Review income, expenses and income from dairy farming

Earlier this year, the United States Department of Agriculture’s Economic Research Service released data on dairy production and costs. The information needed for this analysis is collected through the USDA’s Agricultural Resource Management Survey.

The USDA uses this survey as its primary method of collecting information on production practices, resource use, and the economics of US farms. Because policy makers and others use the data collected to make important decisions that may affect you, it is important to respond to surveys you receive. Survey data also helps tell the story of agriculture to the general public.

Additional survey information is available at nass.usda.gov/surveys/guide_to_nass_surveys/ag_resource_management.

Data

The data collected is grouped into the following categories: gross value of production, operating costs, allocated overhead and net worth. The gross value of production includes the quantity of milk sold, culling and other income. Other revenues include rental of facilities to others, patronage refunds and the fertilizing value of the manure produced.

The operating expense category includes feed, veterinary care, bedding, marketing, fuel, repairs, interest and others. Overhead costs include hired labor, opportunity costs, taxes and insurance, cost recovery of machinery and equipment, and operating overhead.

The total operating and overhead expenses are subtracted from the gross production value to arrive at a net production value. Declared net worth is divided into two categories: value of production less total costs and value of production less operating costs. Data is summarized for all participating farm sizes and then calculated by herd size.

To analyse

Ohio State University Extension makes Ohio’s Agricultural Business Analysis and Benchmarking program available to Ohio dairy farmers. This program offers farmers the opportunity to perform an in-depth analysis of farm and business income and expenses. Gross revenue includes milk sold, cull sales and inventory changes.

Examples of direct expenses include feed, livestock, veterinary expenses, fuel/oil, hired labor, utilities, trucking, supplies, and bedding. Overhead costs are interest, amortization and miscellaneous charges. Ohio’s Farm Business Planning and Analysis Program also reports on the financial performance of the 20% of registered dairy businesses.

Results

There are some differences in the performance of all dairy companies and the top 20% of dairy companies enrolled in Ohio’s Farm Business Analysis and Benchmarking Program.

The average price of milk reported by the top 20% group was $0.30 higher than that of all companies. The average gross income of the top 20% group was $0.37 per hundredweight higher. The top 20% group had average direct expenses $2.44 per cwt less than all businesses.

The difference in overhead was minimal. Labor and management costs for the top 20% were $0.09 higher than all companies. The net return on labor and management for the top 20% group was $2.74 per cwt more than all dairy companies

Price fluctuations are expected to continue in the dairy sector. There are several management strategies available to manage price volatility in the industry. It starts with a complete financial analysis and rigorous monitoring of expenses.

Examination of analysis of farms enrolled in Ohio’s Farm Business Planning Analysis and Benchmarking Program reveals that obtaining the highest possible milk price and assessing direct expenses can have the greatest impact on financial performance. Additional information on dairy business finances is available from your county extension educator.

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