Jim Youngers admits that he is not getting rich. And, of course, it would be good to see higher milk prices. But, in the meantime, he’s doing all right.
All of the bills are getting paid, says the Arcade, N.Y., producer. “The farm, itself, is paid for. I’m happy with where we are at. I have a comfortable life, and I enjoy what I do.”
Part of the solution has been to keep fixed costs low, as might be expected from a 70-cow, rotational grazing operation. He has a working relationship with a larger dairy farm, which allows him to buy alfalfa, corn silage and some dry hay. That allows him to get by without any planting and harvesting equipment, although he does have a small square baler for hay. He also rents some of his land back to the larger dairy farm, which — in addition to the low fixed costs — does wonders for his asset turnover or utilization ratio, a key factor in dairy profitability.
Given the current state of the dairy economy, asset turnover or utilization is more important than ever.
According to Purdue University agricultural economist Michael Boehlje, agriculture lags behind other industries in terms of asset utilization. No other industry would invest $250,000 in a combine and run it just 300 hours a year, he told a recent Professional Dairy Producers of Wisconsin profitability seminar.
Boehlje turned to the producers in the room that night and said he suspected that most of them could improve their asset utilization by 10 percent or more.
Easier said than done
Yes, asset turnover ratio is important. But it is only one measure of profitability. The Farm Financial Standards Council now has 21 ratios to measure financial viability. (Note: For many years, these were known as the “sweet 16.” Then, last year, five more ratios were added, creating the “legal 21.”)
In judging a farm’s financial viability, you need to take a number of these measures into account — not just one.
And, sometimes, the reality of dairy farming gets in the way.
For example, a young farming couple hired a custom harvester to harvest their crops in order to save on equipment costs. Then, in 2006, the custom harvester did not show up on time to harvest their soybeans, and the soybeans suffered shatter loss. The farming couple became irritated and decided to buy a used combine. Before ever turning the key on the combine, they had a fixed-cost investment of $55 per acre, without even factoring in the variable costs it would take to run the combine, points out Ken Bolton, dairy agent for the University of Wisconsin Center for Dairy Profitability.