In 1999, dairy producers in northeast Ohio asked Jim Polson, district farm management specialist with Ohio State University, and Dianne Shoemaker, district dairy specialist with Ohio State University, to identify financial benchmarks that dairy operations with 100 cows or less could use to evaluate their profitability.
To develop the benchmarking data, Polson and Shoemaker compiled 1998 financial information from 235 New York, Michigan and Wisconsin dairy farms with 80 to 120 cows.
During the process, they found that some “traditional” benchmarks — milk production, labor efficiency, cost control, feed expenses and debt level — didn’t necessarily point to profitability.
For example, high milk production didn’t automatically correspond with the most profitable farms across all three states. In New York, dairies with the highest rate of return on assets — those with a 60 percent asset turnover ratio — had a slightly lower milk production per cow — 511 pounds less than the average for all New York farms for that herd size. The table below shows the results:
|Milk production per cow|
|State||Average for all farms with 80-120 cows||Herds in the bottom 25% of profitability||Herds in the top 25% of profitability|
*New York data represents the low 20 percent and high 20 percent.
Likewise, total cash expenses alone did not indicate farm profitability. In New York and Michigan, for example, average total cash expenses varied by less than two percent between the least and most-profitable farms. Meanwhile, average expenses were five percent higher for the top 25 percent most-profitable herds versus the least-profitable herds in Wisconsin.
Despite these discrepancies between states, the authors identified four benchmarks, which 100-cow dairy operations can use to evaluate their businesses:
1. Gross farm income. The most profitable dairies generated a gross farm income greater than or equal to $3,500 per cow.
2. Operating expense ratio. The most profitable dairies had an operating expense ratio less than or equal to 60 percent.
3. Milk production per cow. The most profitable dairies achieved milk production per cow that was at or above the average for their state.
4. Farm debt. The most profitable dairies had farm debts that were less than 45 percent of farm assets and were less than $3,000 per cow.
Keep in mind, milk prices in 2000 were much lower than in 1998, so gross income will be lower and the operating expense ratio would be higher, Polson says.
If you would like a copy of the complete paper, contact Polson at the following e-mail: email@example.com