allocated crop expenses among the hay crop, com, and other crops produced. Fertilizer and lime, seeds and plants, and spray and other crop expenses have been computed per acre and per production unit for hay and com. Additional expense items such as fuels, labor, and machinery repairs are not included. Rotational grazing was used on 29 farms in the region. CROP RELATED ACCRUAL EXPENSES 62 Western & Central Plateau Region Dairy Farms Reporting, 1995 Total All Com Com Pasture Per Com Silage Grain Hay Crop Per Per Till. Per Per Per Dry Per Per Till Total Item Acre Acre TonDM Sh. Bu. Acre TonDM Acre.Acre No. of farms reporting Ave. number of acres Fert. & lime Seeds & plants Spray & other crop expo TOTAL My Farm Feet. & lime -- Seeds & plants Spray & other crop expo TOTAL Most machinery costs are associated with crop production and should be analyzed with the crop enterprise. Total machinery expenses include the major ftxed costs (interest and depreciation), as well as the accrual operating costs. Although machinery costs have not been allocated to individual crops, they are shown below per total tillable acre. ACCRUAL MACHINERY EXPENSES 62 Western & Central Plateau Region Dairy Farms, 1995 Machinery Expense Total Expenses Average Per Till. Acre My Farm Total Expenses Per Till, Acre Fuel, 011 & grease Mach. repair & vehicle expo Machine hire, rent & lease Interest (5%) Depreciation Total 6,085 15,963 4,812 6,024 15,042 47,

20 18 Dairy Analysk Analysis of the dairy enterprise can reveal a great deal about the strengths and weaknesses of the dairy farm business. Information on this page should be used in conjunction with DID and other dairy production information. Changes in dairy herd size and market values that occur during the year are identified in the table below. The change in inventory value without appreciation is attributed to physical changes in herd size and quality. Any change in inventory is included as an accrual farm receipt when calculating all of the profitability measures on pages 6 and 7. DAIRY HERD INVENTORY 62 Western & Central Plateau Region Dairy Farms, 1995 Dairy Cows Heifer Bred Open Calves Item No. Value No. Value No. Value No. Value Beg. year (owned) , , , ,996 + Change w/o apprec. 8,194 1,610 2, Appreciation -3, End year (owned) , , , ,311 End including leased 117 Average number (all age groups) My Farm: Beg. year (owned) + Change w/o apprec Appreciation End year (owned) End including leased Average number (all age groups) Total milk sold and milk sold per cow are extremely valuable measures of size and productivity, respectively, on the dairy farm. These measures of milk output are based on pounds of milk marketed during the year. Farm managers on DID should compare milk sold per cow with their rolling herd average on the test date nearest December 31 to see how close the DID estimate of milk produced is to actual milk sales. MILK PRODUCTION 62 Western & Central Plateau Region Dairy Farms, 1995 Item Average My Farm Total milk sold, lbs. 2,067,496 Milk sold per cow, lbs. 18,801 Average milk plant test, percent butterfat 3.67%

21 19 The cost of producing milk has been compiled using the whole fann method and is featured in the following table. Accrual receipts from milk sales can be compared with the accrual costs of producing milk per cow and per hundredweight of milk. Using the whole fann method, operating costs of producing milk are estimated by deducting nonmilk accrual receipts from total accrual operating expenses including expansion livestock purchased. Purchased inputs cost of producing milk are the operating costs plus depreciation. Total costs of producing milk include the operating costs of producing milk plus depreciation on machinery and buildings, the value of unpaid family labor, the value of operators' labor and management, and the interest charge for using equity capital. ACCRUAL RECEIPTS FROM DAIRY, COSTS OF PRODUCING MILK, AND PROFITABILITY 62 Western & Central Plateau Region Dairy Fanns, 1995 Average MyFann Item Total Per Cow PerCwt Total Per Cow PerCwt Accrual Cost of Producing Milk Operating costs 219,300 1, Purchased inputs costs 243,758 2, Total Costs 302,580 2, Accrual Receipts From Milk 265,665 2, Net Fann Income without Apprec. 21, Net Fann Income with Apprec. 35, The accrual operating expenses most commonly associated with the dairy enterprise are listed in the table below. Evaluating these costs per unit of production enables an evaluation of the dairy enterprise. DAIRY RELATED ACCRUAL EXPENSES 62 Western & Central Plateau Region Dairy Fanns, 1995 Average MyFann Item Per Cow PerCwt Per Cow PerCwt Purchased dairy grain & concentrate Purchased dairy roughage Total Purchased Dairy Feed Purchased grain & conc. as % of milk receipts 29% % Purchased feed & crop expo Purchased feed & crop expo as % of milk receipts 36% -- % Breeding Veterinary & medicine Milk marketing Bedding Milking supplies Cattle lease Custom boarding Other livestock expense

22 20 Capital and Labor Efficiency Analysis Capital efficiency factors measure how intensively the capital is being used in the farm business. Measures of labor efficiency are key indicators of management's success in generating products per unit of labor input CAPITAL EFFICIENCY 62 Western & Central Plateau Region Dairy Farms, 1995 Item Farm capital Real estate Machinery & equipment Asset turnover ratio Per Worker 197,661 34, Per Cow 6,295 2,851 1,113 Per Tillable Acre 2, Per Tillable Acre Owned 3,378 1,530 My Farm Farm capital Real estate Machinery & equipment Asset turnover ratio LABOR FORCE INVENTORY AND ANALYSIS 62 Western & Central Plateau Region Dairy Farms, 1995 Years Value of Labor Force Months Age of Educ. Labor & Mgmt Operator number ,752 Operator number ,728 Operator number ,185 Family paid 4.37 Family unpaid 2.94 Hired Total =3.50 Worker Equivalent 1.37 OperatorlManager Equivalent My Farm: Total 112 = Worker Equivalent Operator's 112= OperatorlManager Equivalent Labor Average My Farm Efficiency Total Per Worker Total Per Worker Cows, average number Milk sold, pounds 2,067, ,137 Tillable acres Work units 1, Average My Farm Per Per Per Per Labor Costs Total Cow Cwt Total Cow Cwt Value of operalor(s) labor (I,450/mo.) 26, Family unpaid (1,450/mo.) 4, Hired 33, Total Labor 64, Machinery Cost 47, Total Labor & Mach. 112,834 1,

23 Progress of the Farm Business 21 COMPARATIVE ANALYSIS OF THE FARM BUSINESS Comparing your business with average data from regional DFBS cooperators that participated in both of the last two years can be helpful to establishing your goals for these parameters. It is equally important for you to determine the progress your business has made over the past two or three years, to compare this progress to your goals, and to set goals for the future. PROGRESS OF THE FARM BUSINESS Same 39 Western & Central Plateau Region Dairy Farms, 1994 & 1995 Average of 39 Farms* My Farm Selected Factors Goal Size of Business Average number of cows Average number of heifers Milk sold, lbs. 2,305,658 2,413,983 Worker equivalent Total tillable acres Rates of Production Milk sold per cow,lbs. 19,230 19,233 Hay DM per acre, tons Corn silage per acre, tons Labor Efficiency Cows per worker Milk soldjworker,lbs. 659, ,895 Cost Control Grain & conc. purchased as % of milk sales 27% 29% % % % Dairy feed & crop expo per cwt. milk Labor & mach. costs/cow 1,037 1,024 Operating cost of producing cwt. of milk Capital Efficiency** Farm capital per cow 6,541 6,524 Mach. & equip. per cow 1,211 1,185 Asset turnover ratio Profitability Net farm income w/o apprec. 42,460 23,947 Net farm income w/apprec. 57,911 44,148 Labor & mgt. income per operator/manager 10,472-2,835 Rate of return on equity capital w/appreciation 4.5% 1.4% % % % Rate of return on all capital w/appreciation 5.3% 3.5% % % % Financial Summary Farm net worth, end year 507, ,060 Debt to asset ratio Farm debt per cow 2,408 2,340 *Farms participating both years. **Average for the year.

24 Regional Fann Business Chart 22 The Farm Business Chart is a tool which can be used in analyzing your business. Compare your business by drawing a line through or near the figure in each column which represents your current level of performance. The five figures in each column represent the average of each 20 percent or quintile of farms included in the regional summary. Use this information to identify business areas where more challenging goals are needed. FARM BUSINESS CHART FOR FARM MANAGEMENT COOPERATORS 62 Western & Central Plateau Region Dairy Farms, 1995 Size of Business Rate of Production Labor Efficiency Worker No. Pounds Pounds Tons Tons Corn Cows Pounds Equiv of Milk Milk Sold Hay Crop Silage Per Milk Sold alent Cows Sold Per Cow DMlAcre Per Acre Worker Per Worker (11)* (11) (11) (10) (9) (9) (11) (11) ,988,602 21, , ,274,477 19, , ,478,307 18, , ,463 16, , ,956 12, ,002 Grain Bought Per Cow % Grain is of Milk Receipts Machinery Costs Per Cow Cost Control Labor & Machinery Costs per Cow Feed & Crop Expenses Per Cow Feed & Crop Expenses Per Cwt. Milk (10) (10) (11) (11) (10) (10) % ,010 1,184 1, , Value and Cost of Production Milk Oper. Cost Total Cost Receipts Milk Production Per Cow PerCwt PerCwt Net Farm Income w/apprec. Profitability Net Farm Inc. w/o Apprec. Labor & Mgt Inc. Per Oper. Change in Net Worth w/apprec. (10) (10) (10) (3) (3) (3) (6) 2,818 2,502 2,295 2,069 1, ,020 36,391 20,539 7,855-16,139 78,912 30,496 14,631 3,182-23,153 30,731 6,626-3,564-14,657-42,873 69,498 19,220 4,635-5,506-34,786 *Page number of the participant's DFBS where the factor is located.

25 23 New York State Farm Business Charts The Farm Business Chart is a tool which can be used in analyzing a business by drawing a line through the figure in each column which represents the current level of management performance. The figure at the top of each column is the average of the top 10 percent of the 321 farms for that factor. The other figures in each column are the average for the second 10 percent, third 10 percent, etc. Each column of the chart is independent of the others. The farms which are in the top 10 percent for one factor would not necessarily be the same farms which make up the top 10 percent for any other factor. The cost control factors are ranked from low to high, but the lowest cost is not necessarily the most profitable. In some cases, the "best" management position is somewhere near the middle or average. Many things affect the level of costs, and must be taken into account when analyzing the factors. FARM BUSINESS CHART FOR FARM MANAGEMENT COOPERATORS 321 New York Dairy Farms, 1994 Size of Business Rates of Production Labor Efficiency Worker No. Pounds Pounds Tons Tons Corn Cows Pounds Equiv- of Milk Milk Sold Hay Crop Silage Per Milk Sold alent Cows Sold Per Cow DMlAcre Per Acre Worker Per Worker (11)* (11) (11) (10) (9) (9) (11) (11) ,116,804 23, ,112, ,628,175 21, , ,097,796 20, , ,407,393 20, , ,051,070 19, , ,715,708 18, , ,352,622 18, , ,137,044 17, , ,899 15, , ,673 13, ,490 Cost Control Grain % Grain is Machinery Labor & Feed & Crop Feed & Crop Bought of Milk Costs Machinery Expenses Expenses per Per Cow Receipts Per Cow Costs Per Cow Per Cow Cwt. Milk (10) (10) (11) (11) (10) (10) % , , ,192 1, ,295 1, , ,536 1, *Page number of the participant's DFBS where the factor is located.

26 24 FARM BUSINESS CHART FOR FARM MANAGEMENT COOPERATORS 321 New York Dairy Farms, 1994 Milk Milk Oper. Cost Oper. Cost Total Cost Total Cost Receipts Receipts Milk Milk Production Production Per Cow PerCwt Per Cow PerCwt Per Cow PerCwt (10) (10) (10) (10) (10) (10) 3, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Profitability Net Farm Income Net Farm Income Labor & Without Appreciation With Appreciation Management Income Per As % of Total Per Per Per Total Cow Accrual Receipts Total Cow Farm Operator (3) (10) (3) (3) (10) (3) (3) 239, % 279,148 1, , ,425 92, , ,012 32,058 69, , ,836 21,472 53, , ,844 15,807 40, , ,533 10,440 31, , ,210 5,358 23, , , , ,059-6,460 6, , ,089-16,158-19, , ,541-43,229 Farm Business Charts for farms with freestall bams and 180 cows or less and more than 180 cows, and farms with conventional barns with 60 cows or less and more than 60 cows are shown on pages Financial Analysis Chart The farm financial analysis chart on page 25 is designed just like the Farm Business Chart and may be used to assess the financial health of the farm business. Most of the financial measures used in the chart are defined on pages 6, 10, 14 and 20 of this publication. References to DFBS output page numbers for participating dairy farmers are provided in the table headings.

27 25 FINANCIAL ANAYLSIS CHART 321 New York Dairy Farms, 1994 Liquidity (repayment) Planned Debt Available for CashAow Debt Payments Payments Debt Service Coverage as Percent Debt Per Cow Per Cow Ratio of Milk Sales Per Cow (8)* (12) (8) (8) (5) % , , , ,387 2,694 3,015 3,510 4,398 Leverge Ratio** Solvency DebtJAsset Ratio Percent Current & Long Equity Intermediate Term (5) (5) (5) Profitability Percent Rate of Return with appreciation on: Equity Total Capital (3) (3) % % % Asset Turnover (ratio) (11) Efficiency (Capital) Real Estate Machinery Investment Investment Per Cow Per Cow (11) (11) Total Farm Assets Per Cow (11) Change in Net Worth w/appreciation (6) ,152 1,924 2,232 2,491 2, ,040 1,167 4,262 5,128 5,569 5,948 6, ,925 63,674 41,117 29,544 20, ,033 3,377 4,026 4,698 6,692 1,290 1,443 1,683 1,969 2,703 6,842 7,447 8,055 8,891 11,657 *Page number of the participant's DFBS where the factor is located. **Dollars of debt per dollar of equity, computed by dividing total liabilities by total equity. 14,936 8,501 1,168-10,157-40,417

28 Comparison by Type of Barn and Herd Size 26 When analyzing a dairy farm business by comparing it to a group of farms, it is important that the group of farms have used as many of the same physical characteristics as possible as the farm being analyzed. To assist in this endeavor, dairy farms in the summary have been divided into those with freestall and those with conventional housing. Conventional housing includes stanchion and tiestall barns. Within each group, is a further classification by size of the dairy herd. The table on page 27 includes the average values for the resulting four groups of dairy farms. The average size of farms in the four groups ranges from 48 cows on the small conventional farms to 397 cows on the large frees tall farms. The large freestall farms averaged the highest milk output per cow and per worker, the lowest total costs of production and investment per cow, and the greatest returns to labor, management and capital. The small freestall farms showed average profits somewhat higher than the large conventional farm businesses. Farm business charts have been computed for each of the four housing and herd size categories and are on pages By comparing the farm's performance on the most appropriate business chart. a farm manager will be better able to evaluate his or her business performance. Herd Size Comparisons A detailed comparison of profitability, financial situation and business analysis factors across herd sizes is contained on pages of the 1994 State Summary*. As herd size increases, the average profitability generally increases (pages 44-45). Net farm income without appreciation was 216,491 per farm for the 300 or more herd size group and 13,630 per farm for those with less than 40 cows. This relationship generally holds for all measures of profitability including rate of return on capital. Farm net worth increases rapidly as herd size increases (pages 46-49)*, even though percent equity was higher on the smaller farms. The group with less than 40 cows demonstrated the strongest ability to make debt payments. Crop yields showed little relationship to herd size, but fertilizer and lime expenses, and machinery cost per tillable acre generally increased as herd size increased (pages 50-51)*. The farms with 300 and more cows per farm averaged 23 percent more milk sold per cow than the smallest farms. All of the groups with 85 or more cows averaged above 19,000 pounds of milk sold per cow while the farms smaller than 85 cows averaged 17,700 pounds of milk sold per cow. Farm capital per worker increased, and farm capital per cow decreased as herd size increased. Milk sold per worker increased dramatically as herd size increased, ranging from 335,069 pounds at the lowest herd size category up to 1,023,849 pounds at the largest size category. *Smith, Stuart F., Wayne A. Knoblauch, and Linda D. Publam, Dairy Farm Managment Business Summary, New York, 1994, Department of Agricultural, Resource, and Managerial Economics, Cornell University,RB , August 1995.

29 27 SELECTED BUSINESS FACfORS BY TYPE OF BARN AND HERD SIZE 299 New York Dairy Farms, 1994 Farms with: Conventional Freestall Item <=60 Cows >60 Cows <=180 Cows >180 Cows Number of farms Cropping Program Analysis Total Tillable acres Tillable acres rented* Hay crop acres* Com silage acres* Hay crop, tons DM/acre Com silage, tons/acre Oats, bushels/acre Forage DM per cow, tons Tillable ocreslcow Fert. & lime exp.ltillable acre Total mochinery costs 22,500 40,129 57, ,497 Machinery cost/tillable acre Daily Analysis Number of cows Number of heifers Milk sold, lbs. 830,876 1,574,371 2,248,212 8,485,502 Milk sold/cow, lbs. 17,389 18,208 19,173 21,367 Operating cost of prod. milk/cwl Total cost ofprod. milk/cwl Price/cwl milk sold Purchased dairy feed/cow Purchased dairy feed/cwt. milk Purchased grain & conc. as % of milk receipts 28% 28% 28% 28% Purc. feed & crop exp.lcwt. milk Capital Efficiency Farm capital/worker 200, , , ,060 Farm capital/cow 7,801 6,977 7,050 5,774 Farm capital/tillable ocre owned 3,518 3,449 3,776 4,889 Real estate/cow 3,937 3,229 3,144 2,533 Machinery investment/cow 1,517 1,359 1, Asset turnover ratio Labor Efficiency Worker equivalent Operator/manager equivalent Milk sold/worker, lbs. 447, , , ,391 Cows/worker Labor cost/cow Labor cost/tillable acre Profitability & Balance Sheet Analysis Net farm income (without appreciation) 18,839 31,295 41, ,748 Labor & mgmt. income/operator 574 4,422 6,083 46,382 Return on all capital with appreciation 0.4% 2.6% 3.8% 8.3% Farm debt/cow 2,025 1,952 2,286 2,502 Percent equity 74% 72% 67% 56% *Average of all farms, not only those reporting data.

30 28 FARM BUSINESS CHART FOR SMALL CONVENTIONAL STALL DAIRY FARMS 69 Conventional Stall Dairy Farms with 60 or Less Cows, New York, 1994 Size of Business Rates of Production Labor Efficiency Worker No. Pounds Pounds Tons Tons Com Cows Pounds Equiv- of Milk Milk Sold Hay Crop Silage Per Milk Sold alent Cows Sold Per Cow DMlAcre Per Acre Worker Per Worker (11)* (11) (11) (10) (9) (9) (11) (11) ,207,610 21, , ,041,959 20, , ,111 19, , ,296 18, , ,902 17, , ,474 17, , ,587 16, , ,846 15, , ,613 14, , ,941 11, ,079 Cost Control Grain % Grain is Machinery Labor & Feed & Crop Feed & Crop Bought of Milk Costs Machinery Expenses Expenses Per Per Cow Receipts Per Cow Costs Per Cow Per Cow Cwt. Milk (10) (10) (11) (11) (10) (10) % , , , , , ,401 1, ,817 1, Value and Cost of Production Profitability Milk Oper. Cost Total Cost Net Farm Income Labor & Change in Receipts Milk Production Without Appreciation Mgmt. Inc. New Worth Per Cow PerCwt PerCwt Total Per Cow Per Oper. w/apprec. (10) (10) (10) (3) (10) (3) (6) 2, ,399 1,005 25,239 43,090 2, , ,750 26,488 2, , ,716 19,929 2, , ,469 16,186 2, , ,841 12,027 2, , ,561 8,102 2, , ,656 2,548 2, , , , ,289-7,737 1, , ,199-13,856 *Page number of the participant's DFBS where the factor is located.

31 29 FARM BUSINESS CHART FOR LARGE CONVENTIONAL STALL DAIRY FARMS 71 Conventional Stall Dairy Farms with More Than 60 Cows, New York, 1994 Worker Equivalent (11)* Size of Business No. Pounds of Milk Cows Sold (11) (11) Rates of Production Pounds Tons Tons Com Milk Sold Hay Crop Silage Per Cow DMlAcre Per Acre (10) (9) (9) Labor Efficiency Cows Pounds Per Milk Sold Worker Per Worker (11) (11) ,488,241 2,024,167 1,858,587 1,640,996 1,514,509 22,189 20,323 19,731 19,070 18, , , , , , Grain Bought Per Cow (10) 77 1,367, ,283, ,234, ,155, ,045,775 % Grain is of Milk Receipts (10) 18, , , , , Cost Control Machinery Labor & Costs Machinery Per Cow Costs Per Cow (11) (11) Feed & Crop Expenses Per Cow (10) , , , , ,069 Feed & Crop Expenses Per Cwt. Milk (10) % , ,031 1,077 1,142 1,264 1, ,077 1, Value and Cost of Production Milk Oper. Cost Total Cost Receipts Milk Production Per Cow PerCwt PerCwt (10) (10) (10) Profitability Net Farm Income Without Appreciation Total Per Cow (3) (10) Labor & Mgmt. Inc. PerOper. (3) Change in New Worth w/apprec. (6) 3, , ,947 70,776 2, , ,229 33,799 2, , ,010 21,384 2, , ,516 16,067 2, , ,265 12, _..._ , , ,312 7,707 2, , ,056 3,124 2, , ,172-5,502 2, , ,348-16,437 1, , ,921-39,771 *Page number of the participant's DFBS where the factor is located.

32 30 FARM BUSINESS CHART FOR SMALL FREESTALL DAIRY FARMS 96 Freestall Barn Dairy Farms with 180 or Less Cows, New York, 1994 Size of Business Rates of Production Labor Efficiency Worker No. Pounds Pounds Tons Tons Com Cows Pounds Equiv- of Milk Milk Sold Hay Crop Silage Per Milk Sold alent Cows Sold Per Cow OM/Acre Per Acre Worker Per Worker (11)* (11) (11) (10) (9) (9) (11) (11) ,614,047 23, ,012, ,072,976 21, , ,638,806 20, , ,446,302 19, , ,258,914 19, , ,092,444 18, , ,936,985 17, , ,767,311 17, , ,390,495 16, , ,149 14, ,611 Cost Control Grain % Grain is Machinery Labor & Feed & Crop Feed & Crop Bought of Milk Costs Machinery Expenses Expenses Per Per Cow Receipts Per Cow Costs Per Cow Per Cow Cwt. Milk (10) (10) (11) (11) (10) (10) % _ , , ,196 1, ,299 1, , ,521 1, Value and Cost of Production Profitability Milk Oper. Cost Total Cost Net Farm Income Labor & Change in Receipts Milk Production Without Appreciation Mgmt. Inc. New Worth Per Cow PerCwl PerCwl Total Per Cow Per Oper. w/apprec. (10) (10) (10) (3) (10) (3) (6) 3, , ,358 82,133 2, , ,690 60,699 2, , ,390 46,520 2, , ,320 37,968 2, , ,432 28,369 2, , ,313 19,485 2, , ,360 11,255 2, , ,679 1,005 2, , ,757-17,501 1, , ,063-53,185 *Page number of the participant's DFBS where the factor is located.

33 31 FARM BUSINESS CHART FOR LARGE FREESTALL DAIRY FARMS 63 Freestall Barn Dairy Fanns with More Than 180 Cows, New York, 1994 Size of Business Rates of Production Labor Efficiency Worker No. Pounds Pounds Tons Tons Com Cows Pounds Equiv- of Milk Milk Sold Hay Crop Silage Per Milk Sold alent Cows Sold Per Cow OM/Acre Per Acre Worker Per Worker (11)* (11) (11) (10) (9) (9) (11) (11) ,088 23,351,762 24, ,306, ,657,338 23, ,093, ,575,213 22, ,011, ,921,542 21, , ,515,416 21, , ,612,972 20, , ,922,221 20, , ,551,060 20, , ,167,979 18, , ,391,553 15, ,668 Cost Control Grain % Grain is Machinery Labor & Feed & Crop Feed & Crop Bought of Milk Costs Machinery Expenses Expenses Per Per Cow Receipts Per Cow Costs Per Cow Per Cow Cwt. Milk (10) (10) (11) (11) (10) (10) % ,039 1, ,110 1, ,158 1, , ,324 1, Value and Cost of Production Profitability Milk Oper. Cost Total Cost Net Fann Income Labor & Change in Receipts Milk Production Without Appreciation Mgmt. Inc. New Worth Per Cow PerCwt PerCwt Total Per Cow PerOper. w/apprec. (10) (10) (10) (3) (10) (3) (6) 3, , , ,825 3, , , ,938 3, , , ,969 2, , ,867 73,654 2, , ,779 59,734 2, , ,135 37,055 2, , ,143 23,094 2, , ,724 10,247 2, , ,715-13,935 2, , ,954-49,453 *Page number of the participant's DFBS where the factor is located.

34 32 IDENTIFY AND SET GOALS Ifbusinesses are to be successful. they must have direction. Written goals help provide businesses with an identifiable direction over both the long and short term. Goal setting is as important on a dairy farm as it is in other businesses. Written goals are a tool which farm operators can use to ensure that the business continues to move in the proper direction. Goals should be SMART: 1. Goals should be Specific. 2. Goals should be Measurable. 3. Goals should be Achievable but challenging. 4. Goals should be Rewarding. 5. Goals should designate a Time when each goal will be achieved. Goal setting on a dairy farm does not have to be a complex process. In many cases it provides a process for writing down and agreeing on goals that you have already given some thought to. It is also important to remember that once you write out your goals they are not cast in concrete. Ifa change takes place which has a major impact on the farm business. the goals should be reworked to accommodate that change. Refer to your goals as often as necessary to keep the farm business progressing. It is important to identify both objectives (long-range) and goals (short-range) when looking at the future of your farm business. A suggested format for writing out your goals is as follows: a. Begin with a mission statement which describes why the business exists based on the preferences and values of the owners. b. Identify 4-6 objectives. c. Identify SMART goals. I. Mission and Objectives Worksheet for Setting Goals

35 33 Worksheet for Setting Goals (Continued) II. Goals What How When Who is Responsible Summarize Your Business Perfonnance The Fann Business and Financial Analysis Charts on pages can be used to help identify strengths and weaknesses of your fann business. Identify three major strengths and three areas of your fann business that need improvement Strengths: _ Needs improvement: _

36 34 GLOSSARY AND LOCATION OF COMMON TERMS Accounts Payable - Open accounts or bills owed to feed and supply firms, cattle dealers, veterinarians and other providers of farm services and supplies. Accounts Receivable - Outstanding receipts from items sold or sales proceeds not yet received, such as the payment for December milk sales received in January. Accrual Expenses - (defined on page 3) Accrual Receipts - (defined on page 4) Annual Cash Flow Statement - (defined on page 12) Appreciation - (defined on page 5) Asset Turnover Ratio - The ratio of total farm income to total farm assets, calculated by dividing total accrual operating receipts plus appreciation by average total farm assets. Balance Sheet - A "snapshot" of the business financial position at a given point in time, usually December 31. The balance sheet equates the value of assets to liabilities plus net worth. Capital Efficiency - The amount of capital invested per production unit. Relatively high investments per worker with low to moderate investments per cow imply efflcient use of capital. Cash From Nonfarm Capital Used In the Business - Transfers of money from nonfarm savings or investments to the farm business where it is used to pay operating expenses, make debt payments and/or capital purchases. Cash Flow Coverage Ratio - (defined on page 14) Cash Paid - (defined on page 2) Cash Receipts - (defined on page 4) Change In Accounts Payable - (defined on page 3) Change In Accounts Receivable - (defined on page 4) Change In Inventory - (defined on page 2) Current Portion - (defined on page 7) Dairy (farm) - A farm business where dairy farming is the primary enterprise, operating and managing this farm is a full-time occupation for one or more people and cropland is owned. Dairy Cash-Crop (farm) - Operating and managing this farm is the full-time occupation of one or more people, cropland is owned but crop sales exceed 10 percent of accrual milk receipts. Debt Per Cow - Total end-of-year debt divided by end-of-year number of cows. Debt to Asset Ratios - (defined on page 10) Deferred Taxes (defined on page 9) Dry Matter - The amount or proportion of dry material that remains after all water is removed. Commonly used to measure dry matter percent and tons of dry matter in feed. Equity Capital - The farm operator/manager's owned capital or farm net worth.

37 Expansion Livestock - Purchased dairy cattle and other livestock that cause an increase in herd size from the be ginning to the end of the year. Farm Debt Payments as Percent of Milk Sales - Amount of milk income committed to debt repayment, calculated by dividing planned debt payments by total milk: receipts. A reliable measure of repayment ability, see page 14. Fann Debt Payments Per Cow - Planned or scheduled debt payments per cow represent the repayment plan scheduled at the beginning of the year divided by the average number of cows for the year. This measure of repayment ability is used in the Financial Analysis Chart. Financial Lease - A long-term non-cancellable contract giving the lessee use of an asset in exchange for a series of lease payments. The term of a financial lease usually covers a major portion of the economic life of the asset. The lease is a substitute for purchase. The lessor retains ownership of the asset Income Statement - A complete and accurate account of farm business receipts and expenses used to measure profitability over a period of time such as one year or one month. Labor and Management Income - (defined on page 6) Labor and Management Income Per Operator - The return to the owner/manager's labor and management per full-time operator. 35 Labor Efficiency - Production capacity and output per worker. Liquidity - Ability of business to generate cash to make debt payments or to convert assets to cash. Net Fann Income - (defined on page 5) Net Worth - The value of assets less liabilities equal net worth. It is the equity the owner has in owned assets. Operating Costs of Producing Milk - (defined on page 19) Opportunity Costs - The cost or charge made for using a resource based on its value in its most likely alternative use. The opportunity cost of a farmer's labor and management is the value he/she would receive if employed in his/her most qualified alternative position. Other Livestock Expenses - AIl other dairy herd and livestock expenses not included in more specific categories. Other livestock expenses include; bst, DHIC, registration fees and transfers. Part Time Cash Crop Dairy (farm) - Operating and managing this farm is not a full-time occupation, crop sales exceed 10 percent of accrual milk receipts and cropland is owned. Part Time Dairy (farm) - Dairy farming is the primary enterprise, cropland is owned but operating and managing this farm is not a full-time occupation for one or more people. Personal Withdrawals and Family Expenditures Including Nonfarm Debt Payments - AIl the money removed from the farm business for personal or nonfarm use including family living expenses, health and life insurance, income taxes, nonfarm debt payments, and investments. Profitability - The return or net income the owner/manager receives for using one or more of his or her resources in the farm business. True "economic profit" is what remains after deducting all the costs including the opportunity costs of the owner/manager's labor, management, and equity capital. Purchased Inputs Cost of Producing Milk - (defined on page 19) Repayment Analysis - An evaluation of the business' ability to make planned debt payments.

38 36 Replacement Livestock - Dairy cattle and other livestock purchased to replace those that were culled or sold from the herd during the year. Return on EqUity Capital - (defined on page 7) Return on Total Capltal- (defined on page 7) Solvency - The extent or ability of assets to cover or pay liabilities. Debt/asset and leverage ratios are common measures of solvency. Total Costs of Producing Milk - (defined on page 19) Whole Farm Method - A procedure used to calculate costs of producing milk on dairy farms without using enterprise cost accounts. All non-milk receipts are assigned a cost equal to their sale value and deducted from total farm expenses to determine the costs of producing milk.

39 37 INDEX Accounts Payable Accounts Receivable Accrual Expenses Accrual Receipts Acreage Advanced Government Receipts Age Amount Available for Debt Service Annual Cash Flow Statement Appreciation Asset Turnover Ratio Balance Sheet Barn Type bstusage Business Type Capital Efficiency Cash From Nonfarm Capital Used in the Business Cash Flow Coverage Ratio Cash Paid Cash Receipts Change in Accounts Payable Change in Accounts Receivable Change in Inventory Change in Net Worth Crop Expenses CroplDairy Ratios Current Portion Dairy (farm) Dairy Cash-Crop (farm) Debt per Cow Debt to Asset Ratios Deferred Taxes Depreciation Dry Matter Education Equity Capital Expansion Livestock Expenses Farm Business Chart Farm Debt Payments as Percent of Milk Sales Farm Debt Payments Per Cow ~ ~ 3,8 Financial Analysis Chart 25 4,8 3,5 4,5 16 7, ,11, , ,3 11 3, , , , , Financial Lease 8 Income Statement 2 Inflows 12 Labor & Mgmt. Income 6 Labor & Mgmt. Income Per Opec 6 Labor Efficiency 20 Land Resources 16 Liquidity 10 Lost Capital 10 Machinery Expenses 3,17 Milking Frequency 2 Milk Production 18 Milking System 2 Money Borrowed 12 Net Farm Income 5 Net Investment 10 Net Worth 8 Number of Cows 18 Operating Costs of Prod. Milk 19 Opportunity Cost 6 Other Livestock Expenses 3 Outflows 12 Part-Time Cash-Crop Dairy (farm) 2 Part-Time Dairy (farm) 2 Percent Equity 9,10 Personal Withdrawals and Family Expenditures Including Nonfarm Debt Payments 12 Principal Payments 12 Profitability 4 Purchased Inputs Cost 22,23 Receipts 4 Record System 2 Repayment Analysis 14 Replacement Livestock 3 Retained Earnings 11 Return on Equity Capital 7 Return on Total Capital 7 Solvency 10 Total Costs of Producing Milk 19 Whole Farm Method 19 Worker Equivalent 20 Yields Per Acre 16

40 38 NOTES

41 OTHER A..:M E. EXTENSION BULLETINS o Fru' Farm Business Summary Lake Ontar~o Region ew Yor 199 erald B. White Al son M. DeMarree Li a D Putnam TO cro DFBS Guide to processing Dair Farm Business S rom ries in County and Regional Extensio Offices for Micro DFBS ersion 3.2 Linda D. Pu nam ayne A. Knoblauch Stuart F. Smi h o The Return 0 Agricultural Lands to Forest Changing Land Use in the Twentieth Century Bernard F st nton el on L. Bills o DFBS Expert Syste or alyzi g Dairy Farm Businesses Users' Guide for Version 6.0 Linda D. Putn m S ua t F. Smith o What's In store for Home ShoPP1ng? Kristen Par De ra Perosio Gene A. German Edward W. McLa ghl'n o Dairy Farm Bus'ness S mmary Western a d Central P1a~n Reg'on 1995 ayne Knoblauch S uart smith Linda D. Putnam Jason Karszes M'ch el stratton J mes ilson David Thorp Gorge All u en o Da1ry Far BUS1 s Summary or hern H dson R gion 995 stuart F. mith L1nda D. a Cathy S. W1cks at Sandra BuY-to David R, Wood o New York L rge He d Fa m I o Larger Cows J on Karszes stu r F. smith Linda D. Putnam