Dale M. Johnson, Farm Management Specialist, University of Maryland Extension
Dale Johnson
What price are you getting for a hundred pounds of organic milk? If you are like most dairy farmers, you know the price or you can get it quickly by reviewing milk check receipts. But do you know how much profit you make per cow? If you are like many dairy farmers, you may not know. Your acreage or dairy facilities limit the number of cows you can milk, so maximizing your profits per cow determines your standard of living and viability. This article explains how to calculate your profit per cow per year. By analyzing your income, expenses, and profit per cow, you can benchmark your farm against other farms to determine your strengths and weaknesses. This article will show you the average of seven organic farms that I work with that you can compare your farm to.
You can use the spreadsheet, Analyzing Your Profit on page 13 to do a historical economic analysis of the past three years of your farm - the long run, so to speak. Maybe one year was dry with lower forage yields or maybe one year milk production was better than normal. By averaging three years, you get a good economic picture of how you are doing. To complete the analysis, you will need your tax forms from the past three years and a few other records. Follow the instructions below to do your analysis.
The last column shows the income, expenses, and profit per cow for 7 organic dairy farms that I have been working with for many years. All of these farms sell their milk through Organic Valley. For the years 2015-2017, they have an annual average profit of $1,085 per cow. $1,000 per cow profit is a good goal for many organic dairy farms to strive for. Of course, much depends upon your price that you receive for your organic milk and your ability to minimize expenses per cow and per cwt of milk. Compare your farm on each line to the average of the 7 organic farms. Expenses per cow that are lower than the average may indicate strengths in your farm. Expenses per cow that are higher than average may indicate weaknesses in your farm.
Schedule F trend summary | Your Farm | Average of 7 | ||||
---|---|---|---|---|---|---|
Year | 2015 | 2016 | 2017 | Avg. 15-17 | 15-17/cow | organic farms |
A) Average number of cows | 75 | |||||
B) Total cwt milk sold | 5,867 | |||||
C) Average CWT milk sold per cow | 78.1 | |||||
D) Average price per CWT | $37.72 | |||||
Schedule F line | ||||||
Farm income | ||||||
1a & 1b Sales of livestock bought | $235 | |||||
1c Cost or other basis of line 1 | $124 | |||||
1e Subtract line d from line c | $110 | |||||
2 Sales of farm products | ||||||
a. Milk sales | $2,947 | |||||
b. Crop sales | $32 | |||||
c. Cattle sales | $439 | |||||
3 Cooperative distributions | $23 | |||||
4 Agricultural program payments | $3 | |||||
5 CCC loans | $0 | |||||
6 Crop insurance | $0 | |||||
7 Custom Hire | $29 | |||||
8 Other income | $25 | |||||
9 Gross Income | $3,608 | |||||
Farm expenses | ||||||
10 Car and truck expenses | $9 | |||||
11 Chemicals | $0 | |||||
12 Conservation expenses | $0 | |||||
13 Custom hire | $132 | |||||
14 Depreciation | $333 | |||||
15 Employee benefits | $0 | |||||
16 Feed | $641 | |||||
17 Fertilizer and lime | $80 | |||||
18 Freight and trucking | $28 | |||||
19 Gasoline, Fuel, and oil | $96 | |||||
20 Insurance (other than health) | $30 | |||||
21a+21b Interest | $119 | |||||
22 Labor hired | $130 | |||||
23 Pension and profit-sharing | $0 | |||||
24a+24b Rent or lease | $116 | |||||
25 Repairs and maintenance | $260 | |||||
26 Seeds and plants | $96 | |||||
27 Storage and warehousing | $0 | |||||
28 Supplies purchased | $194 | |||||
29 Taxes | $31 | |||||
30 Utilities | $91 | |||||
31 Vet., breed., and med. | $45 | |||||
32 Other expenses | $93 | |||||
33 Total expenses | $2,523 | |||||
34 Net farm profit | $1,085 |
This worksheet is a simple and useful analysis. But it has possible inaccuracies. If you use a cash accounting method, like this, you do not account for changes in inventories which may lead to an inaccurate calculation of profit. However, on many dairy farms the beginning and ending inventories are similar enough so that an adjustment may not be needed. Doing this analysis for three years and averaging the years like in this spreadsheet will mitigate inaccuracies from changing inventories.
Doing the analysis for several years is also useful for looking at trends in the business. If you are a dairy farmer in Maryland and would like me to help you with your analysis, call me at 301-432-2767, ext. 325 or email dmj@umd.edu.
On Friday, September 28th, I will give a presentation at the 2018 NODPA Field Days further explaining this and other economic analysis to help you make decisions and improve profitability. You may want to bring your tax records in case you have questions. I hope to see you there.
Dale Johnson can be reached by phone:
301-432-2767, ext. 325 email: dmj@umd.edu
or by mail:
The Department of Agricultural and
Resource Economics,
University of Maryland
2112A Symons Hall,
College Park, MD 20742
Attached Files: