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The Dairy Business Analysis Project: Florida Milk Production Costs, 1995 1
M. Hoekema, R. Giesy, P. Miller, M. Sowerby, R. Tervola, D. Solger, P. Joyce, T. Seawright, M. DeLorenzo2Project Description
The Dairy Business Analysis Project (DBAP) is a statewide service that records and evaluates financial performance of individual Florida dairies. The project compares each dairy's performance with other enrolled dairies. Since 1996, DBAP has been an ongoing partnership between dairy producers, the extension service, lenders, and other interested parties. Extension agents work closely with individual dairies throughout the collection, analysis, and reporting phases.In an effort to improve profits, DBAP is designed to monitor factors affecting profitability. Activities include collecting information, summarizing financial data in uniform and analytical formats, setting performance benchmarks, and reporting this information back to dairy producers. This service provides a tool that dairy producers may use to improve financial performance.
Financial measures of individual dairies are compiled into a database and used for comparisons. Contributions are kept completely confidential. Once data are collected from all participating dairies, the results are reported back to the dairy with an analysis and comparative summary of other Florida producers. By comparing themselves to benchmarks, DBAP dairies may more fully understand their financial performance in relation to other dairies. Critical success factors such as production rates, cost control, capital efficiency, size and scale of business, enterprise effects, and labor efficiency can all be effectively measured through DBAP. A breakdown of strengths, weaknesses, and opportunities for improvement are provided for each participating dairy.
A current limitation of the DBAP analysis is the small number of dairies in the program. Even though much effort is spent collecting, verifying, and calculating the comparisons, the numbers are not necessarily representative samples for each respective comparison. The differences between groups do reveal differences in management. They do not, however, indicate definitive, unchangeable realities. However, the number of participating dairies is rapidly increasing. Already the number has increased almost 100% for 1996 data.
Methods of Comparison
In order to calculate useful benchmarks, it is necessary to standardize financial measures so that information can be compared across dairies. DBAP conforms, as much as possible, to the guidelines of the Farm Financial Standards Council (FFSC) [Financial Guidelines for Agricultural Producers. January, 1995. Farm Financial Standards Council]. The reporting techniques of DBAP represent accrual-adjusted accounting methods.Recognizing the variability of "on-farm" business records and the willingness of producers to share business records, DBAP is organized into two levels of analysis.
Level 1 is designed for dairies that either do not have all the information required for a complete set of financial statements or do not wish to provide complete asset and liability information. Level 1 analysis examines the operating receipts and expenses of dairy production. There are serious limitations when production costs are not matched with equity positions, and level 1 information must be interpreted with these limitations in mind. Even though the information is accrual adjusted for changes in inventory, measures of profitability are not available for level 1 dairies. This level is useful, however, for comparing operating margins to benchmarks.
Level 2 collects in-depth information about the equity position of the dairy in addition to receipt and expense figures. A thorough inventory is taken of all assets and liabilities for the beginning and ending of the year. Accrual adjustments for valuation and depreciation add to the accuracy of the primary measure of net-profit farm income.
The presented information does not represent the average production costs of Florida dairies since participation in DBAP is voluntary, and participating dairies are not a random sample from Florida. Care must also be taken when drawing conclusions from these data since sampling variation can contribute to the observed differences between subsets of dairies. However, the data do present achievable levels of performance and provide insight into the Florida dairy business.
The DBAP report is divided into several categories:
Expenses and Receipts: A thorough look at the cost and revenue structure of the upper 25%. Net operating income is compared to all participating dairies.
Herd Size: shows effects of herd size on financial performance.
Milk Sales per Cow: suggests how production levels may or may not contribute to financial performance.
Labor Efficiency: details the use of labor on dairies and shows attainable levels of performance.
Regional Comparison: lists differences in business structure and financial performance as determined by geographical location within the state.
Enterprises: Varying business structures, in the form of heifer and crop enterprises, reveal differences in financial performance.
Milking Frequency: This management decision appears to have implications on profitability.
Equity Analysis: looks at the balance sheet composition of participating Florida dairies.
Financial Ratios: As standard measures of performance and efficiency, financial ratios evaluate the financial health and performance of DBAP dairies.
Dairy Descriptions
In the first year of the project, DBAP collected information from 27 dairies located throughout the state: three dairies from the Panhandle, 12 from the north and central regions, and 10 dairies from south Florida (the division line between north and south was Interstate I-4 between Tampa and Orlando). For this summary, 20 dairies were used in the cost of production comparisons, while 12 dairies provided enough information for meaningful equity comparisons.The average amount of milk sold for 1995 was 27.8 million pounds per dairy, at an average of 3.26% butterfat ( Table 1 ). Milk sales varied between less than 10,000 to over 20,000 pounds per cow per year, with average sales of 15,715 lbs. Seventeen dairies listed DHI as a production recording system, three used other systems, and one had no recording system in place.
Farm size varied among participating dairies. Herd size ranged from less than 100 to over 10,000 cows per herd with an average of 1,718 cows. Three dairies listed leased cows as part of their inventory. Heifer inventories ranged from zero to over 7,000 with an average of 937 heifers per farm.
Dairies also differed in acreage and crop types ( Table 2 ). The dairies had an average of 641 acres in crops ranging from zero to over 5,000 acres per farm. The most popular crops were corn silage, rye, sorghum, haylage, and grass silage. Perennial peanut, green chop, stargrass, and oats were also grown.
Pasturing proved to be a prevalent form of land use for DBAP dairies. The 1995 data averaged 395 acres in use as tillable pasture and 356 acres as untillable. An accurate estimate for tonnage and percent dry matter from pasture was not available.
Operating Receipts and Expenses
Ranking by Net Operating Income
Net operating income per cow (NOIC) ranks dairies for DBAP comparisons. Net operating income (NOI) differs from net farm income (NFI) because capitalized expansion costs and depreciation are not included (see explanations of NOI and capitalization in Appendix ).NOI should not be directly compared to the return to all unpaid labor, management, and capital normally associated with NFI.
Net operating income per cow is used to adjust for herd size by dividing NOI by the average number of cows (owned plus leased).
Averages of operating receipts and expenses are calculated for the upper twenty-fifth percentile, the lower twenty-fifth percentile (as ranked by NOIC), and for all DBAP dairies (Tables 3-8). All production levels are determined by dividing total milk sold by the average number of cows.
Average Operating Receipts
Average accrual-adjusted operating receipts per cwt. of milk sold for 1995 was $16.76 ( Table 3 ). Table 4 compares the upper and lower quartile of dairies--ranked by NOIC--to the average of all dairies. Total receipts per cwt. had a range of $0.56 across all percentile groups. Most of these differences were due to inventory adjustments in cows and crops. Due to more milk sold per cow, the upper quartile had a $566 advantage in milk sales per cow over the average (19,929 vs. 15,715 lb. per cow). Table 5 shows average operating receipts for the upper quartile.Average Operating Expenses
The average 1995 operating cost of milk production per cwt. milk sold was $16.51 ( Table 6 ). The average net operating margin was, therefore, $0.25 per cwt. milk sold, not including depreciation and capitalized expansion expenses (see explanations of NOI and capitalization in Appendix ). Differences in expenses per cwt. existed between categories and across percentile groups ( Table 6 ). The largest expense differences between the upper and lower 25th percentiles was livestock ($1.08) and feed ($0.94), but the upper quartile dairies consistently showed lower costs for each category. Upper and lower groups differed in NOIC by $582.47. The average NOIC of all dairies was $48.39. More details on operating expenses are given for all dairies in Table 7 and for the upper 25th percentile--by NOIC--in Table 8 . Figure 1 compares operating expenses for the upper quartile, lower quartile, and all dairies.
Figure 1. Major Causes of Variation
Dairies were grouped by herd size, location, heifers raised or not raised, crops raised or not raised, and number of times cows were milked per day (2 or 3 times). Figure 2 and Figure 3 show average operating expenses and NOIC by group. In all tables and figures, if 2 or fewer dairies are in a group, no values are shown and n=0.
Figure 2.
Figure 3. Herd Size
A comparison of operating expenses across herd sizes (HS) is shown in Table 9 . The largest herds (2500+ cows) showed the lowest total expenses per cwt. ($15.32), the highest production level (17,601 pounds per cow per year), and the highest NOIC ($157.69). Purchased feed costs differed by $1.07 between 1-350 and 1000-2500 groups.Most of the differences between herd sizes were due to increased efficiency of production from herd size and higher milk production per cow. Differences in purchased feed costs per cwt. made up for most of the difference in total costs. The highest total cost per cwt. was the middle group for herd size (600-1000 cows), even though the production level of the group was second highest. The NOIC was widely variable between groups, with the 350-600 cow group showing the highest income per cow, followed by the 2500+ group. Both the 1-350 and the 600-1000 cow groupings lost money on average. The NOIC for group 350-600 was likely not from a representative sample and was due largely to one time accrual adjustments to income.
Milk Sales per Cow
Differences in operating efficiencies were evident when dairies were compared across production levels ( Table 10 ). Grouped according to milk sales per cow, the group with the highest production level showed the lowest feed costs ($6.97 per cwt. milk sold), lowest livestock costs (1.42 per cwt. milk sold), and the lowest operating expenses per cwt. milk sold ($14.44 per cwt.). At 20,443 average pounds of milk sold per cow for the high group, production costs were spread across more pounds of milk. The result was higherNOIC for the herds averaging over 19,000 pounds per cow in milk sales ($291.98). The other categories averaged significantly less in NOIC ($14.89, 1.04, -1.22).
Labor Efficiency
Several methods were available for measuring the efficiency of labor utilization on DBAP dairies. The primary method of comparison, listed in Table 11 , compared different groups on the basis of pounds of milk sold per person. This efficiency measure combined productive capability of the dairy (pounds of milk) and the labor force used. The average across all dairies providing sufficient labor information (n=17) was 769,521 pounds of milk sold per person, with a range from less than 300,000 to over 1.1 million pounds. Another efficiency measure was cows per person. Table 11 shows a 27.1 cow per person difference between groups and an increase in efficiency as herd size increased. A full-time worker equivalent was 230 hours per month.Region
A comparison by region ( Table 12 and Figure 4 ) revealed differences between north/central and southern Florida dairies. The division between north/central and south was Interstate I-4 between Tampa and Orlando. Southern dairies in the project were larger (2,427 vs. 1,282 cows), produced less milk per cow (4,175 pounds per cow less), and showed higher operating costs per hundredweight milk produced ($1.15 per cwt. difference). The southern dairies had a NOIC of $121.18 and a ROA 7.3% lower. Assets per cow were $734 lower for north/central dairies.
Most of the expense difference was due to higher livestock costs ($0.97 per cwt. milk sold difference) of which replacement cost was a large component. The north/central dairies paid $0.21 per cwt. milk sold in purchased replacement expense while
Figure 4. southern dairies paid $1.27 per cwt. milk sold. The replacement rates on southern dairies averaged 39% per year while the north/central dairies averaged 33%.
Raising Heifers
The difference in operating costs between the dairies raising heifers and those not raising heifers was $0.23 per cwt. milk sold (Table 13) . Figure 5 shows a graphic comparison of operating expenses. Lower personnel and feed expenses gave non-heifer raisers lower total operating costs. Heifer raisers had $1.33 lower costs for livestock expense, since replacement costs were a component of livestock costs. Nonraisers paid an average of $2.04 per cwt. of milk sold in replacement costs while raisers paid $0.61 per cwt. of milk sold. Nonraisers showed a 2.5% advantage in profitability (ROA) with comparable asset levels.
Figure 5.
Little difference existed in NOIC between groups. Distinction between the two groups was based on having a number of heifers equal to or greater than 30 percent of total cow numbers for qualification as a heifer raiser.
Raising Crops
Figure 6 shows a comparison of operating expenses.
The dairies without a crop enterprise showed $1.54 lower operating expenses per cwt. milk sold than crop raisers (Table 14) . Contributing to the spread was $0.55 more costs in feed (probably due to crop expenses capitalized into the value of feed), $0.19 more in crops, $0.14 more in machinery, and $0.14 more in real estate expenses (all costs per cwt. milk sold). Dairies raising crops produced 14,600 lbs. milk per cow while dairies not raising crops produced 17,388 lb per cow. Dairies not raising crops had a NOIC $131.39 per cow higher and a ROA 5.8% higher than dairies raising crops. Cropping comparisons were based on a dairy having 0.25 tons dry matter harvested per cow to qualify as having a crop enterprise. Some dairies raised crops cost effectively (had low total feed costs) and maintained high production.
Figure 6. Generalizing from this data is risky.
Milking Frequency
Figure 7 shows a comparison of operating costs.
The average operating costs between dairies milking two times a day (2X) and three times a day (3X) differed by $0.33 per cwt. ( Table 15 ). Costs per hundredweight were lower for 3X herds. Differences were due mostly to a 17% advantage in milk production per cow for the 3X group (16,819 and 14,365 pounds per cow for 3X and 2X respectively). Cow numbers were 107% higher for the 3X group, which also tends to lower production expenses. The 3X dairies also posted $118.60 in NOIC versus -$37.43 for the 2X group.
Figure 7. Balance Sheet Analysis
For level 2 dairies, asset and liability information was collected and summarized.The DBAP balance sheet used for reporting to individual dairies showed beginning and ending market values for assets and liabilities. The summary sheet in Table 16 shows average ending values per cow computed across the dairies.
The values were compiled from December 31 balance sheet line items per cow for each dairy. Showing balance sheet information on a per cow basis made interpretation easier since the effect of dairy size was removed.
Assets: Total investment per cow for all level 2 dairies (n=12) was $4,420.81. Approximately 46% of the investment was in land and buildings ($1,929.66), 23% in animals ($1,028.81), and 16% in machinery and equipment ($710.64).
Liabilities: Liability information is detailed on the right side of the balance sheet. At 36% of assets ($1,605.06 per cow), total liabilities represented all claims against the assets in the form of loans, leases, lines of credit, or accounts payable. Long term debt obligations, which represented loans payable in 10 years or longer, comprised 48% of total debt ($774.88 per cow). Current liabilities represented about 26% of total liabilities ($423.17 per cow), with short term debt ($236.26 per cow) and operating debt ($114.02 per cow) as the largest contributors. Over 4% of debt was financed through the use of accounts payable ($72.90 per cow). Approximately 25% of debt was in the form of intermediate liabilities which consisted primarily of loans due in 1-9 years ($407.02 per cow).
Financial Ratios
Ratio analysis was useful in comparing financial positions of different dairies because the ratios did not directly depend on business size.Each participating DBAP dairy receives a detailed report of their individual financial ratios. Listed in Table 17 are the average ratios for all level 2 DBAP dairies from the December 31 B/S values of 12 dairies.
Current Ratio: measured the liquidity position of the business and was computed by dividing current assets by current liabilities. At 1.32, for every dollar in current liabilities $1.32 of current assets were available.
Debt to Asset Ratio: As a solvency ratio, this detailed what portion of the business' assets were serviced by debt. At 0.36, for every dollar in assets the average dairy had $0.36 liabilities.
Equity to Asset Ratio: Also a measure of solvency, this ratio showed what portion of assets of the business was financed by the owner's equity or net worth. By dividing the net worth by total assets, $0.64 of every $1 in assets was in the form of equity.
Debt to Equity Ratio: Measuring debt as a portion of equity indicated the liability each $1 of net worth was covering. The 1995 ratio was 0.69.
Return on Assets: As an indicator of profitability, this measure added interest to NOI, subtracted a $50,000 value for unpaid management, and then divided the remainder by average total assets. By charging for management, this ratio indicated what portion of income was returned back to the business. A value of -1% signified an average loss for 1995.
Return on Equity: differs from ROA in that the after-management net income was divided by net worth. A loss of 6% showed that operations were funded by the gradual use of owner's equity.
Operating Profit Margin: Using the same value for NOI, management, and interest, the value was divided by gross revenues to figure a return on sales. At -10%, $0.10 for every dollar in gross revenue was lost in 1995.
Asset Turnover Ratio: To measure financial efficiency of a business, this ratio divided gross revenues by average total assets. In 1995, every $1 in assets generated $0.72 in gross revenues.
Operating Expense Ratio: By subtracting depreciation from total operating expenses, and then dividing the remainder by gross revenues revealed what portion of gross sales was composed of operating costs. An average of $0.94 was spent on operating costs for every dollar of revenue.
Depreciation Expense Ratio: The portion of revenues covering depreciation expenses was detailed by this ratio. An average of $0.11 per dollar gross revenue went towards depreciation expenses.
Interest Expense Ratio: Calculating interest as a portion of revenues provided insight into the debt structure of the business. About $0.05 of every dollar of revenue was used to finance debt in 1995.
Net Income from Operations Ratio: measured what each dollar of revenue was contributing toward operating income. For 1995, a loss of $0.07 for every dollar of revenue was incurred.
Summary
Dairy Business Analysis Project (DBAP) provides a wealth of information about the financial position of dairies. The key element is to understand which factors are most crucial for success in the long term. Critical success factors can be identified with 1995 data. In the future, comparisons across time can be made as more data and more detailed liability information is collected.Regardless of the comparison method, the successful DBAP dairies are more effective at controlling costs per cwt. milk produced. Wise purchasing decisions, contract buying, and volume discounts all probably factor into lower costs. More than just how buying occurs, but what is bought, the efficiency of design and management, and good levels of production in relation to costs are all very important.
Another factor of successful dairies is the high level of returns on assets. Three factors contribute to ROA: the magnitude of income, cost control, and the amount of assets. The successful dairies not only return more dollars to the dairy, they also have lower amounts of assets employed to generate the returns, thus increasing the efficiency of capital invested in the business.
Factors beyond management control continually challenge the management skills of Florida dairies. As DBAP continues, the collection of information across time will provide for additional trends and comparisons in coming years. New features are continually added to improve the analytical, diagnostic, and prescriptive capabilities of DBAP.
Appendix
Definitions of Income Categories
All categories represent accrual positions, as they have been adjusted for inventory and balance changes.Milk Sales: Includes milk revenues.
Cow Sales: Includes cull, dairy, and breeding cow revenues.
Calf Sales: Includes calf and heifer revenues for cull and breeding purposes.
Other Livestock: Includes any revenue of livestock other than calves, heifers, or cows.
Crops: Revenues from crop sales.
Government Receipts: Any revenues from government programs. Does not include tax refunds.
Custom Work: Proceeds from off-farm services.
Gas Tax Refund: Represents refund from state agricultural fuel tax exemption.
Other: Includes dividends, interest, rental income, and other sources of farm income. Does not include nonfarm revenues.
Definitions of Expense Categories
All categories represent accrual positions, as they have been adjusted for inventory and balance changes.Personnel: Includes salaries, wages, payroll taxes, employee insurance, drug testing, and other expenses related to personnel costs.
Purchased Feed Crops: Represents any grain, forage, complete ration, or other feed costs from off-farm purchases. Includes fertilizer, lime, seeds, spray, and other crop-related expenses. Does not include land rent or custom-hire expenses.
Machinery: Includes custom-hire, equipment leases, repairs, fuel, lubrication, and other maintenance costs. Does not include depreciation expenses.
Livestock: Includes heifer replacement, breeding, veterinary, bedding, milking supplies, cattle lease, DHIA, registry, and bST expenses. Does not include heifer purchases classified as herd expansion 1 .
Milk Marketing: Includes hauling, coop dues, advertising, marketing, CCC, and government assessments.
Real Estate: Includes repairs and maintenance to buildings, land, real estate taxes, and rent or lease costs. Does not include improvements classified as capital expenditures 1 , taxes on gains from the sale of land, building depreciation, or the payments on a real-estate note.
Other: Includes insurance, the daily share of utilities, interest, miscellaneous, and other overhead expenses.
Net Operating Income
Net operating income (NOI) is calculated by subtracting accrual-adjusted operating expenses from accrual-adjusted operating receipts. Depreciation expense, income from the sale of equipment or land, or capitalized expansion costs are not included in NOI. Additionally, NOI is not the return to all unpaid labor, management, and equity commonly known as net farm income.Expense Capitalization
When an expense is capitalized it is classified as an asset and depreciated over its useful life. Common expenses that are capitalized include expansion livestock purchases, building and land improvements, and investments in growing crops. Some dairies capitalize crop and heifer raising costs, charging the dairy enterprise a fee represented in livestock costs. For the 1995 data, the accounting method of each dairy was analyzed to determine the appropriate classification of expenses.
Tables
Table 1.
Table 1. Averages of dairies participating in DBAP. Item Avg. or number Pounds milk sold per year 27,818,656 Pounds milk sold per cow per year 15,715
Acres per cow 0.87 Cows per person1 51 Pounds milk sold per person per year1 769,521 % BF 3.26 Number of cows owned 1,670 Number of cows leased 48 Number of heifers and calves 937 Number of bulls 33 Number of other livestock 8 Number using freestalls 5 Number using shade barns 16 Number with no barns 2 Number on DHIA recording system 17 Number using other record system 3 Number using no production testing 1 Number using bST on >75% of herd 0 Number using bST on 25-75% of herd 7 Number using bST on <25% of herd 7 Number stopped using bST 6 Number that never used bST 1 1 Labor efficiency data was based on information from 17 dairies.
Table 2. Average land inventory for dairies participating in DBAP. Land inventory Owned Rented
Total
Tillable land 716 148 864 Pasture (nontillable)
356 10 366 Woods and other 241 21 261 Total 1313 178 1491
Table 3. Average operating receipts for all dairies (n=20). Average all dairies Receipts Totals Per cow Per cwt. Milk sales 4,257,977 2,549 15.31 Cow sales 231,260 138 0.83 Calf sales 34,530
21 0.12 Other livestock 21,999 13 0.08 Crops 49,297 31 0.18 Government receipts 6,336 4 0.02 Custom work 423 0 0.00 Gas tax refund 5,265 3 0.02 Other 56,256 34 0.20 Total operating receipts 4,663,343 2,792
16.76
Table 4. Average operating receipts per cwt. by category. Average Category Upper 25%1 All dairies2 Lower 25%3 Difference4 Milk sales 15.16 15.30 15.13 0.03 Cow sales 1.08 0.83 0.12 0.96 Calf sales 0.05 0.11 0.27 -0.22 Other livestock 0.01 0.08 0.03 -0.02 Govt receipts 0.00 0.02 0.05 -0.05 Crops 0.00 0.18 0.38 -0.38 Custom work 0.00 0.00 0.00 0.00 Gas tax refund 0.00 0.03 0.12 -0.12 Total operating receipts 16.20 16.76 16.29 -0.09 1 Computed as the average of the upper 25th percentile of dairies for net operating income per cow (n=3). 2 Computed as the average of all dairies (n=20). 3 Computed as the average of the lower 25th percentile of dairies for net operating income per cow (n=5).
4 Computed as the difference between the lower and upper 25th percentile.
Table 5. Average operating receipts for upper 25th percentile by NOIC1 (n=3). Receipts Totals Per cow Per cwt. Milk sales 8,133,896 3,115 15.16 Cow sales 571,142 219 1.06 Calf sales 70,950 27 0.13 Other livestock (2,976)
(1) (0.01) Crops 1,154 0 0.00 Government receipts -- -- -- Custom work -- -- -- Gas tax refund -- -- -- Other (51,835) (20) (0.10) Total operating receipts 8,722,331 3,340 16.26 1 Net operating income per cow.
Table 6. Average operating expenses per cwt. by category. Average Category Upper 25%1 All dairies2 Lower 25%3 Difference4 Personnel 2.49 2.74 2.76 0.27 Purchased feed 6.86
7.49 7.81 0.94 Crops 0.22 0.25 0.44 0.22 Machinery 0.74 0.78 1.01 0.27 Livestock 1.05 1.93 2.13 1.08 Marketing 1.13 1.19 1.32 0.19 Real estate 0.36 0.48 0.74 0.38 Other 1.75 1.64 1.82 0.08 Total operating expenses 14.60 16.51 18.03 3.43 NOIC5 326.25 48.39 -256.22 -582.47 Assets/cow6 -- 4454 -- -- ROA7 -- -0.007 -- -- Cows 2655 1718 460 -2195 Milk sold/cow 19,929 15,715 14,372 -5,557 1 Computed as the average of the upper 25th percentile of dairies for net operating income per cow (n=3). 2 Computed as the average of all dairies (n=20). 3 Computed as the average of the lower 25th percentile of dairies for net operating income per cow (n=5). 4 Computed as the difference between the lower and upper 25th percentile. 5 Represents operating costs and income, not including depreciation and capital outlays for expansion. 6 Asset information was compiled from level 2 dairies ranked by net operating income/cow (n=0 for top 25th percentile, n=12 for all dairies, and n=0 for lower 25th percentile).
7 Return on Assets (ROA) calculated by adding reported interest expense and subtracting $50,000 for unpaid labor and management from net farm income, dividing the remainder by ending total assets.
Table 7. Average operating expenses for all dairies1. Average all dairies Expenses Totals Per cow Per cwt. Personnel Salaries/wages 626,389 375 2.25 Other payroll costs 104,714 63 0.38 Other 30,788 18 0.11 Purchased feed Grain & concentrate 1,352,709 810 4.86 Forage 123,232 74 0.44 Complete ration 456,508 273 1.64 Other feed 152,284 91 0.55 Crops Fertilizer & lime 58,705 35 0.21 Seeds & plants 6,412 4 0.02 Spray & other expenses 5,300 3 0.02 Machinery Hire, rent, lease 24,467 15 0.09 Repairs & other expenses 145,908 87 0.52 Fuel, oil, grease 47,419 28 0.17 Livestock Replacements 249,353 149 0.90 Breeding 28,253 17 0.10 Vet & medicine 97,296 58 0.35 Bedding 3,440 2 0.01 Milking supplies 109,989 66 0.40 Cattle lease/rent 4,173 2 0.01 Other livestock expenses 45,465 27 0.16 Milk marketing Hauling 208,671 125 0.75 Coop dues 40,475 24 0.15 Advertising, marketing 45,485 27 0.16 CCC/government assessments 36,080 22 0.13 Real estate Land, bldg, fence repair 53,360 32 0.19 Taxes 46,496 28 0.17 Rent & lease 33,673 20 0.12 Other Insurance 86,545 52 0.31 Utilities (dairy share) 108,050 65 0.39 Interest 199,584 119 0.72 Miscellaneous 38,707 23 0.14 Other overhead 23,629 14 0.08 Total operating expenses 4,593,558 2,750 16.51 1 Twenty dairies included in this summary.
Table 8. Average operating expenses for upper 25th percentile by NOIC.1,2 Expenses Totals Per cow Per cwt. Personnel Salaries/wages 1,128,346 432 2.10 Other payroll costs 174,802 67 0.33 Other 35,342 14 0.07 Purchased feed Grain & concentrate 2,070,230 793 3.86 Forage 126,590 48 0.24 Complete ration -- -- -- Other feed 1,485,412 569 2.77 Crops Fertilizer & lime 95,302 36 0.18 Seeds & plants 10,824 4 0.02 Spray & other expenses 10,457 4 0.02 Machinery
Hire, rent, lease 44,184 17 0.08 Repairs & other expenses 284,054 109 0.53 Fuel, oil, grease 67,518 26 0.13 Livestock Replacements -- -- -- Breeding 58,523 22 0.11 Vet & medicine
261,416 100 0.49 Bedding 14,039 5 0.03 Milking supplies 121,159 46 0.23 Cattle lease/rent 5,803 2 0.01 Other livestock expenses 100,076 38 0.19 Milk marketing Hauling 372,160 143 0.69 Coop dues 74,073 28 0.14 Advertising, marketing 108,297 41 0.20 CCC/government assessments 53,020 20 0.10 Real estate Land, bldg, fence repair 94,820 36 0.18 Taxes 65,757 25 0.12 Rent & lease 34,752 13 0.06 Other Insurance 122,287 47 0.23 Utilities (dairy share) 183,368 70 0.34 Interest 360,086 138 0.67 Miscellaneous 156,350 60 0.29 Other overhead 115,924 44 0.22 Total operating expenses 7,834,971 3,000 14.60 1 Net operating income per cow. 2 Three dairies included in this summary.
Table 9. Comparison of operating expenses per cwt. by herd size. Herd size1 Category 1-350 350-600 600-1000 1000-2500 2500+ Personnel 2.31 2.88 3.06 2.63 2.68 Purchased feed 8.02 8.24 7.49 6.95 7.21 Crops 0.14 0.07 0.43 0.25 0.26 Machinery 0.67 0.72 0.99 0.74 0.70 Livestock 1.87 1.80 1.68 2.54 1.63 Marketing 1.47 1.15 1.14 1.12 1.16 Real estate 0.71 0.27 0.60 0.39 0.43 Other 1.57 1.88 2.12 1.39 1.24 Total operating expenses 16.75 17.01 17.51 16.02 15.32 NOIC2 -65.92 167.04 -99.12 105.85 157.69 Assets/cow3 N/A N/A 6222 4704 N/A ROA4 N/A N/A -0.03 0.04 N/A Cows 198 449
701 1674 5137 Milk sold/cow 12,215 15,020 16,575 15,863 17,601 1 Herd size rankings dependent upon distribution for all dairies observed (all, n=20; 1-350, n=3; 350-600, n=3; 600-1000, n=5; 1000-2500, n=5; and 2500+, n=4). 2 Represents operating costs and income, not including depreciation and capital outlays for expansion. 3 Asset information was compiled from level 2 dairies ranked by size (1-350, n=0; 350-600, n=0; 600-1000, n=3; 1000-2500, n=3; 2500+, n=0).
4 Return on Assets (ROA) calculated by adding reported interest expense and subtracting $50,000 for unpaid labor and management from net farm income, dividing the remainder by ending total assets.
Table 10. Average operating expenses per cwt. By milk sales per cow. Milk sold per cow1 Category <14,000
14,000-16,000 16,000-19,000 >19,000 Personnel 2.04 3.12 2.82 2.63 Purchased feed 8.30 7.23 7.53 6.97 Crops 0.19 0.47 0.14 0.06 Machinery 0.60 0.83 0.91 0.66 Livestock 2.42 2.02 1.77 1.42 Marketing 1.27 1.35 0.95 1.18 Real estate 0.72 0.42 0.49 0.27 Other 1.52 1.57
2.01 1.25 Total operating expenses 17.05 17.01 16.61 14.44 NOIC2 -1.22 1.04 14.89 291.98 Assets /Cow3 -- 4,642 5,387 -- ROA4 -- -0.03 0.03 -- Cows 526 2,762 1,040 2,228 Milk sold/cow 11,379 14,790 17,320 20,443 1 Based on annual milk sales per cow (<14,000, n=4; 14,000-16,000, n=7; 16,000-19,000, n=6; >19,000, n=3). 2 Represents operating costs and income, not including depreciation and capital outlays for expansion. 3 Asset information was compiled from level 2 dairies (<14,000, n=0; 14,000-16,000, n=4; 16,000-19,000, n=4; >19,000, n=0).
4 Return on Assets (ROA) calculated by adding reported interest expense and subtracting $50,000 for unpaid labor and management from net farm income, dividing the remainder by ending total assets.
Table 11. Labor efficiency measures in dairies participating in DBAP. Pounds milk sold per person Item <600,000 600,000-900,000 >900,000 Number of dairies 5 7 5 Pounds milk sold/ person 504,726 772,447 1,030,221 Cows/person 38.6 49.2 65.7 Milk sold/cow 13,557 16,417 15,831 Total cows 435 1,706 3,065 Personnel cost/cwt. milk produced 3.17 2.48 2.81 Personnel cost/cow 452.60 416.71 450.29
Table 12. Average operating expenses per cwt. by region. Region1 Category Panhandle North/Central Southern Personnel -- 2.73 2.78 Purchased feed -- 7.42 7.76 Crops -- 0.14 0.20 Machinery -- 0.76 0.73 Livestock -- 1.28 2.25 Marketing -- 1.11 1.11 Real estate -- 0.47 0.52 Other -- 1.78 1.50 Total operating expenses -- 15.70 16.85 NOIC2 -- 148.99 27.81 Assets /cow3 -- 3,611 4,345 ROA4 -- 0.034 -0.04 Cows -- 1,282 2,427 Milk sold/cow -- 18,054 13,879 1 Area rankings dependent upon geographic location (Panhandle, n=0; north/central, n=9; southern, n=9). 2 Represents operating costs and income, not including depreciation and capital outlays for expansion. 3 Asset information was compiled from level 2 dairies ranked by size (Panhandle, n=0; north/central, n=6; southern, n=4).
4 Return on Assets (ROA) calculated by adding reported interest expense and subtracting $50,000 for unpaid labor and management from net farm income, dividing the remainder by ending total assets.
Table 13. Average operating expenses per cwt. for heifer raisers and nonraisers. Category Raised1 Not raised1 Personnel 2.84 2.33 Purchased feed 7.67 6.79 Crops 0.25 0.28 Machinery 0.77 0.84 Livestock 1.67 3.00 Marketing 1.18 1.22 Real estate 0.50 0.38 Other 1.68 1.49 Total operating expenses 16.56 16.33 NOIC2 60.50 57.51 Assets/cow3 4,461 4,433 ROA4 -0.014 0.011 Cows owned
1,776 1,249 Heifers owned
1,155 -- Milk sold/cow 15,605 15,361 1 Heifer category determined by a minimum of 30 percent heifers of total cows (heifers raised, n=16; not raised, n=4). 2 Represents operating costs and income, not including depreciation and capital outlays for expansion. 3 Asset information was compiled from level 2 dairies (heifers raised, n=9; not raised, n=3).
4 Return on Assets (ROA) calculated by adding reported interest expense and subtracting $50,000 for unpaid labor and management from net farm income, dividing the remainder by ending total assets.
Table 14. Average operating expenses per cwt. for cropping enterprises. Category
Raised1
Not raised1
Personnel 2.74 2.73 Purchased feed 7.71 7.16 Crops 0.33 0.14 Machinery 0.84 0.70 Livestock 2.00 1.83 Marketing 1.26 1.08 Real estate 0.54 0.40 Other 1.71 1.55 Total operating expenses 17.13 15.59 NOIC2
-4.17 127.22 Assets/cow3 4,915 3,808 ROA4 -0.047 0.048 Cows owned 1,946 1,257 Milk sold/cow 14,600 17,388 1 Cropping category determined by a minimum of 0.25 ton dry matter harvested per cow for crop raiser (crop raised, n=12; no crops raised, n=8). 2 Represents operating costs and income, not including depreciation and capital outlays for expansion. 3 Asset information was compiled from level 2 dairies (crops raised, n=7; no crops, n=5).
4 Return on Assets (ROA) calculated by adding reported interest expense and subtracting $50,000 for unpaid labor and management from net farm income, dividing the remainder by ending total assets.
Table 15. Expenses per cwt. by milking frequency. Frequency Category 2X1 3X2 Personnel 2.66 2.80 Purchased feed 7.68 7.34 Crops 0.31 0.21 Machinery 0.77 0.79 Livestock 2.03 1.86 Marketing 1.28 1.11 Real estate 0.47 0.49 Other 1.49 1.77 Total operating expenses 16.69 16.36 NOIC3 -37.43 118.60 Assets/cow4 4,714 3,968 ROA5 -0.061 0.019 Average cows 1,081 2,239 Production/cow 14,365
16,819 1 Average for dairies milking two times daily (n=9).
2 Average for dairies milking three times daily (n=11). 3 Represents operating costs and income, not including depreciation and capital outlays for expansion. 4 Asset information was compiled from level 2 dairies (2X, n=4; 3X, n=8).
5 Return on Assets (ROA) calculated by adding reported interest expense and subtracting $50,000 for unpaid labor and management from net farm income, dividing the remainder by ending total assets.
Table 16. Average balance sheet per cow1. Dairy assets Dec. 31 Dairy liabilities & net worth Dec. 31 Current Current Farm cash, checking, savings 3.56 Accounts payable 72.90 Accounts receivable 199.26 Operating debt 114.02 Prepaid expenses 10.22 Short term debt 236.26 Feed & supplies 87.64 Advanced govt recpts. --- Total current 300.67 Current portion Intermediate --- Long term --- Total current 423.17 Intermediate Dairy cows Intermediate Owned 1,028.81 Leased 16.09
Debt 1-9 years 401.11 Heifers 311.64 Financial leases (cattle & machines) --- Bull & other livestock 27.36 Farm credit stock 5.91 Machinery Total intermediate 407.02 Owned 710.64 Leased --- Farm credit stock 20.74 Other stocks & certificates 75.20 Long term Total intermediate 2,190.48 Debt >10 years 774.88 Financial leases (real estate & bldgs): --- Long term Total long term 774.88 Land and buildings Owned 1,929.66 Leased --- Total liabilities 1,605.06 Total long term 1,929.66 Net worth 2,815.75 Total assets 4,420.81 Total liabilities & net worth 4,420.81 1 Twelve dairies included in this summary.
Table 17. Average ratios for all dairies 1. Measure Computation Average Liquidity Current ratio Current assets/current liabilities 1.32 Solvency Debt to asset ratio Total liabilities/total assets 0.36 Equity to asset ratio Net worth/total assets 0.64 Debt to equity ratio Total liabilities/net worth 0.69 Profitability Rate of return on farm assets2 (Net farm operating income + interest - unpaid mgt.)/average total assets, etc. -0.01 Rate of return on farm equity2 (Net farm operating income - unpaid mgt.)/average net worth -0.06 Operating profit margin ratio2 (Net farm operating income + interest - unpaid mgt.)/gross revenues -0.10 Financial efficiency
Asset turnover ratio Gross revenues/average total assets 0.72 Operating expense ratio (Total operating expenses - depreciation expense)/gross revenues 0.94 Depreciation expense ratio Depreciation expense/gross revenues 0.11 Interest expense ratio Total farm interest expense/gross revenues 0.05 Net farm income from operations ratio Net farm income from operations/gross revenues (-0.07) 1 Twelve dairies included in this summary. 2 An estimate of $50,000 was used for the value of unpaid management.
1. Cash expenses classified as capital expenditures are not used in the compilation of net farm income.
Footnotes
1. This document is CIR1199, one of a series of the Animal Science Department, Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida. Original publication date May 1, 1998. Revised September 2001. Reviewed January 2008. Visit the EDIS Web Site at http://edis.ifas.ufl.edu.2. M. Hoekema, R. Giesy, P. Miller, M. Sowerby, R. Tervola, D. Solger, P. Joyce, T. Seawright, M. DeLorenzo, Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida, Gainesville, 32611. This work is supported by Florida dairy farmers through Florida Dairy Farmers Assoc., Inc. and Tampa Independent Dairy Farmers Assoc., Inc. via the Florida Dairy Checkoff
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U.S. Department of Agriculture, Cooperative Extension Service, University of Florida, IFAS, Florida A. & M. University Cooperative Extension Program, and Boards of County Commissioners Cooperating. Larry Arrington, Dean.
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