JULy 1997 E.B.97-0 o THE HUD 0 EGIO 1996 Stuart F. mith Linda D. Putnam Cathy . Wick wat andra Buxton David R. Wood Department of A ricultural, esource, and Managerial Economics College f Agricultur .and Life Science Corne Uni ersit ,Ithaca, New York 14853.7801 It is the Policy of Cornell University actively to support equality of educa1ional and employment opportnnity No person shall be denied admission to any educational program or activity or be denied employment on the basis of any legally prohibited discrimination involving. but not limited to, such factors as race. color, creed. religion. natIonal or ethnic origin. sex. age or handicap. 1b.e University is committed to the maintenance of affirmative action programs which will assure the continuation of such equality of opportunity. - 1996 DAIRY FARM BUSINESS SUMMARY Northern Hudson Region Table of Contents INTRODUCTION 1 Program Objectives 1 Format Features 1 SUMMARY AND ANALYSIS OF THE FARM BUSINESS 2 Business Characteristics 2 Income Statement 2 Profitability Analysis 4 Farm and Family Financial Status 7 Statement of Owner Equity 11 Cash Flow Statement 12 Repayment Analysis 14 Cropping Analysis 16 Dairy Analysis 18 Capital and Labor Efficiency Analysis 20 COMPARATIVE ANALYSIS OF THE FARM BUSINESS 21 Progress of the Farm Business 21 Regional Farm Business Chart 22 New York State Farm Business Chart 23 . Financial Analysis Chart 25 Comparisons by Type of Barn and Herd Size 26 Herd Size Comparisons 26 IDENTIFY AND SET GOALS 33 GLOSSARY AND LOCAnON OF COMMON TERMS 35 INDEX 38 - 1996 DAIRY FARM BUSINESS SUMMARY NORTHERN HUDSON REGION INTRODUCTION Dairy farm managers throughout New York State have been participating in Cornell Cooperative Extension's farm business summary and analysis program since the early 1950's. Managers of each participating farm business receive a comprehensive summary and analysis of the farm business. The information in this report represents an average of the data submitted from dairy farms in the Northern Hudson Region for 1996. Program Objective The primary objective of the dairy farm business summary, DFBS, is to help farm managers improve the business and financial management of their business through appropriate use of historical farm data and the application of modern farm business analysis techniques. This information can also be used to establish goals that will enable the business to bet­ ter meet its objectives. In short, DFBS provides business and financial information needed in identifying and evaluating strengths and weaknesses of the farm business. Format Features This regional report follows the same general format as in the 1996 DFBS individual farm report received by all participating dairy farmers. The analysis tables have an open column or section labeled My Farm. It may be used by any dairy farm manager who wants to compare his or her business with the average data of this region. A DFBS Data Check-in Form can be used by non-DFBS participants to summarize their businesses. This report features: (1) an income statement including accrual adjustments for farm business expenses and receipts, as well as measures of profitability with and without appreciation, (2) a complete balance sheet with analytical ratios; (3) a statement of owner equity which shows the sources of the change in owner equity during the year; (4) a cash flow statement and debt repayment ability analysis; (5) an analysis of crop acreage, yields, and expenses; (6) an analysis of dairy livestock numbers, production, and expenses; and (7) a capital and labor efficiency analysis. *The Northern Hudson Region of New York State, with the number of participating farms in parentheses, is comprised of Albany (5), Saratoga (8), Schenectady (3), Rensselaer (20), Washington (10), and Greene (1) counties. This report was written.by Stuart F. Smith, Senior Extension Associate, Farm Management. Linda D. Putnam was in charge of data prepa­ ration. Melody Clark prepared the publication. Farm business data were collected by Cooperative Extension Agents Cathy Wickswat, Sandra Buxton, and David Wood. - 2 SUMMARY AND ANALYSIS OF THE FARM BUSINESS Business Characteristics Planning the optimal management strategies is a crucial component of operating a successful farm. Various com­ binations of farm resources, enterprises, business arrangements, and management techniques are used by the dairy farmers in this region. The following table shows important farm business characteristics and the number of farms with each char­ acteristic. BUSINESS CHARACTERISTICS 47 Northern Hudson Region Dairy Farms, 1996 Type of Farm Dairy Part-time dairy Dairy cash-crop Number 45 0 2 Type of Ownership Owner Renter Number 44 3 Type of Business Sole Proprietorship Partnership Corporation Number 23 21 3 Type of Barn Stanchion or Tie-Stall Freestall Combination Number 13 30 4 Milking Frequency 2 times per day 3 times per day Other Number 34 9 4 Milking System Bucket & carry Dumping station Pipeline Herringbone parlor Other parlor Number 0 0 16 26 5 Production Records DHIC Owner-Sampler Other None Number 36 3 3 5 bST Usage Used on <25% of herd Used on 25-75% of herd Used on >75% of herd Stopped using in 1996 Not used in 1996 Number 6 20 0 2 19 Business Record System Account Book Agrifax (mail-in only) On-farm computer Other Number 3 8 22 14 The averages used in this report were compiled using data from all the participating dairy farms in this region un­ less noted otherwise. There are full-time dairy farms, part-time farms, dairy cash-crop farms, farm renters, partnerships, and corporations included in the average. Average data for these specific types of farms are presented in the State Business Summary. Income Statement In order for an income statement to accurately measure farm income, it must include cash transactions and accrual adjustments (changes in accounts payable, accounts receivable, inventories, and prepaid expenses). Cash paid is the actual cash outlay during the year and does not necessarily represent the cost of goods and services actually used in 1996. Change in inventory: Increases in inventories of supplies and other purchased inputs are subtracted in computing accrual expenses because they represent purchased inputs not actually used during the year. Decreases in purchased inventories are added to expenses because they represent inputs purchased in a prior year and used this year. - 3 CASH AND ACCRUAL FARM EXPENSES 47 Northern Hudson Region Dairy Fanns, 1996 Expense Item Hired Labor Feed Dairy grain & concentrate Dairy roughage Nondairy Machinery Machinery hire, rent & lease Machinery repairs & fann vehicle expo Fuel, oil & grease Livestock Replacement livestock Breeding Veterinary & medicine Milk marketing Bedding Milking supplies Cattle lease & rent Custom boarding Other livestock expense Crops Fertilizer & lime Seeds & plants Spray, other crop expense Real Estate Land, building & fence repair Taxes Rent & lease Other Insurance Utilities (farm share) Interest paid Miscellaneous Total Operating Expansion livestock Machinery depreciation Building depreciation TOTAL ACCRUAL EXPENSES Cash Paid $ 51,230 Change in Inventory or Prepaid Expense $ -138 139,787 4,487 26 « Change in Accounts Payable $ 118 = Accrual Expenses $ 51,486 5,606 -10 -3,098 527 o o 131,083 5,023 26 « -76 130 -1 4,611 30,952 12,852 « -9 -13 -158 -32 o 4,687 30,983 12,874 + 161 21 o 62 7 2,085 5,661 13,250 26,010 4,305 10,192 130 2,610 12,153 14,158 7,461 8,203 957 611 462 709 198 -233 13,909 7,048 7,508 6,771 9,181 6,753 90 o o « « -150 197 50 6,531 9,377 6,803 4,469 12,220 21,796 4,246 -22 -2 « « « -23 -2 -249 14 4,469 12,220 21,547 4,246 $ -2,032 $ 406,090 3,746 15,618 10,233 $ 435,687 2,094 5,681 14,063 26,042 4,346 10,197 130 2,610 12,208 $416,704 3,746 7 655 o « o 41 68 o o o 63 « « 13 $ 8,583 o « o o o Change in prepaid expenses (noted above by «) is a net change in non-inventory expenses that have been paid in advance of their use. For example, prepaid lease expense on the beginning of year balance sheet represents last year's payment for use of the asset during this year. End of year prepaid expense represents payments made this year for next year's use of the asset. Adding payments made last year for this year's use of the asset, and subtracting payments made this year for next year's use of the asset is accomplished by subtracting the difference. Change in accounts payable: An increase in accounts payable from beginning to end of year is added when calculating ac­ crual expenses because these expenses were incurred (resources used) in 1996 but not paid for. A decrease is subtracted because it represents payment for resources used before 1996. Accrual expenses are an estimate of the costs of inputs actually used in this year's production. They are the cash paid, less changes in inventory and prepaid expenses, plus accounts payable. ­ 4 CASH AND ACCRUAL FARM RECEIPTS 47 Northern Hudson Region Dairy Farms, 1996 Receipt Item Milk sales Dairy cattle Dairy calves Other livestock Crops Government receipts Custom machine work Gas tax refund Other Less nonfarm noncash capital** Total Receipts Cash Receipts Change in Inventory + $ 437,045 16,230 2,034 309 6,166 8,454 381 264 2,207 + $ $ 10,354 Accrual Receipts = $ 913 -21 °° ° °° -902 3,427 138* 491 -41 (-) $ 473,092 Change in Accounts Receivable $ 579 ** 12,438 $ 1,341 (- ) $ 437,958 26,563 2,034 -593 10,084 8,592 341 264 2,207 579 486,871 *Change in advanced government receipts. **Gifts or inheritances of cattle or crops inchided in inventory. Cash receipts include the gross value of milk checks received during the year plus all other payments received from the sale of farm products, services, and government programs. Nonfarm income is not included in calculating farm profitability. Changes in inventory of assets produced by the business are calculated by subtracting beginning of year values from end of year values excluding appreciation. Increases in livestock inventory caused by herd growth and/or quality are added, and decreases caused by herd reduction and/or quality are subtracted. Changes in inventories of crops grown are also included. An increase in advanced government receipts is subtracted from cash income because it represents income received in 1996 for the 1997 crop year in excess of funds earned for 1996. Likewise, a decrease is added to cash government receipts be­ cause it represents funds earned for 1996 but received in 1995. Changes in accounts receivable are calculated by subtracting beginning year balances from end year balances. Payments in January for milk produced in December 1996 compared to January 1996 payments for milk produced in 1995 are included as a change in accounts receivable. Accrual receipts represent the value of all farm commodities produced and services actually generated by the farm business during the year. Profitability Analysis Farm operators· contribute labor, management, and equity capital to their businesses and the combination of these resources, and the other resources used in the business, determines profitability. Farm profitability can be measured as the return to all family resources or as the return to one or more individual resources such as labor and management. These measures should be considered estimates as they include inventory values that are only estimates and they include an unknown degree of error stemming from cash flow imbalances. • Operators are the individuals who are integrally involved in the operation and management of the farm business. They are not limited to those who are the owner of a sole proprietorship or are formally a member of the partnership or corporation. - 5 Net fann income is the return to the fann operators and other unpaid family members for their labor. management, and eq­ uity capital. It is the farm family's net annual return from working, managing, and financing the fann business. This is not a measure of cash available from the year's business operation. Cash flow is evaluated later in this report. Net fann income is computed both with and without appreciation. Appreciation represents the change in values caused by annual changes in prices of livestock, machinery, real estate inventory, and stocks and certificates (other than Farm Credit). Appreciation is a major factor contributing to changes in fann net worth and must be included for a complete profitability analysis. NET FARM INCOME 47 Northern Hudson Region Dairy Farms, 1996 Total Item Average Per Cow $ 486,871 274 -170 5,943 90 $ 493,008 435,687 $ 57,321 $ 51,184 Total accrual receipts Appreciation: Livestock Machinery Real Estate Other Stock & Certificates Total Including Appreciation Total accrual expenses Net Fann Income (with appreciation) Net Fann Income (without appreciation) Total MyFann. Per Cow $--­ $--­ $ 407 $ 363 $--­ $--­ $--­ $--­ The chart below shows the relationship between net farm income per cow (with appreciation) and pounds of milk sold per cow. Generally, farms with a higher production per cow have higher profitability per cow. NET FARM INCOMFJCOW AND MILK/COW 47 Northern Hudson Region Dairy Fanns, 1996 1400 • 1200 • 1000 ~ c • 800 U_ ~ ~Oo • E~ c ca .s Col '[Joo •• Q,l E ~oo ~~ .... !,o • ,.,. Q,l Z foI'7 ~ ,.,. -200 ~ • -400 •• • • • • •• •• • • • •• • • • •• •• • • • • • • • • • • . . S 0 0 0 C'l 0 ~ - • -600 80 ~ 0 0 0 \0 § 0 0 0 0 Pounds Milk Sold Per Cow 00 C'l § C'l C'l 0 8'<t C'l § § \0 C'l 00 C'l 6 Labor and management income is the return which farm operators receive for their labor and management used in the farm business. Appreciation is not included as part of the return to labor and management because it results from ownership of assets rather than management of the farm business. Labor and management income is calculated by deducting a charge for family labor unpaid and the opportunity cost of using equity capital, at a real interest rate of five percent, from net farm in­ come excluding appreciation. The interest charge of five percent reflects the long-term average rate of return above infla­ tion that a farmer might expect to earn in comparable risk investments. LABOR AND MANAGEMENT INCOME 47 Northern Hudson Region Dairy Farms, 1996 Average Item $ Net farm income without appreciation Family labor unpaid @ My Farm 51,184 $---­ 4,050 $1,500 per month Interest on $717,136 average equity capital @ 35,857 5% real rate Labor & Management Income per farm (1.68 Operators/farm) $ 11,277 $----­ Labor & Management Income per OperatorlManager $ 6,713 $---­ Labor and management income per operator averaged $6,713 on these 47 farms in 1996. The range in labor and management income per operator was from about $-60,000 to more than $110,000. Returns to labor and management were negative on 45% of the farms. Labor and management income per operator was between $0 and $20,000 on 30% of the farms while 25% showed labor and management incomes of $20,000 or more per operator. DISTRIBUTION OF LABOR & MANAGEMENT INCOMES PER OPERATOR 47 Northern Hudson Region Dairy Farms, 1996 19 20 18 16 til e ; 14 12 ~ .... e ... 10 5u ... 8 ~ ~ 6 - 4 2 0 <-30 -30 to-1O -10 to 0 o to 10 10 to 20 20 to 30 Labor and Management Income (thousand dollars) 30 to 40 >40 7 Return on equity capital measures the net return remaining for the farmer's equity or owned capital after a charge has been made for the owner-operator's labor and management. The earnings or amount of net farm income allocated to labor and management is the opportunity cost of operators' labor and management estimated by the cooperators. Return on equity capital is calculated with and without appreciation. The rate of return on equity capital is determined by dividing the amount returned by the average farm net worth or equity capital. Return on total capital is calculated by adding interest paid to the return on equity capital and then dividing by average farm assets to calculate the rate of return on total capital. RETURN ON EQUITY CAPITAL AND RETURN ON TOTAL CAPITAL 47 Northern Hudson Region Dairy Farms, 1996 Average Item Net farm income with appreciation $ 57,321 Family labor unpaid @$1,500 per month 4,050 Value of operators' labor & management 32,936 My Farm $---­ Return on equity capital with appreciation $ 20,335 $---­ Interest paid + 21,547 +---­ Return on total capital with appreciation $ 41,882 $--­ Return on equity capital without appreciation $ 14,198 $---­ Return on total capital without appreciation $ 35,745 $--­ Rate of return on average equity capital: with appreciation 2.8% ---_% without appreciation 2.0% ---_% with appreciation 4.1% ---_% without appreciation 3.5% ---_% Rate of return on average total capital: Farm and Family Financial Status The first step in evaluating the financial position of the farm is to construct a balance sheet which identifies and values all the assets and liabilities of the business. The second step is to evaluate the relationship between assets, liabilities, and net worth and changes that occurred during the year. Financial lease obligations are included in the balance sheet. The present value of all future payments is listed as a liability since the farmer is committed to make the payments by signing the lease. The present value is also listed as an asset, repre­ senting the future value the item has to the business. For 1996, lease payments were discounted by 8.75 percent to obtain their present value. Advanced government receipts are included as current liabilities. Government payments received in 1996 that are for par­ ticipation in the 1997 program are the end year balance and payments received in 1995 for participation in the 1996 pro­ gram are the beginning year balance. Current Portion or principal due in the next year for intermediate and long term debt is included as a current liability. - 8 1996 FARM BUSINESS & NONFARM BALANCE SHEET 47 Northern Hudson Region Dairy Farms, 1996 Jan. I Fann Assets Current Fann cash, checking & savings Accounts receivable Prepaid expenses Feed & supplies Total Current Intermediate Dairy cows: owned leased Heifers Bulls & other livestock Mach. & equip. owned Mach. & equip. leased Fann Credit stock Other stock/certificate Total Intermediate $ 4,350 Dec. 31 $ 30,474 263 74,660 $ 109,747 $ 148,880 27 63,872 3,170 161,658 1,941 9,428 17,258 $ 406,234 5,493 31,815 101 86,832 $ 124,241 $ 154,855 19 68,541 2,254 167,725 1,701 8,605 18,393 $ 422,093 Farm Liabilities & Net Worth Current Accounts payable Operating debt Short Term Advanced govt. receipts Current Portion: Intermediate Long Term Total Current Intermediate Structured debt 1-10 years Financial lease (cattle/machinery) Fann Credit stock Total Intermediate Long Term Land & buildings: owned leased Total Long Term $ 482,780 0 $ 482,780 $ 487,253 0 $ 487,253 Long Term Structured debt >10 years Financial lease (structures) Total Long Term Total Fann Assets $ 998,761 $1,033,587 Total Farm Liab. FARM NET WORTH Dec. 31 Jan. I $ 14,703 9,648 1,414 298 $ 12,671 13,516 670 160 23,532 6,329 $ 55,924 26,577 6,213 59,806 $ $112,974 $ 117,114 1,968 9,428 $124,370 1,720 8,605 $ 127,439 $ 119,253 $ 111,285 0 $ 119,253 0 $ 111,285 $ 299,547 $ 699,214 $ 298,530 $ 735,057 Nonfann Assets, Liabilities & Net Worth (Average of 22 farms reporting) Assets Personal cash, checking & savings Cash value life insurance Nonfann real estate Auto (personal share) Stocks & bonds Household furnishings All other nonfann assets Total Nonfann Assets Jan. 1 $ $ 2,697 10,788 17,795 2,364 10,749 10,682 12,016 67,091 Dec. 31 $ $ 2,413 12,921 17,795 2,455 10,665 9,091 11,581 66,921 Fann & Nonfann Assets, Liabilities, and Net Worth* Liabilities & Net Worth Nonfarm Liabilities $ Jan. 1 1,537 $ Dec. 31 1,400 NONFARM NET WORTH $ 65,554 $ 65,521 Jan. 1 Dec. 31 Total Assets $ 1,065,852 $ 1,100,508 Total Liabilities 301,084 299,930 TOTAL FARM & NONFARM NET WORTH $ 764,768 $ 800,578 *Assumes that average nonfarm assets and liabilities for the nonreporting fanns were the same as for those reporting. - 9 The following condensed balance sheet, including deferred taxes, contains average data from only those fanners who elected to provide the additional information required to compute deferred taxes. Deferred taxes represent an estimate of the taxes that would be paid if the farm were sold at year end fair market values on the date of the balance sheet. Accuracy is dependent on the accuracy of the market values and the tax basis data provided. Any tax liability for assets other than livestock, machinery, land, buildings and nonfann assets is excluded. It is assumed that all gain on purchased livestock and machinery is ordinary gain and that listed market values are net of selling costs. The effects of investment tax credit carryover and recapture, carryover of operating losses, alternative minimum taxes and other than average exemptions and deductions are excluded because they have only minor influence on the taxes of most farms. The dramatic impact of including deferred taxes is clear. Total liabilities were increased 42 percent on these II fanns by including deferred taxes. CONDENSED BALANCE SHEET INCLUDING DEFERRED TAXES December 31, 1995 II New York Dairy Farms, 1995 Liabilities & Net Worth Assets Current debts & payabies $ 76,367 Current deferred taxes Total Current Assets $ 128,267 Total Current Liabilities Intermediate debts & leases $ 171,574 $ 132,835 Intermediate deferred taxes Total Inter. Assets $ 470,523 Total Intermediate Liabilities Long term debts & leases 95,207 124,500 $ 257,335 $ 142,335 68,412 Long term deferred taxes Total Long Term Assets $ 427,795 Total Long Term Liabilities $ 210,804 TOTAL FARM ASSETS $ 1,026,585 TOTAL FARM LIABILITIES $ 639,713 Farm Net Worth $ 386,872 Percent Equity (Farm) Nonfann debts 38% $ Nonfann deferred taxes Total Nonfann Assets $ 49,423 TOTAL ASSETS $ 1,076,008 55 12,287 Total Nonfann Liabilities $ 12,842 TOTAL LIABlLmES $ 652,555 Total Net Worth $ 423,453 Percent Equity (Total) 39% - 10 Balance sheet analysis involves examination of relative asset and debt levels for the business. Percent equity is calculated by dividing end of year net worth by end of year assets and multiplying by 100. The debt to asset ratio is compiled by di­ viding liabilities by assets. Low debt to asset ratios reflect business solvency and the potential capacity to borrow. Debt levels per productive unit represent old standards that are still useful if used with measures of cash flow and repayment abil­ ity. BALANCE SHEET ANALYSIS 47 Northern Hudson Region Dairy Farms, 1996 Average Item Financial Ratios - Farm: Percent equity Debt/asset ratio: total long-term intermediatelcurrent Farm Debt Analysis: Accounts payable as % of total debt Long-term liabilities as a % of total debt Current & inter. liabilities as a % of total debt Farm Debt Levels: Total farm debt Long-term debt Intermediate & long term Intermediate & current debt $ 71% 0.29 0.23 0.34 % 4% 37% 63% % % % Per Tillable Acre Owned $ 1,351 504 1,080 847 Per Cow 2,059 767 1,646 1,291 My Farm Per Cow $--­ Per Tillable Acre Owned $--­ Farm inventory balance is an accounting of the value of assets used on the balance sheet and the changes that occur from the beginning to end of year. Changes in the livestock inventory are included in the dairy analysis. Net investment indicates whether the capital stock is being expanded (positive) or depleted (negative). FARM INVENTORY BALANCE 47 Northern Hudson Region Dairy Farms, 1996 Item Average of Region's Farms Real Estate Machinery & Equipment $ 482,780 $ 161,658 Value beginning of year Purchases Gift & inheritance Lost capital Sales Depreciation $ + 12,665* 851 3,065 1,688 10,233 $ + 22,666 665 1,477 15;618 Net investment Appreciation = + -1,470 5,943 = + 6,237 -170 Value end of year $ 487,253 $ 167,725 *$722 land and $11,943 and/or depreciable improvements. - 11 The Statement of Owner Equity has two purposes. It allows (1) verification that the accrual income statement and market value balance sheet are consistent (in accountants terms, they reconcile) and (2) identification of the causes of change in equity that occurred on the farm during the year. The Statement of Owner Equity allows you to determine to what degree the change in equity was caused by (1) earnings from the business, and nonfarm income, in excess of withdrawals being retained in the business (called retained earnings), (2) outside capital being invested in the business or farm capital being removed from the business (called contributed/withdrawn capital) , (3) increases or decreases in the value (price) of assets owned by the business (called change in valuation equity), and (4) the error in the business cash flow accounting. Retained earnings is an excellent indicator of farm generated financial progress. STATEMENT OF OWNER EQUITY (RECONCILIATION) 47 Northern Hudson Region Dairy Farms, 1996 Average Item My Farm $ 699,214 Beginning of year farm net worth $--­ Net farm income w/o appreciation +Nonfarm cash income -Personal withdrawals & family expenditures excluding nonfarm borrowings RETAINED EARNINGS $ 51,184 + 9,755 Nonfarm noncash transfers to farm +Cash used in business from nonfarm capital -Note or mortgage from farm real estate sold (nonfarm) CONTRIBUTEDfWITHDRAWN CAPITAL $ 2,095 $--­ + 7,547 +---­ Appreciation -Lost capital CHANGE IN V ALUATION EQUITY IMBALANCEJERROR $ - $--­ +---­ 38,459 +$ 22,480 +$--­ 0 +$ 9,642 6,137 3,065 $--­ 3,072 -649 +$---­ -$--­ = $ 735,057 =$--­ $ 35,843 $--­ +$ End of year net worth* Change in net worth w/appreciation +$--­ Change in Net Worth Without appreciation With appreciation *May not add due to rounding. $ $ 29,706 35,843 $----­ $----­ - 12 Cash Flow Statement Completing an annual cash flow statement is an important step in understanding the sources and uses of funds for the business. Understanding last year's cash flow is the first step toward planning and managing cash flow for the current and future years. The annual cash flow statement is structured to show net cash provided by operating activities, investing activities, financing activities and from reserves. All cash inflows and outflows, including beginning and end balances, are included. Therefore, the sum of net cash provided from all four activities should be zero. Any imbalance is the error from incorrect accounting of cash inflows/outflows. You should be aware that all profitability measures may be affected by this error. ANNUAL CASH FLOW STATEMENT 47 Northern Hudson Region Dairy Farms, 1996 Item Cash Flow from Operating Activities Cash farm receipts Cash farm expenses = Net cash farm income = Personal withdrawals & family expenses including nonfarm debt payments Nonfarm income Net cash withdrawals from the farm Net Provided by Operating Activities Cash Flow From Investing Activities machinery Sale of assets: + real estate + other stock & cert. = Total asset sales Capital purchases: expansion livestock + machinery + real estate + other stock & cert. Total invested in farm assets = Net Provided by Investment Activities Cash Flow From Financing Activities Money borrowed (intermediate & long term) + Money borrowed (short term) + Increase in operating debt + Cash from nonfarm capital used in business + Money borrowed - nonfarm = Cash inflow from fmancing Principal payments (intermediate & long term) + Principal payments (short term) + Decrease in operating debt Cash outflow for financing = Net Provided by Financing Activities Cash Flow From Reserves Beginning farm cash, checking & savings Ending farm cash, checking & savings = Net Provided from Reserves Imbalance (error) Average $ $ 473,092 416,704 1,477 1,688 287 $ 3,746 22,666 12,665 1,332 $ 56,388 $ -28,935 38,690 9,755 $ $ $ $ 3,452 $ 40,409 $ 27,453 $ -36,957 $ 10,000 $ -1,143 $ -647 49,022 2,512 3,867 7,547 231 $ 63,179 $ 53,179 49,923 3,256 0 $ 4,350 5,493 ­ 13 ANNUAL CASH FLOW STATEMENT Item Cash Flow from Operating Activities Cash farm receipts Cash farm expenses = Net cash farm income = Personal withdrawals & family expenses including nonfarm debt payments Nonfarm income Net cash withdrawals from the farm Net Provided by Operating Activities Cash Flow From Investing Activities Sale of assets: machinery + real estate + other stock & cert. = Total asset sales Capital purchases: expansion livestock + machinery + real estate + other stock & cert. Total invested in farm assets = Net Provided by Investment Activities Cash Flow From Financing Activities Money borrowed (intermediate & long term) + Money borrowed (short term) + Increase in operating debt + Cash from nonfarm capital used in business + Money borrowed - nonfarm = Cash inflow from financing Principal payments (intermediate & long term) + Principal payments (short term) + Decrease in operating debt Cash outflow for financing = Net Provided by Financing Activities Cash Flow From Reserves Beginning farm cash, checking & savings Ending farm cash, checking & savings = Net Provided from Reserves Imbalance (error) $---­ $---­ $---­ $---­ $---­ $---­ $ $---­ $---­ $---­ $---­ $---­ - 14 Repayment Analysis A valuable use of cash flow analysis is to compare the debt payments planned for the last year with the amount actually paid. The measures listed below provide a number of different perspectives on the repayment performance of the business. However, the critical question to many farmers and lenders is whether planned payments can be made in 1996. The cash flow projection worksheet on the next page can be used to estimate repayment ability, which can then be compared to planned 1997 debt payments shown below. FARM DEBT PAYMENTS PLANNED Same 44 Northern Hudson Region Dairy Farms, 1995 & 1996 Debt Payments Average 1996 Payments Made Planned Long term Intermediate term Short term Operating (net reduction) Accounts payable (net reduction) Total $ 12,842 26,402 594 Per cow Per cwt. 1996 milk Percent of total 1996 farm receipts Percent of 1996 milk receipts $ $ ° ° $ My Farm 1996 Payments Planned Made Planned 1997 18,419 51,985 3,505 ° $ 39,838 $ 3,102 77,011 281 1.39 $ $ 542 2.68 8% 16% 9% 17% $ 8,565 26,161 Planned 1997 $--­ $--­ $ $--­ $--­ $ $--­ $---­ $--­ ° 1,106 126 $ 35,958 $--­ The cash flow coverage ratio measures the ability of the farm business to meet its planned debt payment schedule. The ratio shows the percentage of payments planned for 1996 (as of December 31, 1995) that could have been made with the amount available for debt service in 1996. Farmers who did not participate in DFBS in 1995 have their 1996 cash flow coverage ratio based on planned debt payments for 1997. CASH FLOW COVERAGE RATIO Same 44 Northern Hudson Region Dairy Farms, 1995 & 1996 Average Item My Farm Cash farm receipts Cash farm expenses + Interest paid - Net personal withdrawals from farm* $ 481,602 424,608 21,277 28,731 $ = Amount Available for Debt Service (B) = Debt Payments Planned for 1996 (as of December 31, 1995) (AlB) = Cash Flow Coverage Ratio for 1996 $ 49,540 $ $ 39,838 1.24 $ - (A) *Personal withdrawals and family expenditures less nonfarm income and nonfarm money borrowed. If family withdrawals are excluded, or inaccurately included, the cash flow coverage ratio will be incorrect. - Item Average no. of cows Total cwt. of milk sold Accrual Oper. Receipts Milk Dairy cattle Dairy calves Other livestock Crops Misc. Receipts Total Accrual Operating Expenses Hired labor Dairy grain & concentrate Dairy roughage Nondairy feed Mach. hire, rent & lease Mach. repair & vehicle expo Fuel, oil & grease Replacement livestock Breeding Vet & medicine Milk marketing Bedding Milking supplies Cattle lease Custom boarding Other livestock expo Fertilizer & lime Seeds & plants Spray & other crop expo Land, bldg., fence repair Taxes Real estate rent & lease Insurance Utilities Miscellaneous Total Less Interest Paid 15 ANNUAL CASH FLOW WORKSHEET My Farm Regional Average Per Cowl Per Cow Per Cwt. Per Cwt. 141 28,259 $ $ $ $ 3,106 188 14 -4 72 77 3,453 $ 365 930 36 0 33 220 91 15 40 94 184 31 72 1 19 86 99 50 53 46 67 48 32 87 30 2,727 $ Net Accrual Operating Income (without interest paid) - Change in livestock & crop invent.* - Change in accounts receivable - Change in feed & supply inventory** + Change in accounts payable*** NET CASH FLOW - Net family withdrawals Available for Farm - Farm debt payments Available for Farm Investment - Capital purchases Additional Capital Needed *Includes change in advance government receipts. terest account payable. $ $ Total $ 102,907 12,438 1,341 8,583 -1,783 $ 78,762 $ 28,704 $ 50,058 76,073 $ -26,015 $ 40,409 Expected Change 1997 Projection 15.50 0.94 0.07 -0.02 0.36 0.38 17.23 $ $ $ $. 1.82 4.64 0.18 0.00 0.16 1.10 0.45 0.07 0.20 0.47 0.92 0.15 0.36 0.00 0.09 0.43 0.49 0.25 0.27 0.23 0.33 0.24 0.16 0.43 0.15 13.61 $ $ $ $ $ $ $ $ $ $ $ **Includes change in prepaid expenses. $ $ ***Excludes change in in­ - 16 Cropping Analysis The cropping program is an important part of the dairy farm business and often represents opportunities for im­ proved productivity and profitability. A complete evaluation of what the available land resources are, how they are being used, how well crops are producing, and what it costs to produce them is important to evaluating alternative cropping and feed purchasing alternatives. LAND RESOURCES AND CROP PRODUCTION 47 Northern Hudson Region Dairy Farms, 1996 Average Item Land Tillable Nontillable Other nontillable Total Crop Yields Hay crop Corn silage Other forage Total forage Corn grain Oats Wheat Other crops Tillable pasture Idle Total Tillable Acres Owned 221 52 121 394 Rented 210 16 II 237 Farms 45 44 Acres* 221 136 4 45 31 4 3 5 5 10 431 42 358 91 22 32 My Farm Owned Total 431 68 132 631 Prod/Acre 2.2 tn DM 13.8 tn 4.5 tn DM 2.5 tn DM 3.1 tn DM 92.8 bu 40.6 bu 28.7 bu Prod/Acre tnDM tn tnDM tnDM tnDM bu bu bu *This column represents the average acreage for the farms producing that crop. Average acreages including those farms not producing were hay crop 212, corn silage 127, corn grain 60, oats 2, tillable pasture 9, and idle II. Average crop acres and yields compiled for the region are for the farms reporting each crop. Yields of forage crops have been converted to tons of dry matter using dry matter coefficients reported by the farmers. Grain production has been converted to bushels of dry grain equivalent based on dry matter information provided. The following crop/dairy ratios indicate the relationship between forage production, forage production resources, and the dairy herd. CROPIDAIRY RATIOS 47 Northern Hudson Region Dairy Farms, 1996 Item Total tillable acres per cow Total forage acres per cow Harvested forage dry matter, tons per cow Average 3.05 2.43 7.52 My Farm - 17 Cropping Analysis (continued) A number of cooperators have allocated crop expenses among the hay crop, corn, and other crops produced. Fer­ tilizer and lime, seeds and plants, and spray and other crop expenses have been computed per acre and per production unit for hay and corn. Additional expense items such as fuels, labor, and machinery repairs are not included. Rotational grazing was used on 2 in the region. CROP RELATED ACCRUAL EXPENSES Northern Hudson Region Dairy Farms Reporting, 1996 Item No. of farms reporting Ave. number of acres Fert. & lime Seeds & plants Spray & other crop expo TOTAL Total Per Till. Acre All Corn Per Acre Corn Grain Per Dry Sh. Bu. Corn Silage Per TonDM Pasture Hay Crop Per Per TonDM Acre 17 47 220 46.85 20.15 Per Till Acre 18 431 $ 32.35 16.39 $ 17.46 $ 66.20 44.32 $ 111.32 9.42 $ 23.67 $ Fert. & lime $-­ $-­ $ Seeds & plants Spray & other crop expo TOTAL $-­ $-­ $ $ 9.96 4.29 $ Per Total . Acre 0 222 $ 0 0.00 0.00 0.46 0.20 $ 17.20 7.67 0.43 1.09 3.65 $ 28.52 $ $ $ $ $ $ $ $ $ $ $ 8.06 3.59 1.71 13.36 $ 0.00 0.00 $ $ $ 0 0.00 0.00 0.00 0.00 My Farm Most machinery costs are associated with crop production and should be analyzed with the crop enterprise. Total machinery expenses include the major fixed costs (interest and depreciation), as well as the accrual operating costs. Al­ though machinery costs have not been allocated to individual crops, they are shown below per total tillable acre. ACCRUAL MACHINERY EXPENSES 47 Northern Hudson Region Dairy Farms, 1996 Average Machinery Expense Fuel, oil & grease Mach. repair & vehicle expo Machine hire, rent & lease Interest (5%) Depreciation Total My Farm Total Expenses $ $ 12,852 30,952 4,611 8,326 15,618 72,359 Per Till. Acre $ $ 29.89 71.98 10.72 19.36 36.32 168.28 Total Expenses Per Till. Acre $ $ $ $ ­ 18 Dairy Analysis Analysis of the dairy enterprise can reveal strengths and weaknesses of the dairy farm business. Information on this page should be used in conjunction with DHI and other dairy production information. Changes in dairy herd size and market values that occur during the year are identified in the table below. The change in inventory value without apprecia­ tion is attributed to physical changes in herd size and quality. Any change in inventory is included as an accrual farm re­ ceipt when calculating all of the profitability measures on pages 6 and 7. DAIRY HERD INVENTORY 47 Northern Hudson Region Dairy Farms, 1996 Dairy Cows Item Beg. year (owned) 140 + Change wlo apprec. + Appreciation End year (owned) End including leased Average number Value No. 145 145 141 $ 148,880 6,096 -121 $ 154,855 No. Bred Value 41 $ 40 $ 111 No. 36,968 -398 66 36,636 Heifer Open Value 32 $ 39 $ 17,159 4,144 383 21,686 No. 33 35 Calves Value 9,744 512 -38 $ 10,218 $ (all age groups) My Farm: Beg. year (owned) __ $ _ -- $-- --$-- --$-­ __ $ _ $-- --$-- --$-­ + Change wlo apprec. + Appreciation End year (owned) End including leased Average number (all age groups) Total milk sold and milk sold per cow are extremely valuable measures of size and productivity, respectively, on the dairy farm. These measures of milk output are based on pounds of milk marketed during the year. Farm managers on DHI should compare milk sold per cow with their rolling herd average on the test date nearest December 31 to see how close the DHI estimate of milk produced is to actual milk sales. MILK PRODUCTION 47 Northern Hudson Region Dairy Farms, 1996 Item Total milk sold, Ibs. Milk sold per cow, Ibs. Average milk plant test, percent butterfat Average My Farm 2,825,885 20,045 3.78 - 19 The cost of producing milk has been compiled using the whole farm method and is featured in the following table. Accrual receipts from milk sales can be compared with the accrual costs of producing milk per cow and per hundredweight of milk. Using the whole farm method, operating costs of producing milk are estimated by deducting nonmilk accrual receipts from total accrual operating expenses including expansion livestock purchased. Purchased inputs cost of producing milk are the operating costs plus depreciation. Total costs of producing milk include the operating costs of producing milk plus depre­ ciation on machinery and buildings, the value of unpaid family labor, the value of operators' labor and management, and the interest charge for using equity capital. ACCRUAL RECEIPTS FROM DAIRY, COSTS OF PRODUCING MILK, AND PROFITABILITY 47 Northern Hudson Region Dairy Farms, 1996 Item Accrual Cost of Producing Milk Operating costs Purchased inputs costs Total Costs Accrual Receipts From Milk Net Farm Income without Apprec. Net Farm Income with Apprec. Average Per Cow Total Per Cwt. My Farm Per Cow Total Per Cwt. $ 360,923 $ 2,560 $ 12.77 $ $ $ $ 386,774 $ 459,617 $ $ 2,743 3,260 $ $ 13.69 16.26 $ $ $ $ $ $ $ 437,958 $ 3,106 $ 15.50 $ $ $ $ 51,184 $ 363 $ 1.81 $ $ $ $ 57,321 $ 407 $ 2.03 $ $ $ The accrual operating expenses most commonly associated with the dairy enterprise are listed in the table below. Evaluating these costs per unit of production enables an evaluation of the dairy enterprise. DAIRY RELATED ACCRUAL EXPENSES 47 Northern Hudson Region Dairy Farms, 1996 Average Item Purchased dairy grain & concentrate Purchased dairy roughage Total Purchased Dairy Feed Purchased grain & conc. as % of milk receipts Purchased feed & crop expo Purchased feed & crop expo as % of milk receipts Breeding Veterinary & medicine Milk marketing Bedding Milking supplies Cattle lease Custom boarding Other livestock expense Per Cow My Farm PerCwt. Per Cow Per Cwt. $ 930 36 $ 4.64 0.18 $ $ $ 965 $ 4.82 $ $ $ 1,167 $ 5.82 $ $ $ 40 94 184 31 72 1 19 86 $ 0.20 0.47 0.92 0.15 0.36 0.00 0.09 0.43 $ % $ 30% --- % 38% - 20 Capital and Labor Efficiency Analysis Capital efficiency factors measure how intensively the capital is being used in the farm business. Measures of la­ bor efficiency are key indicators of management's success in generating products per unit of labor input. CAPITAL EFFICIENCY 47 Northern Hudson Region Dairy Farms, 1996 Item Farm capital Real estate Machinery & equipment Asset turnover ratio Per Worker 237,980 $ $ 38,996 Per Cow 7,207 3,440 1,181 $ / Per Tillable Acre 2,363 $ Per Tillable Acre Owned 4,598 2,195 387 0.49 MyFarm Farm capital Real estate Machinery & equipment Asset turnover ratio $ $ $ $ LABOR FORCE INVENTORY AND ANALYSIS 47 Northern Hudson Region Dairy Farms, 1996 Labor Force Operator number 1 Operator number 2 Operator number 3 Operator number 4 Family paid Family unpaid Hired Total My Farm: Total Operator's Labor Efficiency Cows, average number Milk sold, pounds Tillable acres Work units Labor Costs Value of operator(s) labor ($ 1,500/mo.) Family unpaid ($ 1,500/mo.) Hired Total Labor Machinery Cost Total Labor & Mach. Total 141 2,825,882 430 1,489 $ 31,650 4,050 51,486 $ 87,186 $ 72,359 $ 159,545 Value of Labor & Mgmt. 20,809 8,702 2,574 851 112 = 4.27 Worker Equivalent 1.68 OperatorlManager Equivalent /12 = _ _ Worker Equivalent 1 12 = OperatorlManager Equivalent Average My Farm Per Worker Total Per Worker 33 661,799 101 349 Average Per Cow Total Years of Educ. 13 14 13 15 Age 50 41 44 32 Months 13.5 5.8 1.3 0.5 4.7 2.7 22.7 51.2 $ 224 $ $ $ 29 365 618 513 1,132 Per Cwt. $ 1.12 $ $ $ 0.14 1.82 3.09 2.56 5.65 $---­ $,---­ $ $ $ $ -­ $ $ $ 21 COMPARATIVE ANALYSIS OF THE FARM BUSINESS Progress of the Farm Business Comparing your business with average data from regional DFBS cooperators that participated in both of the last two years can be helpful to establishing your goals for these parameters. It is equally important for you to determine the progress your business has made over the past two or three years, to compare this progress to your goals, and to set goals for the future. PROGRESS OF THE FARM BUSINESS Same 44 Northern Hudson Region Dairy Farms, 1995 & 1996 Average of 44 Farms* 1995 1996 Selected Factors Size of Business Average number of cows Average number of heifers Milk sold, lbs. Worker equivalent Total tillable acres Rates of Production Milk sold per cow, lbs. Hay DM per acre, tons Corn silage per acre, tons Labor Efficiency Cows per worker Milk sold/worker, lbs. Cost Control Grain & conc. purchased as % of milk sales Dairy feed & crop expo per cwt. milk Labor & mach. costs/cow Operating cost of producing cwt. of milk Capital Efficiency** Farm capital per cow Mach. & equip. per cow Asset turnover ratio Profitability Net farm income w/o apprec. Net farm income w/apprec. Labor & mgt. income per operator/manager Rate of return on equity capital w/appreciation Rate of return on all capital w/appreciation Financial Summary Farm net worth, end year Debt to asset ratio Farm debt per cow 135 107 2,813,005 4.31 414 142 112 2,871,060 4.28 429 20,764 2.1 13.1 20,190 2.3 13.9 31 652,669 33 670,808 30% 27% My Farm 1996 1995 % Goal % % $ $ 4.65 1,074 $ $ 5.83 1,135 $ $ $ $ $ $ $ 11.25 $ 12.77 $ $ $ $ $ 7,406 1,205 0.43 $ $ 7,166 1,180 0.49 $ $ $ $ $ $ $ $ 36,769 37,462 $ $ 52,988 58,832 $ $ $ $ $ $ $ -682 $ 8,025 $ $ $ *Farms participating both years. **Average for the year. 0.3% 3.1% % % % 2.6% 4.2% % % % $ 712,434 0.29 $ 2,076 $ $ 742,397 0.28 1,995 $ $ $ $ $ $ ­ 22 Regional Farm Business Chart The Farm Business Chart is a tool which can be used in analyzing your business. Compare your business by drawing a line through or near the figure in each column which represents your current level of performance. The five fig­ ures in each column represent the average of each 20 percent or quintile of farms included in the regional summary. Use this infonnation to identify business areas where more challenging goals are needed. FARM BUSINESS CHART FOR FARM MANAGEMENT COOPERATORS 47 Northern Hudson Region Dairy Farms, 1996 Worker Equiv­ alent (11)* 8.73 5.04 3.41 2.68 1.92 Size of Business No. Pounds Milk of Cows Sold Pounds Milk Sold Per Cow Rate of Production Tons Tons Corn Hay Crop Silage DM/Acre Per Acre Labor Efficiency Cows Pounds Per Milk Sold Worker Per Worker (11) (11) (10) (9) (9) (11) (11) 322 167 113 73 49 7,045,360 3,468,552 2,057,073 1,175,557 792,204 23,485 20,961 19,220 17,337 13,649 3.5 2.8 2.3 2.0 1.5 18 15 13 12 9 48 37 31 26 20 933,333 740,652 585,598 456,023 339,137 Cost Control Labor & Machinery Costs per Cow Grain Bought Per Cow % Grain is of Milk Receipts Machinery Costs Per Cow (10) (10) (11) (11) (10) (10) 22% 27 29 32 39 $347 456 521 572 805 $850 1,004 1,123 1,312 1,675 $730 922 1,109 1,248 1,576 $4.59 5.23 5.55 6.16 8.17 $525 734 863 1,001 1,199 Value and Cost of Production Total Cost Milk Oper. Cost Production Receipts Milk PerCwt. Per Cow Per Cwt. (10) $3,674 3,222 2,955 2,611 2,088 (10) $10.04 11.84 12.60 13.94 15.25 (10) $14.46 15.84 16.97 18.38 20.92 Feed & Crop Expenses Per Cow Feed & Crop Expenses Per Cwt. Milk Net Farm Income w/Apprec. Profitability Net Farm Inc. w/o Apprec. Labor & Mgt. Inc. PerOper. Change in Net Worth w/Apprec. (3) (3) (3) (6) $187,849 65,049 40,044 14,261 -8,493 *Page number of the participant's DFBS where the factor is located. $174,013 60,083 33,974 12,506 -13,202 $55,842 16,867 4,061 -11,084 -38,809 $138,001 47,190 18,661 4,161 -19,178 - 23 New York State Farm Business Charts The Farm Business Chart is a tool which can be used in analyzing a business by drawing a line through the figure in each column which represents the current level of management performance. The figure at the top of each column is the average of the top 10 percent of the 321 farms for that factor. The other figures in each column are the average for the sec­ ond 10 percent, third 10 percent, etc. Each column of the chart is independent of the others. The farms which are in the top 10 percent for one factor would not necessarily be the same farms which make up the top 10 percent for any other factor. The cost control factors are ranked from low to high, but the lowest cost is not necessarily the most profitable. In some cases, the "best" management position is somewhere near the middle or average. Many things affect the level of costs, and must be taken into account when analyzing the factors. FARM BUSINESS CHART FOR FARM MANAGEMENT COOPERATORS 321 New York Dairy Farms, 1995 Worker Equivalent (11)* 12.9 6.9 5.2 4.2 3.6 Size of Business No. Pounds of Milk Cows Sold (11) (11) 584 252 181 136 114 12,747,839 5,319,020 3,558,382 2,659,236 2,160,673 Pounds Milk Sold Per Cow (10) 23,974 21,921 21,104 20,216 19,389 Rates of Production Tons Tons Corn Hay Crop Silage DM/Acre Per Acre (9) (9) 5.2 3.9 3.4 2.9 2.7 Labor Efficiency Cows Pounds Per Milk Sold Worker Per Worker (11) (11) 22 19 18 16 15 56 44 40 36 33 1,089,131 901,135 800,305 706,048 635,059 ----------------------------------------------------------------------------------------------------------------------------------------------------------- 3.1 2.6 2.2 1.8 1.4 Grain Bought Per Cow (10) $362 498 566 616 661 95 73 62 50 37 1,740,922 1,368,629 1,106,737 833,091 570,337 % Grain is of Milk Receipts (10) 16% 21 24 26 27 18,797 18,104 17,095 15,706 13,082 2.4 2.2 1.9 1.6 1.1 14 13 12 10 7 Cost Control Machinery Labor & Costs Machinery Per Cow Costs Per Cow (11) (11) $215 294 337 366 397 $669 806 866 923 971 30 29 26 23 17 Feed & Crop Expenses Per Cow (10) $497 639 713 784 843 579,646 533,945 464,985 394,437 279,221 Feed & Crop Expenses Per Cwt. Milk (10) $2.93 3.65 3.97 4.19 4.41 ----------------------------------------------------------------------------------------------------------------------------------------------------------- 707 755 805 868 985 29 30 32 34 39 429 466 510 564 726 *Page number of the participant's DFBS where the factor is located. 1,027 1,105 1,182 1,254 1,492 883 919 974 1,052 1,204 4.60 4.79 5.03 5.34 6.15 ­ 24 FARM BUSINESS CHART FOR FARM MANAGEMENT COOPERATORS 321 New York Dairy Farms, 1995 Milk Receipts Per Cow (10) Milk Receipts PerCwt. (10) Oper. Cost Milk Per Cow (10) Oper. Cost Milk PerCwt. (10) Total Cost Production Per Cow (10) Total Cost Production Per Cwt. (10) $3,161 2,870 2,727 2,618 2,526 $13.95 13.55 13.33 13.15 13.02 $1,156 1,515 1,667 1,803 1,933 $7.16 8.79 9.39 9.80 10.18 $2,062 2,316 2,491 2,624 2,739 $11.75 12.79 13.28 13.82 14.19 2,447 2,349 2,231 2,032 1,684 12.90 12.81 12.69 12.55 12.13 2,051 2,149 2,269 2,390 2,680 10.54 10.99 11.36 12.08 13.43 2,840 2,928 3,040 3,222 3,646 14.63 15.28 16.05 17.07 20.60 Net Farm Income Without Appreciation Per As % of Total Total Accrual Receipts Cow (3) (3) (10) $241,346 95,284 63,686 45,922 34,731 $881 601 488 403 346 24,327 15,103 8,344 -3,725 -25,068 263 183 94 -45 -302 28.8% 20.9 16.9 14.4 11.9 10.0 6.8 3.6 -1.4 -14.0 Profitability Net Farm Income With Appreciation Per Total Cow (3) (10) Labor & Management Income Per Per Farm Operator (3) (3) $304,248 106,273 71,128 51,234 38,124 $992 663 551 459 385 $154,049 53,202 30,669 18,768 9,393 $104,666 31,707 20,493 12,917 6,876 30,424 20,465 12,249 -225 -21,201 318 226 137 -9 -284 1,424 -7,053 -16,985 -28,613 -57,804 875 -5,443 -12,785 -26,054 -52,230 Farm Business Charts for farms with freestall barns and 150 cows or less, 151-300 cows, and more than 300 cows; and farms with conventional barns with 60 cows or less and more than 60 cows are shown on pages 28-32. Financial Analysis Chart The farm financial analysis chart on page 25 is designed just like the Farm Business Chart and may be used to as­ sess the financial health of the farm business. Most of the financial measures used in the chart are defined on pages 6, 10, 14 and 20 of this publication. References to DFBS output page numbers for participating dairy farmers are provided in the table headings. ­ 25 FINANCIAL ANALYSIS CHART 321 New York Dairy Farms, 1995 Planned Debt Payments Per Cow (8)* Available for Debt Service Per Cow (12) Liquidity (repayment) Cash Flow Coverage Ratio (8) $49 210 288 344 409 $800 589 526 472 421 2.94 1.50 1.22 1.06 0.92 5% 10 12 14 17 $181 811 1,430 1,761 2,107 470 511 568 640 842 367 305 234 144 -124 0.83 0.72 0.53 0.30 -0.36 18 21 23 27 38 2,454 2,726 3,051 3,476 4,330 Solvency Leverage Ratio** Debt!Asset Ratio Long Current & Intermediate Term (5) (5) Percent Equity (5) 0.03 0.14 0.26 0.37 0.49 97% 88 79 73 67 0.02 0.10 0.17 0.25 0.33 0.00 0.00 0.07 0.19 0.28 0.65 0.82 0.99 1.31 3.52 61 54 50 43 30 0.39 0.45 0.52 0.61 0.89 0.37 0.43 0.55 0.66 0.87 Asset Turnover (ratio) (11) .71 .58 .54 .50 .45 Efficiency (Capital) Real Estate Machinery Investment Investment Per Cow Per Cow (11) (11) $1,330 1,932 2,197 2,466 2,749 $503 724 865 981 1,098 Debt Payments as Percent of Milk Sales (8) Debt Per Cow (5) Profitability Percent Rate of Return with appreciation on: Equity Investment** (3) (3) 22% 8 5 3 1 -1 -3 -6 -11 -35 Total Farm Assets Per Cow (11) $4,207 5,131 5,548 5,904 6,350 .41 3,040 1,243 6,746 .38 3,455 1,393 7,239 .34 3,899 1,595 7,880 .30 4,480 1,913 8,673 6,579 2,653 11,340 .21 *Page number of the participant's DFBS where the factor is located. **Dollars of debt per dollar of equity, computed by dividing total liabilities by total equity. 13% 8 6 5 3 2 0 -2 -4 -9 Change in Net Worth wiAppreciation (6) $194,829 62,523 36,676 22,792 12,932 6,448 356 -7,042 -18,529 -52,292 - 26 Comparison by Type of Barn and Herd Size When analyzing a dairy farm business by comparing it to a group of farms, it is important that the group of farms have used as many of the same physical characteristics as possible as the farm being analyzed. To assist in this endeavor, dairy farms in the summary have been divided into those with freestall and those with conventional housing. Conventional housing includes stanchion and tiestall barns. Within each group, is a further classification by size of the dairy herd. The table on page 27 includes the average values for the resulting five groups of dairy farms. The average size of farms in the five groups ranges from 45 cows on the small conventional farms to 573 cows on the largest freestall farms. The largest freestall farms averaged the highest milk output per cow and per worker, the lowest total cost of pro­ duction and investment per cow, and the greatest returns to labor, management and capital. The smaller freestall farms showed average profits somewhat higher than the large conventional farm businesses. Farm business charts have been computed for each of the five housing and herd size categories and are on pages 28-32. By comparing the farm's performance on the most appropriate business chart, a farm manager will be better able to evaluate his or her business performance. Herd Size Comparisons A detailed comparison of profitability, financial situation and business analysis factors across herd sizes is con­ tained on pages 42-51 of the 1995 State Summary*. As herd size increases, the average profitability generally increases (pages 44-45)*. Net farm income without appreciation averaged $7,400 per farm for the less than 40 cow farms and $202,491 per farm for those with 300 cows and over. This relationship generally holds for all measures of profitability in­ cluding rate of return on capital. Farm net worth increases rapidly as herd size increases (pages 46-49)*, even though percent equity was higher on the smaller farms. The group with more than 300 cows demonstrated the strongest ability to make debt payments. Crop yields showed little relationship to herd size, but fertilizer and lime expenses, and machinery cost per tillable acre generally increased as herd size increased (pages 50-51)*. The farms with 300 and more cows per farm averaged 36 percent more milk sold per cow than the smallest farms. All of the groups with 70 or more cows averaged above 18,000 pounds of milk sold per cow while the farms smaller than 70 cows averaged 16,800 pounds of milk sold per cow. Farm capital per worker increased, and farm capital per cow decreased as herd size increased. Milk sold per worker increased dramatically as herd size increased, ranging from 328,467 pounds at the lowest herd size category up to 984,168 pounds at the largest size category. - *Smith, Stuart F., Wayne A. Knoblauch, and Linda D. Putnam, Dairy Farm Managment Business Summary, New York, 1995, Department of Agricultural, Resource, and Managerial Economics, Cornell University, R.B. 96-11, August 1996. Item 27 SELECTED BUSINESS FACTORS BY TYPE OF BARN AND HERD SIZE 294 New York Dairy Farms, 1995 Conventional Freestall Farms with: >60 Cows <= 60 Cows 151-300 Cows <=150 Cows >300 Cows 68 69 275 100 163 55 2.5 13.3 66 7.8 3.3 $21.13 $37,128 $135 328 136 171 77 2.7 14.4 58 7.9 3.0 $25.44 $48,984 $151 525 243 242 164 3.0 14.8 44 7.1 2.4 $26.72 $90,300 $172 1,110 473 453 444 3.4 17.3 54 7.3 1.9 $29.61 $201,266 $181 84 69 1,563,428 18,518 $10.23 $14.86 $13.01 $660 $3.56 27% $4.34 107 82 2,027,572 18,970 $10.54 $14.74 $13.13 $700 $3.69 27% $4.59 216 164 4,438,075 20,589 $10.76 $13.67 $13.12 $807 $3.92 29% $4.60 573 423 12,493,862 21,796 $10.25 $12.64 $12.99 $775 $3.55 27% $4.19 $181,342 $7,733 $3,775 $4,063 $1,466 0.32 $204,518 $7,190 $3,468 $3,317 $1,450 0.38 $233,993 $7,016 $3,906 $3,158 $1,419 0.41 $230,331 $5,920 $4,526 $2,503 $986 0.53 $258,006 $5,657 $5,083 $2,436 $853 0.59 Labor Efficiency Worker equivalent Operator/manager equivalent Milk sold/worker, lbs. Cows/worker Labor cost/cow Labor cost/tillable acre 1.94 1.17 392,608 23 $707 $215 2.97 1.33 526,924 28 $584 $179 3.21 1.56 632,592 33 $553 $182 5.54 1.73 800,951 39 $520 $214 12.57 2.17 994,087 46 $580 $299 Profitability & Balance Sheet Analysis Net farm income (without appreciation) Labor & management income/operator Rate Return on all capital with appreciation Farm debt/cow Percent equity $10,662 $-6,342 -2.3% $2,138 71% $27,053 $43 1.3% $1,853 73% $29,071 $860 2.4% $2,405 65% $62,427 $13,170 5.2% $2,407 58% 67 Number of farms Cropping Program Analysis Total Tillable acres Tillable acres rented* Hay crop acres* Corn silage acres* Hay crop, tons DM/acre Corn silage, tons/acre Oats, bushels/acre Forage DM per cow, tons Tillable acres/cow Fert. & lime exp.ltillable acre Total machinery costs Machinery cost/tillable acre 149 56 97 24 1.9 12.9 48 6.5 3.3 $16.62 $19,975 $134 Dairy Analysis Number of cows Number of heifers Milk sold, lbs. Milk sold/cow, lbs. Operating cost of prod. milk/cwt. Total cost of prod. milk/cwt. Price/cwt. milk sold Purchased dairy feed/cow Purchased dairy feed/cwt. milk Purchased grain & cone. as % milk rec. Purchased feed & crop exp.lcwt. milk 45 34 760,125 16,731 $10.20 $16.84 $12.91 $652 $3.89 29% $4.56 Capital Efficiency Farm capital/worker Farm capital/cow Farm capital/tillable acre owned Real estate/cow Machinery investment/cow Asset turnover ratio *Average of all farms, not only those reporting data. 56 34 $206,228 $54,041 9.4% $2,518 54% ­ 28 FARM BUSINESS CHART FOR SMALL CONVENTIONAL STALL DAIRY FARMS 67 Conventional Stall Dairy Farms with 60 or Less Cows, New Yark, 1995 Worker Equivalent (11)* 3.20 2.57 2.11 2.00 1.87 Size of Business No. Pounds of Milk Cows Sold (11) (11) 58 55 52 50 46 Pounds Milk Sold Per Cow (10) 1,116,570 982,835 889,183 818,832 762,063 21,502 19,540 18,817 18,148 17,422 Rates of Production Tons Tons Corn Hay Crop Silage DM/Acre Per Acre (9) (9) 3.5 2.9 2.5 2.3 2.0 Labor Efficiency Cows Pounds Per Milk Sold Worker Per Worker (11) (11) 21 18 16 14 13 39 32 30 28 25 670,470 563,955 508,822 454,017 419,654 ----------------------------------------------------------------------------------------------------------------------------------------------------------- 1.72 1.57 1.50 1.37 1.20 Grain Bought Per Cow (10) 44 42 39 36 28 720,796 669,529 597,559 535,110 402,284 % Grain is of Milk Receipts (10) $278 416 487 520 566 15% 20 23 26 28 626 677 734 811 992 29 30 32 36 44 16,469 15,382 14,539 13,368 10,304 Machinery Costs Per Cow (11) 1.8 1.7 1.3 1.2 0.9 Cost Control Labor & Machinery Costs Per Cow (11) 12 11 10 8 5 22 21 19 17 14 373,175 346,465 312,103 262,792 189,393 Feed & Crop Expenses Per Cow (10) Feed & Crop Expenses Per Cwt. Milk (10) $201 293 325 366 402 $755 881 962 1,024 1,102 $358 514 588 640 706 $2.57 3.29 3.79 4.05 4.30 422 455 502 600 818 1,172 1,221 1,277 1,417 1,724 778 849 899 971 1,200 4.61 4.90 5.14 5.76 6.56 Value and Cost of Production Oper. Cost Total Cost Milk Production Milk Receipts PerCwt. Per Cow Per Cwt. (10) (10) (10) Profitability Net Farm Income Without Appreciation Total Per Cow (3) (10) Labor & Mgmt. Inc. Per Oper. (3) Change in Net Worth w/Apprec. (6) $2,775 2,555 2,450 2,348 2,268 $6.35 7.91 8.67 9.30 9.93 $12.93 14.15 14.80 15.41 15.73 $40,149 26,289 21,507 15,826 11,631 $898 605 428 333 270 $19,515 8,128 6,050 1,532 -2,987 $39,912 19,432 11,943 8,794 5,960 2,110 1,992 1,851 1,712 1,280 10.38 10.79 11.55 12.53 13.81 16.26 17.19 18.71 20.45 25.49 9,116 5,005 -4,188 -9,409 -18,464 208 112 -94 -228 -479 -6,640 -12,236 -21,253 -27,862 -44,633 1,696 -5,207 -9,317 -18,815 -30,642 *Page number of the participant's DFBS where the factor is located. - 29 FARM BUSINESS CHART FOR LARGE CONVENTIONAL STALL DAIRY FARMS 68 Conventional Stall Dairy Farms with More Than 60 Cows, New York, 1995 Worker Equivalent (11)* 4.92 3.89 3.42 3.06 2.90 Size of Business Pounds No. Milk of Sold Cows (11) (11) 136 107 98 87 78 Rates of Production Pounds Tons Corn Tons Silage Milk Sold Hay Crop Per Acre Per Cow DM/Acre (9) (10) (9) 2,430,052 2,056,068 1,801,505 1,648,270 1,504,222 22,384 20,798 20,239 19,664 18,979 4.9 3.6 3.1 2.8 2.4 Labor Efficiency Cows Pounds Per Milk Sold Worker Per Worker (11) (11) 22 18 16 15 14 49 37 33 31 29 853,220 687,405 618,788 578,386 557,226 ------------------------------------------------------------------------------------------------------------------------------------------------------------ 2.58 2.49 2.35 2.12 1.65 Grain Bought Per Cow (10) 74 68 65 64 62 1,400,199 1,298,599 1,235,093 1,158,481 957,357 % Grain is of Milk Receipts (10) 18,582 17,925 16,883 15,411 14,147 Machinery Costs Per Cow (11) 2.2 2.0 1.9 1.7 1.3 13 12 11 9 6 Cost Control Labor & Machinery Costs Per Cow (11) 28 27 24 21 17 531,807 500,757 446,692 399,585 298,742 Feed & Crop Expenses Per Cow (10) Feed & Crop Expenses Per Cwt. Milk (10) $335 435 490 558 598 14% 18 21 23 26 $212 315 344 374 404 $683 844 884 930 969 $505 594 640 684 749 $2.79 3.23 3.56 3.98 4.23 656 693 764 846 1,022 28 31 31 34 39 441 491 523 563 684 1,027 1,121 1,182 1,268 1,415 832 878 932 1,014 1,214 4.43 4.63 4.83 5.29 6.36 Value and Cost of Production Oper. Cost Total Cost Milk Milk Production Receipts Per Cwt. Per Cwt. Per Cow (10) (10) (10) $2,926 2,693 2,613 2,534 2,465 $6.79 8.17 9.18 9.58 9.89 $12.40 13.11 13.47 13.89 14.34 Profitability Net Farm Income Without Appreciation Total Per Cow (3) (10) $87,656 53,325 42,377 35,885 28,572 $1,006 646 517 423 356 Labor & Mgmt. Inc. Per Oper. (3) $32,253 19,865 14,407 9,185 3,870 Change in Net Worth w/Apprec. (6) $70,650 39,931 24,514 14,916 8,131 ------------------------------------------------------------------------------------------------------------------------------------------------------------ 2,404 2,320 2,176 2,030 1,882 10.25 10.83 11.27 12.00 13.71 14.88 15.59 16.38 17.00 18.86 19,770 12,264 5,880 -3,258 -23,460 *Page number of the participant's DFBS where the factor is located. 228 165 72 -46 -314 -3,049 -12,034 -23,384 -31,508 -59,820 1,044 -8,929 -16,430 -26,729 -60,370 ­ 30 FARM BUSINESS CHART FOR SMALL FREESTALL DAIRY FARMS 69 Freestall Barn Dairy Farms with 150 or Less Cows, New York, 1995 Worker Equivalent (11)* 5.44 4.35 3.92 3.48 3.22 Size of Business Pounds No. Milk of Cows Sold (11) (11 ) Pounds Milk Sold Per Cow (10) 2,957,949 2,710,333 2,508,000 2,348,502 2,166,542 142 134 128 123 114 Rates of Production Tons Corn Tons Hay Crop Silage DMJAcre Per Acre (9) (9) 24,252 21,428 20,047 19,586 19,015 5.1 3.9 3.3 2.9 2.8 Labor Efficiency Cows Pounds Per Milk Sold Worker Per Worker (11) (11 ) 21 18 17 16 15 60 44 41 37 34 1,025,375 844,297 758,138 696,409 650,447 ------------------------------------------------------------------------------------------------------------------------------------------------------------- 3.07 2.73 2.32 1.92 1.32 Grain Bought Per Cow (10) $382 521 569 600 625 18,579 17,842 16,689 15,793 12,993 1,998,898 1,804,910 1,581,246 1,265,897 751,092 107 100 88 73 52 % Grain is of Milk Receipts (10) Machinery Costs Per Cow (11) 16% 22 23 25 27 $204 293 335 380 421 2.6 2.4 2.1 1.7 1.1 Cost Control Labor & Machinery Costs Per Cow (11) 14 13 12 11 10 32 30 29 26 23 613,804 586,143 538,567 480,795 368,345 Feed & Crop Expenses Per Cow (10) Feed & Crop Expenses Per Cwt. Milk (10) $534 688 729 769 823 $3.04 3.88 4.13 4.31 4.51 $642 744 829 887 945 ------------------------------------------------------------------------------------------------------------------------------------------------------------- 661 706 748 834 975 28 29 31 33 37 451 499 563 611 766 Value and Cost of Production Oper. Cost Total Cost Milk Receipts Milk Production PerCwt. Per Cwt. Per Cow (10) (10) (10) 1,000 1,095 1,178 1,245 1,443 868 899 965 1,051 1,211 Profitability Net Farm Income Without Appreciation Total Per Cow (3) (10) 4.73 4.86 5.09 5.35 6.02 Labor & Mgmt. Inc. Per Oper. (3) Change in Net Worth w/Apprec. (6) $3,157 2,781 2,638 2,559 2,492 $7.66 8.88 9.41 9.84 10.11 $11.63 13.19 14.00 14.16 14.42 $88,760 62,353 52,706 42,686 35,777 $772 609 500 401 354 $49,497 23,550 13,528 9,448 4,789 $65,163 38,389 27,797 19,229 10,890 2,428 2,327 2,232 2,078 1,732 10.61 11.12 11.56 12.33 13.51 14.77 15.32 16.18 17.08 18.43 25,901 11,541 -358 -10,185 -26,410 272 116 -I -97 -305 -1,925 -9,176 -17,625 -29,406 -45,511 4,352 552 -5,069 -18,255 -44,000 *Page number of the participant's DFBS where the factor is located. ­ 31 FARM BUSINESS CHART FOR MEDIUM FREESTALL DAIRY FARMS 56 Freestall Barn Dairy Farms with 151-300 Cows, New York, 1995 Worker Equivalent (11)* Size of Business No. Pounds of Milk Cows Sold (11) (11) 290 254 241 231 219 8.11 7.01 6.26 5.84 5.61 6,658,798 5,713,413 5,114,805 4,601,857 4,282,657 Pounds Milk Sold Per Cow (10) 24,927 23,249 22,243 21,310 20,808 Rates of Production Tons Tons Corn Hay Crop Silage DM/Acre Per Acre (9) (9) 5.2 4.1 3.6 3.3 2.9 Labor Efficiency Cows Pounds Per Milk Sold Worker Per Worker (11) (11) 22 19 18 16 15 56 51 49 42 39 1,108,890 1,010,447 941,529 886,593 820,679 ------------------------------------------------------------------------------------------------------------------------------------------------------------- 3,983,158 3,743,536 3,502,068 3,239,384 2,795,824 19,804 18,853 18,118 17,306 15,997 Grain Bought Per Cow (10) % Grain is of Milk Receipts (10) Cost Control Machinery Labor & Costs Machinery Per Cow Costs Per Cow (11) (11) $494 618 668 716 745 19% 23 25 26 28 5.26 4.82 4.25 3.96 3.36 201 189 179 166 159 786 826 856 897 973 2.7 2.5 2.2 1.7 1.2 36 35 33 30 27 14 13 12 10 3 Feed & Crop Expenses Per Cow (10) 775,036 725,997 666,957 614,691 525,722 Feed & Crop Expenses Per Cwt. Milk (10) $217 262 331 362 386 $635 721 788 820 881 $630 794 839 876 902 $3.30 3.75 4.03 4.24 4.55 423 466 494 536 654 942 994 1,070 1,142 1,310 935 974 1,054 1,106 1,192 4.68 4.87 5.19 5.34 5.83 30 30 32 34 37 Value and Cost of Production Total Cost Milk Oper. Cost Receipts Milk Production Per Cwt. Per Cwt. Per Cow (10) (10) (10) Profitability Net Farm Income Without Apprec. Total Per Cow (3) (10) Labor & Mgmt. Inc. Per Oper. (3) Change in Net Worth w/Apprec. (6) $3,331 3,069 2,970 2,788 2,669 $7.96 9.50 9.87 10.31 10.57 $10.95 12.48 12.90 13.05 13.46 $186,160 121,682 92,523 77,745 53,375 $864 536 433 355 277 $95,164 50,181 28,686 22,827 14,847 $144,572 108,786 66,921 40,000 22,733 2,558 2,475 2,375 2,271 2,086 10.89 11.23 11.63 12.07 12.91 13.92 14.16 14.54 15.16 16.22 38,496 27,801 14,994 5,641 -33,266 194 125 72 33 -154 2,857 -4,795 -10,777 -26,567 -62,013 7,412 -2,413 -9,829 -37,956 -83,503 *Page number of the participant's DFBS where the factor is located. ­ 32 FARM BUSINESS CHART FOR LARGE FREESTALL DAIRY FARMS 34 Freestall Barn Dairy Farms with 300 or More Cows, New York, 1995 Worker Equivalent (11)* Size of Business Pounds No. of Milk Cows Sold (11) (11) 1,474 726 586 476 426 26.37 15.65 13.90 11.56 9.83 Rates of Production Pounds Tons Tons Corn Milk Sold Hay Crop Silage DM/Acre Per Acre Per Cow (10) (9) (9) 31,629,692 16,568,552 12,395,786 10,646,886 9,473,879 24,975 23,563 22,714 21,776 21,582 5.6 4.5 3.8 3.5 3.3 Labor Efficiency Cows Pounds Per Milk Sold Worker Per Worker (11) (11) 22 21 19 18 18 59 50 47 44 43 1,315.065 1,108,188 1,027,822 961,574 941,375 ----------------------------------------------------------------------------------------------------------------------------------------------------------- 9.36 9.06 8.66 8.24 7.35 8,803,496 8,131,190 7,243,944 6,726,055 6,230,654 399 363 338 316 305 Grain Bought Per Cow (10) $548 621 652 691 742 775 807 837 882 919 % Grain is of Milk Receipts (10) 20% 22 24 25 26 27 28 29 31 32 21,380 2.8 21,238 2.6 20,638 2.5 19,753 2.3 18,841 1.9 Cost Control Machinery Labor & Machinery Costs Per Cow Costs Per Cow (11) (11) $7.91 9.29 9.46 9.88 10.10 42 40 38 37 32 921,860 857,407 821,803 738,236 687,101 Feed & Crop Expenses Per Cow (10) Feed & Crop Expenses Per Cwt. Milk (10) $239 261 298 320 339 $723 819 850 883 916 $725 807 848 880 905 $3.45 3.73 3.91 3.97 4.13 357 368 396 463 576 940 975 1,019 1,097 1,178 940 962 997 1,041 1,144 4.36 4.46 4.55 4.76 5.16 Value and Cost of Production Total Cost Milk Oper. Cost Milk Production Receipts Per Cwt. PerCwt. Per Cow (10) (10) (10) $3,347 3,085 2,943 2,862 2,800 17 16 13 12 10 $11.08 11.72 12.13 12.42 12.53 Profitability Net Farm Income Without Appreciation Total Per Cow (3) (10) $498,538 355,590 255,215 210,999 163,907 $761 561 453 413 369 Labor & Mgmt. Inc. Per Oper. (3) $285,694 125,530 87,171 67,983 44,335 Change in Net Worth w/Apprec. (6) $521,948 241,267 173,734 134,882 111,353 ------------------------------------------------------------------------------------------------------------------------------------------------------------ 2,774 2,731 2,627 2,556 2,454 10.19 10.54 10.93 11.16 11.60 12.69 12.96 13.25 13.55 14.31 139,850 122,533 101,876 67,632 -18,932 *Page number of the participant's DFBS where the factor is located. 356 281 201 165 -48 33,198 25,289 19,665 8,585 -53,540 85,990 41,489 29,751 -3,450 -67,952 - 33 IDENTIFY AND SET GOALS If businesses are to be successful, they must have direction. Written goals help provide businesses with an identifi­ able direction over both the long and short term. Goal setting is as important on a dairy farm as it is in other businesses. Written goals are a tool which farm operators can use to ensure that the business continues to move in the desired direction. Goals should be SMART: 1. Goals should be Specific. 2. Goals should be Measurable. 3. Goals should be Achievable but challenging. 4. Goals should be Rewarding. 5. Goals should be Timed with a designated date by which the goal will be achieved. Goal setting on a dairy farm should be a process for writing down and agreeing on goals that you have already given some thought to. It is also important to remember that once you write out your goals they are not cast in concrete. If a change takes place which has a major impact on the farm business, the goals should be reworked to accommodate that change. Refer to your goals as often as necessary to keep the farm business progressing. It is important to identify both objectives (long-range) and goals (short-range) when looking at the future of your farm business. A suggested format for writing out your goals is as follows: a. Begin with a mission statement which describes why the business exists based on the preferences and val­ ues of the owners. b. Identify 4-6 objectives. c. Identify SMART goals. Worksheet for Setting Goals I. Mission and Objectives - 34 Worksheet for Setting Goals (Continued) II. Goals What How When Who is Responsible Summarize Your Business Performance The Farm Business and Financial Analysis Charts on pages 22-25 can be used to help identify strengths and weak­ nesses of your farm business. Identify three major strengths and three areas of your farm business that need improvement. Strengths: _ Needs improvement _ - 35 GLOSSARY AND LOCATION OF COMMON TERMS Accounts Payable - Open accounts or bills owed to feed and supply firms, cattle dealers, veterinarians and other pro­ viders of farm services and supplies. Accounts Receivable - Outstanding receipts from items sold or sales proceeds not yet received, such as the payment for December milk sales received in January. Accrual Expenses - (defined on page 3) Accrual Receipts - (defined on page 4) Annual Cash Flow Statement - (defined on page 12) Appreciation - (defined on page 5) Asset Turnover Ratio - The ratio of total farm income to total farm assets, calculated by dividing total accrual oper­ ating receipts plus appreciation by average total farm assets. Balance Sheet - A "snapshot" of the business financial position at a given point in time, usually December 31. The balance sheet equates the value of assets to liabilities plus net worth. bST Usage - An estimate of the percentage of herd, on average, that was injected with bovine somatotropin during the year. Capital Efficiency - The amount of capital invested per production unit. Relatively high investments per worker with low to moderate investments per cow imply efficient use of capital. Cash From Nonfarm Capital Used in the Business - Transfers of money from nonfarm savings or investments to the farm business where it is used to pay operating expenses, make debt payments and/or capital purchases. Cash Flow Coverage Ratio - (defined on page 14) Cash Paid - (defined on page 2) Cash Receipts - (defined on page 4) Change in Accounts Payable - (defined on page 3) Change in Accounts Receivable - (defined on page 4) Change in Inventory - (defined on page 2) Current Portion - (defined on page 7) Dairy (farm) - A farm business where dairy farming is the primary enterprise, operating and managing this farm is a full-time occupation for one or more people and cropland is owned. Dairy Cash-Crop (farm) - Operating and managing this farm is the full-time occupation of one or more people, crop­ land is owned but crop sales exceed 10 percent of accrual milk receipts. Debt Per Cow - Total end-of-year debt divided by end-of-year number of cows. Debt to Asset Ratios - (defined on page 10) Deferred Taxes - (defined on page 9) Dry Matter - The amount or proportion of dry material that remains after all water is removed. Commonly used to measure dry matter percent and tons of dry matter in feed. - 36 Equity Capital - The farm operator/manager's owned capital or farm net worth. Expansion Livestock - Purchased dairy cattle and other livestock that cause an increase in herd size from the begin­ ning to the end of the year. Farm Debt Payments as Percent of Milk Sales - Amount of milk income committed to debt repayment, calculated by dividing planned debt payments by total milk receipts. A reliable measure of repayment ability, see page 14. Farm Debt Payments Per Cow - Planned or scheduled debt payments per cow represent the repayment plan sched­ uled at the beginning of the year divided by the average number of cows for the year. This measure of repayment abil­ ity is used in the Financial Analysis Chart. Financial Lease - A long-term non-cancellable contract giving the lessee use of an asset in exchange for a series of lease payments. The term of a financial lease usually covers a major portion of the economic life of the asset. The lease is a substitute for purchase. The lessor retains ownership of the asset. Income Statement - A complete and accurate account of farm business receipts and expenses used to measure profit­ ability over a period of time such as one year or one month. Labor and Management Income - (defined on page 6) Labor and Management Income Per Operator - The return to the owner/manager's labor and management per full­ time operator. Labor Efficiency - Production capacity and output per worker. Liquidity - Ability of business to generate cash to make debt payments or to convert assets to cash. Net Farm Income - (defined on page 5) Net Worth - The value of assets less liabilities equal net worth. It is the equity the owner has in owned assets. Operating Costs of Producing Milk - (defined on page 19) Opportunity Costs - The cost or charge made for using a resource based on its value in its most likely alternative use. The opportunity cost of a farmer's labor and management is the value he/she would receive if employed in his/her most qualified alternative position. Other Livestock Expenses - All other dairy herd and livestock expenses not included in more specific categories. Other livestock expenses include; bST, DHIC, registration fees and transfers. Part-Time Dairy (farm) - Dairy farming is the primary enterprise, cropland is owned but operating and managing this farm is not a full-time occupation for one or more people. Personal Withdrawals and Family Expenditures Including Nonfarm Debt Payments - All the money removed from the farm business for personal or nonfarm use including family living expenses, health and life insurance, income taxes, nonfarm debt payments, and investments. Profitability - The return or net income the owner/manager receives for using one or more of his or her resources in the farm business. True "economic profit" is what remains after deducting all the costs including the opportunity costs of the owner/manager's labor, management, and equity capital. Purchased Inputs Cost of Producing Milk - (defined on page 19) Renter - Farm business owner/operator owns no tillable land and commonly rents all other farm real estate. Repayment Analysis - An evaluation of the business' ability to make planned debt payments. - 37 Replacement Livestock - Dairy cattle and other livestock purchased to replace those that were culled or sold from the herd during the year. Return on Equity Capital- (defined on page 7) Return on Total Capital- (defined on page 7) Solvency - The extent or ability of assets to cover or pay liabilities. Debt/asset and leverage ratios are common meas­ ures of solvency. Total Costs of Producing Milk - (defined on page 19) Whole Farm Method - A procedure used to calculate costs of producing milk on dairy farms without using enterprise cost accounts. All non-milk receipts are assigned a cost equal to their sale value and deducted from total farm ex­ penses to determine the costs of producing milk. - 38 INDEX Page(s) Page(s) Accounts Payable 3,8 Financial Analysis Chart Accounts Receivable 4,8 Financial Lease Accrual Expenses 3,5 Income Statement.. Accrual Receipts 4,5 Inflows Acreage 16 7,8 Labor & Mgmt. Income Per Oper. Age 20 Labor Efficiency Amount Available for Debt Service 14 Land Resources 12 Liquidity Annual Cash Flow Statement... Asset Turnover Ratio 5,11,18 20 8 2 12 Labor & Mgmt. Income Advanced Government Receipts Appreciation 25 . 6 6 20 ~..... 16 ; 10 Lost Capital Machinery Expenses 10 3,17 Balance Sheet Barn Type 8 2 Milking Frequency Milk Production 18 bST Usage 2 Milking System 2 Business Type 2 Money Borrowed 20 Net Farm Income Capital Efficiency Cash From Nonfarm Capital Used in the Business Cash Flow Coverage Ratio Cash Paid Cash Receipts Change in Accounts Payable Change in Accounts Receivable Net Investment 14 Number of Cows 18 Operating Costs of Prod. MilL 19 2 4,12 3 .4 Change in Net Worth 11 Current Portion Dairy (farm) Dairy Cash-Crop (farm) 5 10 Net Worth 2,3 Crop/Dairy Ratios 12 12 Change in Inventory Crop Expenses 2 3,17 16 7,8 8 Opportunity Cost. 6 Other Livestock Expenses 3 Outflows 12 Part-Time Cash-Crop Dairy (farm) 2 Part-Time Dairy (farm) 2 Percent Equity 9,10 Personal Withdrawals and Family Expenditures Including Nonfarm Debt Payments 2 Principal Payments 2 Profitability 12 12 4 Debt per Cow 10 Purchased Inputs Cost.. Debt to Asset Ratios 10 Receipts 4 Record System 2 Deferred Taxes Depreciation 9 3,10 Repayment Analysis Dry Matter 16 Replacement Livestock Education 20 Retained Earnings Equity Capital Expansion Livestock Expenses Farm Business Chart 7 3,12 3 22-25,28-32 Farm Debt Payments Per Cow 14 3 11 Return on Equity Capital... 7 Return on Total Capital... 7 Solvency 10 Total Costs of Producing Milk.. 19 Whole Farm Method 19 13 Worker Equivalent 20 13 Yields Per Acre 16 Farm Debt Payments as Percent of Milk Sales 22,23 ­ ( ) Author(s) 97-08 DaIry Farm Business Summary, New Yorl< Large Herd Farms, 300 Cows or Larger, 199 Karszes, J., W.A. Knoblauch and L.D. Putnam 97-07 Dairy Farm Business Summary, Southeastern New Y rk Region, 1996 Knoblauch, W.A., L.D. Putnam, S.E. Hadcock, L.R. Hulle, M. Kiraly, CA McKeon 97-06 Dairy Fa Business Summary, Plateau Region, 1996 Knoblauch, WA, L.D. Putnam. CA Crispell, J.S. Petzen, J.W. Grace. A.N. Dufresne and G. Albrech 97-05 Dairy Farm Business Summary: Western an Central Plain Region, 1996 Knoblauch, WA, L.D. Putnam. J. Karszes, M. Stratto ,C. Mentis and eorge Allhusen 97-04 Fruit Farm usiness Summa ,Lake Ontario Region, New York, 1995 hite, G.B., A. DeMarree and L.D. Put am 97-03 Labor Productivities and Costs in 35 of the Best Flui Milk Plants in t e U.S. St phenson estern and Central Erb ,E.M., . . Aplin and M.W. 97-02 Micro DFBS: A Guide to Processing Dairy Farm Business Summaries In County and Regia al Extension Offices f r Micro DFBS Version 4.0 Putnam, L.D., W. . Knoblauch an S.F. Smith 97-01 Changing Pattern of Fruit and Vegetable Production in New York State, 1970-94 Park, K., E.W. Kreider 96-20 Supermarket Development in China 96-19 New York can mi Handbook, 1997: Agnbusmss Economic 0 tl ok Conference 96-18 Farm In ome Tax Manual 96-17 Income Tax Myths, Truths. and Examples Conceming Farm Property Dis ositIon Smit ,S. 96-16 Dairy Farm Busmess Summary, Eastem New York Renter Summary 199 Smith, S.F. and LD. Putnam 96-15 A Comparative Assessment of the Milk Hauling Sector in the US and Argentina de Guiguet. E.D. and J.E. Pratt an gement and Reporting Referenc cLaughlin and C. er a ,G.• J. Wu and M.L. Chai A.R.M.E. taft mith, S. and C. Cuykendall To order single copies of ARME publications, writB to: Publications. Department of Agricultural, Resource, and Msnagenal £t:onomics. Warren Hall, Cornell Un/verslty. Ithaca. NY 14853-7801.