NOVEM ER 1994
E.B.94-24
F\
EWVORK
LA GE
ARMS,
00 OW
o A G
199
D:CJ)
<C
Jason Karszes
Stuart F. Smith
Linda D. Putnam
Depanment of Agr1cultural, Resource, and ManagerlaJ economics
College of AgrIcUlture and Life SCiences
Cornell University, haca, New York 14853-7801
-
It is the Policy of Cornell Univefsity actively to support equality of
educational and employment opportunity. No person shall be denied
admission to any educational program or activity or be denied
employment on the
involving, but not limited
a of any legally prohibited discrimination
, aueh factors as raee, color, creed, religion,
national or ethnic origin, sex, age or handicap.
The Univeraity ia
will
committed to the maintenance of affirm tive acti n plograms whl
assure the continuation of such equality of opportunity.
1993 DAIRY FARM BUSINESS SUMMARY
LARGE HERD DAIRY FARMS
300 Cows or Larger
Table or Contents
~
IN"TRODUCTION
1
Program Objectives
1
Format.
1
PROORESS OF TIlE FARM BUSIN"ESS
2
SUMMARY AND ANALYSIS OF THE FARM BUSINESS
4
Business Characteristics
4
Income Statement
4
Profitability Analysis
7
Farm and Family Financial Status
9
Statement of Owner Equity
13
Cash Flow Statement
14
Repayment Analysis
16
Cropping Analysis
19
Dairy Analysis
21
Cost of Producing Milk
:
Capital and Labor Efficiency Analysis
23
24
FARM BUSINESS CHART
25
IDENTIFY AND SET GOALS
28
GLOSSARY AND LOCATION OF COMMON TERMS
30
INDEX
34
•
1
1993 DAIRY FARM BUSINESS SUMMARY
LARGE HERD DAIRY FARMSI
INTRODUCTION
Dairy fanners throughout New York State have been participating in Cornell Cooperative
Extension's Fann Business Summary and Analysis Program since the early 1950's. Managers of each
participating fann business receive a comprehensive summary and analysis of the fann business. The
information in this report represents an average of the data submitted from dairy farms with herds
over 300 cows in New York State for 1993.
Prowm Objective
The primary objective of the Dairy Farm Business Summary, DFBS, is to help fann managers
improve the business and financial management of their business through appropriate use of historical
farm data and the application of modem farm business analysis techniques. This information can also
be used to track changes within the business, establish goals that will enable the business to better
meet its objectives, and compare the performance of the farm to other dairy producers.
The intent of this report is to provide a summary of the data for 300 cow or larger herds that
participated in the Dairy Farm Business Summary for 1993.
Format
This report is composed of three sections. The first section charts the progress of the farm
business over time. Nineteen of the large herd farms participated in the summary the last two years
and selected factors are highlighted for these farms.
The summary and analysis section lists the averages of 22 large herd farms for the data that
are calculated for the individual farms. The format follows that of the individual farm printout and
contains a brief explanation of each table and chart.
The third section contains business charts for key measures of farm performance.
1The large herd summary is comprised of farms with 300 or more cows. Cayuga, Cortland, Erie,
Ontario, Otsego, Saratoga, Tompkins, Washington and Wyoming counties had farms of this size in
1993. This report was written by Jason Karszes, Cooperative Extension agent for Erie and Wyoming
counties and Stuart F. Smith, Senior Extension Associate, Farm Management. Linda Putnam was in
charge of data preparation. The authors appreciate the comments and suggestions made by Ed
Staehr, Cooperative Extension agent in Onondaga County. Melody Clark and Beverly Carcelli
prepared the publication.
2
PROGRESS OF THE FARM BUSINESS
Comparing your business with average data from large 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. Please refer to the table on
Page 3.
From 1992 to 1993 the average large herd expanded by adding 79 cows (14.5% increase)
with only a 3.2% increase in debt per cow. A larger number of cows coupled with a steady milk
output per cow led to an increase of 14.3% in the milk sold per farm (12,484,7l91bs.). Worker
equivalents increased 10.9% and tillable acres increased 5.6% to handle the increased cow numbers.
While worker equivalents were added to handle the additional cow numbers, the increase was
at a smaller pace. Subsequently, cows per worker increased 2.2% and milk sold per worker increased
3.1 %. Due to an increase in the average cost per worker equivalent, labor costs stayed the same per
hundredweight of milk produced, even though there was an increase in labor efficiency. Labor costs
as a percent of milk sales increased 5.3%, primarily caused by a 3.7% decrease in milk price.
A decrease in milk price of 51 cents, while being a small percentage (-3.7%), more than offset
the increase in cow numbers and, along with relatively constant operating costs, led to a large
decrease in overall farm profitability. Net farm income with appreciation fell 14.7% to $266,314.
Return to labor and management fell 21.7% to $66,979. Rate of return on equity capital with
appreciation fell 24.6% to 10.4% and rate of return on all capital fell 19.6% to 8.6%. This
demonstrates the large impact that a small change of milk price can have on profitability of the large
dairy farm.
Continued monitoring of milk production costs is necessary to maintain profitability on dairy
farms. Even a substantial increase in cow numbers does not offset a small change in milk price.
When milk prices decrease, the costs of producing milk need to decrease in order to maintain or
improve profitability. This can be acheived by producing more milk without additional expenses, by
producing the same amount of milk with reduced expenses or with a combination of these two
strategies.
3
PROGRESS OF TIlE FARM BUSINESS
Same 19 Large Herd Dairy Fanns. 1992 & 1993
selected Factors
Size of Business
Average number of cows
Average number of heifers
Milk sold, 1bs.
Worker equivalent
Total tillable acres
Rates of Production
Milk sold per cow, lbs.
Hay DM per acre, tons
Com silage per acre, tons
Labor Efficiency & Costs
Cows per worker
Milk sold/worker, lbs.
Hired labor costlcwt.
Hired labor cost/worker
Hired labor cost as % of milk sales
Cost Control
Grain & conc. purchased as % of milk sales
Dairy feed & crop expense 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 wlo apprec.
Net farm income w/apprec.
Labor & mgt. income per oper.lmanager
Rate of return on equity capital wI apprec.
Rate of return on all capital wI apprec.
Financial Summary
Farm net worth, end year
Debt to asset ratio
Farm debt per cow
Income Generation
Gross milk sales per cow
Gross milk sales per cwt.
Net milk sales per cwt.
Dairy cattle sales per cow
Dairy calf sales per cow
·Farms participating both years.
Average of 19 Farms·
1992
1993
Percent
Change
546
405
10.919.293
12.24
1.095
625
454
12,484,719
13.58
1,156
+14.5%
+12.1%
+14.3%
+10.9%
+5.6%
19,995
3.40
15.6
19.987
3.35
16.2
-0.1%
-1.5%
+3.8%
45
891,978
$2.60
$23,156
19%
46
919,414
$2.59
$23,855
20%
+2.2%
+3.1%
-0.4%
+3.0%
+5.3%
27%
$4.45
$929
$10.46
28%
$4.44
$925
$10.33
+3.7%
-0.2%
-0.4%
-1.2%
$5,698
$785
0.60
$5,503
$774
0.58
-3.4%
-1.4%
-3.3%
$236,645
$312,291
$85,495
13.8%
10.7%
$219,410
$266,314
$66,979
10.4%
8.6%
-7.3%
-14.7%
-21.7%
-24.6%
-19.6%
$1,859,282
0.43
$2.400
$1,952,372
0.46
$2,476
+5.0%
+7.0%
+3.2%
$2.741
$13.71
$13.26
$324
$47
$2,638
$13.20
$12.73
$302
$50
-3.8%
-3.7%
-4.0%
-6.8%
+6.4%
••Average for the year.
4
SUMMARY AND ANALYSIS OF THE FARM BUSINESS
Business Characteristics
Planning the optimal management strategies is a crucial component of operating a successful
farm. Various combinations 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 characteristic.
BUSINESS CHARACTERISTICS
·22 Large Herd Dairy Farms, 1993
Type of Farm
Dairy
Part-time dairy
Dairy cash-crop
Part-time cash-crop dairy
Type of Ownership
Owner
Renter
Number
22
0
0
0
Number
22
0
Type of Business
Single proprietorship
Partnership
Corporation
Business Record System
ELFAC II
Account Book
Agrifax (mail-in only)
On-Farm Computer
Other
Number
6
6
10
Number
0
0
2
17
3
Type of Barn
Stanehionffie-Sta11
Freesta11
Combination
Number
0
21
1
Milking System
Bucket & carry
Dumping station
Pipeline
Herringbone parlor
Other parlor
Number
Milking Frequency
2x/day
3x/day
Other
Number
3
15
Production Records
DHIC
Owner-Sampler
Other
None
Number
0
0
1
15
6
4
17
1
4
0
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 1993.
Chan~e
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.
5
CASH AND ACCRUAL FARM EXPENSES
22 Large Herd Dairy Farms, 1993
Expense Item
Cash
Paid +
Hired Labor
$309,015
Change in
Inventory or
Prepaid
Expense
+
$368 «
429,363
9,656
0
14,815
-1,107
0
Change in
Accounts
Payable =
Accrual
Expenses
$775
$310,158
-2,172
588
0
442,006
9,137
0
0
238
0
221
13,036
74,683
2,340
29,132
11,581
17,309
48,207
54,759
2,988
87,750
f=g
Dairy grain & conc.
Dairy roughage
Nondairy
Machinery
Mach. hire, rentllease
Machinery repairs/parts
Auto expo (farm share)
Fuel, oil & grease
Uyestock
Replacement livestock
Breeding
Vet & medicine
Milk marketing
Cattle lease/rent
Other livestock expense
12,775
74,825
2,340
28,363
261 «
-380
o«
548
o«
11,581
17,266
48,572
54,761
2,988
87,062
724
0
-26
-363
14
0
-36
29,256
17,676
19,774
5,314
2,254
1,714
-25
0
0
34,545
19,930
21,488
69
-2
-16 «
o«
CIQI2S
Fertilizer & lime
Seeds & plants
Spray, other crop expo
Real Estate
Land/bldgJfence repair
Taxes
Rent & lease
.Qtber
Insurance
Telephone (farm share)
Electricity (farm share)
Interest paid
Miscellaneous
Total Operating
Expansion livestock
Machinery depreciation
Building depreciation
Total Accrual Expenses
Chan~e in
23,404
23,492
27,226
5
-384 «
9 «
-35
0
18
23,374
23,108
27,253
17,483
2,119
35,038
94,428
33.277
$1,411,740
71,227
o«
0
4
-162
-295
-173
$-1,429
-1,364
17,483
2,114
34,560
94,133
32.549
$1,433,623
72,363
67,578
64.574
$1,638,138
-9 «
-316 «
o«
-555
$23,312
2,500
prepaid expenses (noted above by «) is a net change in non-inventory expenses that have
been paid in advance of their use. If 1993 funds used to prepay 19941eases exceed the amount of
19931eases prepaid in 1992, the amount of this excess is entered as a negative number to exclude it
from 1993 accrual lease expenses. The excess prepaid lease is charged against the future year's
business operation. A decrease in prepaid lease is added to accrual expenses because it represents use
of resources during this year that were paid for in past years.
6
Chan~e in accounts payable: An increase in accounts payable from beginning to end of year is added
when calculating accrual expenses because these expenses were incurred (resources used) in 1993 but
not paid for. A decrease is subtracted because the resource was used before 1993.
Accrual expenses are the costs of inputs actually used in this year's production. They are the total of
cash paid, as well as changes in inventory, prepaid expenses, and accounts payable.
CASH AND ACCRUAL FARM RECEIPTS
22 Large Herd Dairy Fanns, 1993
Receipt Item
Milk sales
Dairy cattle
Dairy calves
Other livestock
Cash
Receipts
$1,534,528
89,039
29,276
o
6,367
20,423
532
1,033
19.885
Change in
+ Inventory
$90,933
162
32,065
0*
Crops
Government receipts
Custom machine work
Gas tax refund
Other
(-)
0
Less nonfarm noncash cap.**
Total Receipts
$1,701,083
$123,160
*Change in advanced government receipts.
**Gifts or inheritances of cattle or crops included in inventory
Change in
Accounts
Accrual
+ Receivable = Receipts
$14,909 $1,549,437
180,057
85
-24
29,252
162
o
-422
38,010
-4,220
16,203
532
o
1,032
-1
-792
19,093
(-)
0
$9,535 $1,833,778
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.
Chan~es
in inyentoD' of assets produced by the business are calculated by subtracting beginning of
year values from end of year excludin~ 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 annual increase in advanced
government receipts is subtracted from cash income because it represents income received in 1993 for
the 1994 crop year in excess of funds earned for 1993. Likewise, a decrease is added to cash
government receipts because it represents funds earned for 1993 but received in 1992.
Chan~es
in accounts receivable are calculated by subtracting beginning year balances from end year
balances. The January milk check for this December's marketings compared with the previous
January's check is included as a change in accounts receivable.
Accrual receipts represent the value of all fann commodities produced and services actually generated
by the farm business during the year.
7
Protitabjlity Analysjs
Fann operators 2 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.
Fann 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
Net fann income is the return to the fann operators and other unpaid family members for their labor,
management, and equity capital. It is the farm family's net annual return from working, managing,
financing, and owning the farm 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 in 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
22 Large Herd Dairy Fanns, 1993
Average
$1,833,778
7,558
Uvestock
7,504
Machinery
34,154
Real Estate
Other Stock/Certificates
5.499
$1,888,493
Total Including Appreciation
-1.638.138
Total accrual expenses
Net Farm Income (with appreciation)
$250,355
Net Farm Income (without appreciation)
$195,640
My Farm
$,---­
Item
Total accrual receipts
Appreciation:
$---­
$._--­
$
The chart below shows the relationship between net fann income per cow (with appreciation)
and pounds of milk sold per cow. Generally, fanns with a higher production per cow have higher
profitability per cow.
Net Farm Income/Cow and Milk/Cow
22 Larve HOTd Dairy Farm•• 1993
",
0
C'0
'"
0
~
..
0
0.9
O.B
0
0
0
0.7
"­
...
!,..
0.&
o<
U 0
"-~
• 0
~t
~
0
0
0
0
0.4
!
...
olttJ
0
0.5
0
0
0
0
0
0.3
0
0
-;
z
•
0.2
0.1
0
0
0
-0.1
17
19
21
23
(Thau.and.)
Pound. II1Ik Said P" Ca.
2operators 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.
8
Return to operators' labor. manaeement and eQuity capital measures the total net farm income for the
farm operator(s). It is calculated by deducting a charge for unpaid family labor from net farm income.
Operators' labor is not included in unpaid family labor. Return to operators' labor, management, and
equity capital has been calculated both with and without appreciation. Appreciation is an important
part of the return to ownership of farm assets.
RETURN TO OPERATORS' LABOR, MANAGEMENT, AND EQUITY
22 Large Herd Dairy Farms, 1993
Item
Net farm income
Family labor unpaid
@ $1,400 per month
Return to operators' labor,
management, & equity
Ayera&e
With
Without
Apprec.
Apprec.
$195,640
$250,355
My Farm
With
Apprec.
Without
Apprec.
$
-1.722
-1.722
$
$248,633
$193,918
$
$
$
Labor and manaeement income is the return which farm operators receive for their labor and
management used in operating 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 the opportunity cost of
using equity capital, at a real interest rate of five percent, from the return to operators' labor,
management, and equity capital excluding appreciation. The interest charge of five percent reflects
the long-term average rate of return above inflation that a farmer might expect to earn in comparable
risk investments.
LABOR AND MANAGEMENT INCOME
22 Large Herd Dairy Farms, 1993
Item
Return to operators' labor, management, & equity without
appreciation
Real interest @ 5% on $1,803,210 average equity capital
Labor & Management Income
Labor & Management Income per 1.83 OperatorlManager
Average
$193,918
My Farm
$
_
$
$
_
-90.161
$103,757
$56,698
9
Return on eguity 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.
Item
RETURN ON EQUITY CAPITAL AND RETURN ON TOTAL CAPITAL
22 Large Herd Dairy Farms, 1993
Average
My Farm
Return to operators'labor, management, & equity capital
with appreciation
Value of operators' labor & management
Return on equity capital with appreciation
Interest paid
Return on total capital with appreciation
Return on equity capital without appreciation
Return on total capital without appreciation
Rate of return on average equity capital:
with appreciation
without appreciation
Rate of return on average total capital:
with appreciation
without appreciation
$248,633
- 67.046
$181,587
+ 94.133
$275,720
$126,872
$221,005
$
$
+
$
$
$
10.07%
7.04%
%
%
8.45%
6.77%
%
%
Farm and Family Financial Status
The first step in evaluating the financial position of the farm is to construct a balance sheet
which identifies 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, representing the future value the item has to the business. For
1993, leases were discounted by 7.75 percent.
AdYanced ~oyernment receipts are included as current liabilities. Government payments received in
1993 that are for participation in the 1994 program are the end year balance and payments received in
1992 for participation in the 1993 program 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.
10
1993 FARM BUSINESS & NONFARM BALANCE SHEET
22 Large Herd Dairy Fanns, 1993
Farm Assets
Current
Farm cash, checking
& savings
Accounts receivable
Prepaid expo
Feed & supplies
Total
Jntennediate
Dairy cows:
owned
leased
Heifers
Bulls/other lvstk.
MachJeq. owned
MachJeq. leased
Farm Credit stock
Otherstock/cert
Total
Jan. 1
$19,838
98,550
9,450
305,742
$433,580
$536,054
801
221,351
3,210
432,605
3,881
20,314
61.251
$1,279,467
Farm Liabilities
& Net Worth
Current
Accounts payable
$13,522 Operating debt
108,085 Short-term
7,036 Advanced govt. ree.
314.408 Current Portion:
Intermediate
Long Term
$443,051
Total
Dec. 31
Intennediate
Structured debt
$607,906
1-10 years
420 Financial lease
247,894 (cattle/mach.)
3,468 Farm Credit stock
484,202
4,511
Total
24,077
66,275
$1,438,753
Jan. 1
Dec. 31
$24,233
101,474
14,859
0
$21,439
73,444
62,273
0
0
0
$140,566
97,398
48.066
$302,620
$541,204
$595,738
4,682
20.314
4,931
24,077
$566,200
$624,746
Lone-Term
Lone-Tenn
Structured debt
$647,287
>10 years
$637,781
Financiallease
leased
(structures)
1.756
777
$1,393,032 $1,540,270
$649,043
$638,558
Total
Total
$1,355,809
$1,565,924
Total Farm Liab.
$1,750,270
$1,856,150
Total Farm Assets
$3,106,079 $3,422,074 FARM NET WORTH
Nonfarm Assets, Liabilities & Net Worth (Average of 8 farms reporting)
Liabilities
Jan.
Dec.
1
31 & Net Worth
Jan. 1
Dec. 31
Assets
$12,087
$11,367
Nonfarm Liab.
Personal cash, chkg.
& savings
$1,492
$816
Cash value life ins.
13,992
12,380
Nonfarm real estate
31,250
32,500
Auto (personal sh.)
2,125
1,813
Stocks & bonds
763
975
Household fum.
5,125
5,375
All other
31.755
29,569 NONFARM NET
Total Nonfarm
$86,501
$83,427 WORTH
$74,414
$72,060
Farm & Nonfarm Assers, Liabilities & Net Worth·
Jan. 1
Dec. 31
Total Assets
$3,192,580
$3,505,501
Total Liabilities
1.367,896
1,577.291
TOTAL FARM & NONFARM NET WORTH
$1,824,684
$1,928,210
• Assumes that average nonfarm assets and liabilities for the nonreporting farms were the same as for those
reporting.
Landlbuildings:
owned
$1,391,276
_---"-1.1.7.....5'-"'6
$1,539,493
777
11
The following condensed balance sheet, including deferred taxes, contains average data from
only those farmers who elected to provide the additional infonnation 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 and date on 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 nonfarm 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. However, they could be important
CONDENSED BALANCE SHEET INCLUDING DEFERRED TAXES
ASSETS
December 31, 1993
Average of 25 New York Dairy Farms Reporting Data, 1993
LIABILITIES & NET WORTH
Current debts & payables
Current deferred taxes
Total Current Assets
Total Intennediate Assets
$88,137
$312,057
$49,095
28,723
Total Current Liabilities
$77,818
Intennediate debts & leases
Intennediate deferred taxes
$96,341
91,463
Total Intennediate Liabilities
Long tenn debts & leases
Long tenn deferred taxes
$187,804
$77,496
51,632
Total Long Tenn Assets
$326,514
Total Long Tenn Liabilities
$129,128
TOTAL FARM ASSETS
$726,708 TOTAL FARM LIABILmES
Farm Net Worth
Percent Equity (Farm)
$394,750
$331,959
46%
Nonfarm debts
Nonfarm deferred taxes
$57,102
Total Nonfarm Liabilities
$448
12,359
$12,807
Total Nonfarm Assets
TOTAL ASSETS
$783,810 TOTAL LIABILITIES
Total Net Worth
Percent Equity (Total)
$407,557
$376,253
48%
12
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 dividing 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 ability.
BALANCESHEETANALYS~
22 Large Herd Dairy Farms, 1993
Average
Item
Financial Ratios - farm:
Percent equity
Debt/asset ratio: total
long-term
intermediate/current
Farm Debt Analysis:
Accounts payable as % of total debt
Long-term liabilities as a % of total debt
Current & intermediate liabilities as a % of total debt
54%
0.46
0.41
0.49
---_%
1%
41%
59%
---_%
---_%
---_%
Per nIlable
Farm Debt Leyels:
Total farm debt
Long-term debt
Intermediate & current debt
Per Cow
$2,490
1,015
1,474
Per nIlable
Acre Owned
$2,276
928
1,348
My Farm
Per Cow
$,--­
Acre Owned
$---­
Farm inyentOlY 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
22 Large Herd Dairy Farms, 1993
Average of Region's Farms
Real Estate
Machinety & EQuipment
$1,391,276
$432,605
Item
Value beginning of year
Purchases
Giftlinheri tance
Lost capital
Sales
Depreciation
Net investment
Appreciation
$232,332
$123,492
+
- 45,482
8,214
- 64.574
+
°
°
°
- 11,822
- 67.578
= 114,062
+ 34.154
$1,539,493
Value end of year
*$32,361 land and $199,971 buildings and/or depreciable improvements.
= 44,092
+ 7.504
$484,202
13
Statement of Owner Equity
The Statement of Owner EQuity has two purposes. It allows (1) verification that the accrual income
statement and market value balance sheet are interrelated and 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) and (3) increases
or decreases in the value (price) of assets owned by the business (called change in valuation equity).
Retained earnings is an excellent indicator of farm generated fmancial progress.
STATEMENT OF OWNER EQUITY (RECONCILIATION)
22 Large Herd Dairy Farms, 1993
Average
Item
Beginning of year farm net worth
Net farm income wlo appreciation
+ Nonfann cash income
- Personal with<h-awals & family
expenditures excluding
oonfarm borrowings
Retained Earnings
Nonfarm ooncash transfers to farm
+ Cash used in business from oonfarm
capital
- Note/mortgage from farm real estate
sold (nonfarm)
ContributedlWithdrawn Capital
Appreciation
- Lost capital
Change in Valuation Equity
ImbalancelError
End of year farm net worth*
Change in net worth w/apprec.
Chan&e in Net Worth
Without appreciation
With appreciation
*May oot add due to rounding.
My Farm
$1,750,270
$ 195,640
+ 18,325
$
$
+
- 117,776
+ 96,189
$
$
0
$
+
3,927
+
0
+
3,927
$ 54,715
45A82
+$
$
9,233
3.471
+$
-$
=$1,856,150
$ 105,880
=$
$
+
$51,165
$105,880
$,-­
$
14
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 frrst 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, fmancing 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.
ANNUAL CASH FLOW STATEMENT
22 Large Herd Dairy Farms, 1993
Average
Item
Cash Flow from Qperatin2 Actiyities
$1,701,083
Cash farm receipts
1.411.740
- Cash farm expenses
$289,343
= Net cash farm income
18,325
Nonfarm income
$
117.776
- Personal withdrawals/family expenses including
nonfarm debt payments
$-99.451
+ Net cash nonfarm income
= Net Provided by Operating Activities
Cash FlOW From Investin~ Activities
$ 11,822
Sale of Assets: Machinery
8,214
+ real estate
2.266
+ other stocklcert.
$ 22,302
= Total asset sales
Capital purchases: expansion livestock
$ 71,227
123,492
+ machinery
232,332
+ real estate
1,791
+ other stocklcert.
$428,842
- Total invested in farm assets
= Net Provided by Invesnnent Activities
Cash Flow From Financin~ Activities
$ 406,711
Money borrowed (inter. & long tenn)
61,697
+ Money borrowed (short-tenn)
0
Increase
in
operating
debt
+
3,927
Cash
from
nonfarm
cap.
used
in
business
+
0
+ Money borrowed - nonfarm
$472,335
= Cash inflow from financing
$ 216,219
Principal payments (inter. & long-tenn)
14,283
+ Principal payments (shoo-tenn)
28,030
+ Decrease in operating debt
$258.532
- Cash outflow for financing
= Net Provided by Financing Activities
Cash FlOW From Business
Beginning farm cash, checking & savings
$ 19,838
13,522
- Ending farm cash, checking & savings
= Net Provided from Reserves
Imbalance (error)
$189,892
$-406,540
$213,803
$ 6,316
$ 3,471
15
ANNUAL CASH FLOW STATEMENT
22 Large Herd Dairy Fanns, 1993
Item
Cash Bow from QperatinK Activities
Cash farm receipts
- Cash farm expenses
= Net cash farm income
Nonfarm income
Personal withdrawals/family expenses including
nonfarm debt payments
+ Net cash nonfarm income
= Net Provided by Operating Activities
Cash Bow From InvestinK Actiyities
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 Bow From Financin~ Actiyities
Money borrowed (inter. & long term)
+ Money borrowed (short-term)
+ Increase in operating debt
+ Cash from nonfarm cap. used in business
+ Money borrowed - nonfarm
= Cash inflow from financing
Principal payments (inter. & long-term)
+ Principal payments (shoo-term)
+ Decrease in operating debt
- Cash outflow for financing
= Net Provided by Financing Activities
Cash BOW From Business
Beginning farm cash, checking & savings
- Ending farm cash, checking & savings
= Net Provided from Reserves
Imbalance (error)
$---­
$---­
$---­
$---­
$---­
$._--­
$._--­
$._--­
$._--­
$
16
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 1994. The cash flow projection worksheet on
the next page can be used to estimate repayment ability, which can then be compared to planned 1994
debt payments shown below.
FARM DEBT PAYMENTS PLANNED
Debt Payments
Long-term
Intennediate-term
Short-term
Operating (net
reduction)
Accounts payable
(net reduction)
Total
Per cow
Per cwt. 1993 milk
Percent of total
1993 receipts
Percent of 1993
milk receipts
Same 19 Large Herd Dairy Farms, 1992 & 1993
Average
MyFann
1993 Payments
Planned
1993 Payments
Made
1994
Planned
Made
Planned
$82,214
180,483
14,931
$79,789
239,631
19,618
$97,740 $
151,677
31,871
7,649
34,545
3,973
5,474
$290,752
4,876
$378,459
$465
$2.33
$606
$3.03
15%
19%
18%
23%
Planned
1994
$
$
4,050
$289,311 $
$
$
$
$
$
$
The cash flow coyera~e ratio measures the ability of the farm business to meet its planned
debt payments schedule. The ratio shows the percentage of payments planned for 1993 (as of
December 31, 1992) that could have been made with the amount available for debt service in 1993.
Farmers who did not participate in DFBS in 1992 have their 1993 cash flow coverage ratio based on
planned debt payments for 1994.
CASH FLOW COVERAGE RATIO
Same 19 Large Herd Dairy Farms, 1992 & 1993
Item
Average
MyFann
Cash fann receipts
$1,803,845
$
_
- Cash farm expenses
1,484,604
+ Interest paid
99,165
- Net personal withdrawals from farm**
109.357
(A)
= Amount Available for Debt Service
$309,049
$,
_
(B)
= Debt Payments Planned for 1993 (as of 12/31/92)
$290,752 $
_
(A+B) = Cash Flow Coverage Ratio for 1993
1.06
**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
17
ANNUAL CASH FLOW WORKSHEET
22 Large Herd Dairy Fanns, 1993
Regional Average
Per Cow
PerCwt.
590.2
117,660.3
Item
No. cows and cwt milk
AccrnaJ Qperatine Receipts
Milk
Dairy cattle
Dairy calves
Other livestock
Crops
Misc. receipts
Total
Accrnal Qperatine Expenses
Hired labor
Dairy grain & concentrate
Dairy roughage
Nondairy feed
Maca hirelrent/lease
Mach. repair/parts & auto
Fuel, oil & grease
Replacement livestock
Breeding
Vet & medicine
Milk marketing
Cattle lease
Other livestock expense
Fertilizer & lime
Seeds & plants
Spray/other crop expenses
Land, building, fence repair
Taxes
Real estate rent/lease
Insurance
Utilities
Miscellaneous
Total Less Interest Paid
Net Accrnal Qperatine Income
(without interest paid)
- Change in livestock/crop inventory*
- Change in accounts receivable
+ Change in feed/supply inventCl)'**
+ Change in accts. payable***
NET CASH FLOW
- Net personal withdrawals from fann
(see footnote on p. 16)
Available foc Fann Debt Payments & Investments
- Fann debt payments
Available foc Fann Investment
- Capital purchases: cattle, machinery & improvements
*Includes change in advance government receipts.
**Includes change in prepaid expenses.
***Excludes change in interest account payable.
Total
$2,625.27
305.08
49.56
0.27
64.40
62.46
$3,107.05
$13.17
1.53
0.25
0.00
0.32
0.31
$15.58
$1,549,437
180,057
29,252
162
38,010
36,862
$1,833,779
$525.52
748.91
15.48
0.00
22.09
130.50
49.36
19.62
29.33
81.68
92.78
5.06
148.68
58.53
33.77
36.41
39.60
39.15
46.18
29.62
62.14
55.15
$2,269.55
$2.64
3.76
0.08
0.00
0.11
0.65
0.25
0.10
0.15
0.41
0.46
0.02
0.75
0.29
0.17
0.18
0.20
0.20
0.23
0.15
0.31
0.28
$11.39
$310,158
442,006
9,137
0
13,036
77,023
29,132
11,581
17,309
48,207
54,759
2,988
87,750
34,545
19,930
21,488
23,374
23,108
27,253
17,483
36,673
32,549
$1,339,489
$837.50
208.68
16.16
39.50
-1.92
$650.24
$4.19
1.05
0.08
0.20
-0.01
$3.25
$494,290
123,160
9,535
23,312
-1,134
$383,773
$168.50
$481.74
588.32
$-106.58
$726.60
$0.84
$2.41
2.95
$-0.54
$3.64
$99,451
$284,322
347,228
$-62,906
$428,842
18
ANNUAL CASH FLOW WORKSHEET
22 Large Herd Dairy Farms, 1993
My Farm
Per Cow or
Expected
Change
PerCwt.
Item
No. cows or cwt milk
Accrual Qperatin& Receipts
Milk
Dairy cattle
Dairy calves
Other livestock
Crops
Misc. receipts
Total
Accrual QJeratin& Expenses
Hired labor
Dairy grain & concentrate
Dairy roughage
Nondairy feed
Mach. hirelrentllease
Mach. repair/parts & auto
Fuel, oil & grease
Replacement livestock
Breeding
Vet & medicine
Milk marketing
Cattle lease
Other livestock expense
Fertilizer & lime
Seeds & plants
Spray/other crop expenses
Land, building, fence repair
Taxes
Real estate rentllease
Insurance
Utilities
Miscellaneous
Total Less Interest Paid
Net Accrual Qperatin& Income
(without interest paid)
- Change in livestock/crop inventory*
- Change in accounts receivable
+ Change in feed/supply inventory**
+ Change in accounts payable***
NET CASH R..OW
- Net personal withdrawals from farm(see footnote p.l6)
Available for Farm Debt Payments & Investments
- Farm debt payments
Available for Farm Investment
- Capital purchases: cattle, machinery & improvements
Additional Capital Needed
*Includes change in advance government receipts.
**Includes change in prepaid expenses.
***Excludes change in interest account payable.
1994
Projection
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
19
Croppin& Analysjs
The cropping program is an important part of the dairy fann business and often represents
opportunities for improved 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
22 Large Herd Dairy Fanns, 1993
Item
Lalli!
TIUable
Nontillable
Other nontillable
Total
Owned
688
50
Average
Rented
439
11
----2Q2
~
940
455
Crop Yields
Hay crop
Com silage
Ea.rm.s
22
22
430
499
Other forage
Total forage
Com grain
Oats
2
22
9
1
2
6
7
8
22
158
943
202
50
90
174
82
48
1,127
Wheat
Other crops
Tilllable pasture
Idle
Total Tillable Acres
~*
IWl
Owned
My Farm
Rented
1,127
61
207
1,395
Prod/Acre
tnOM
tn
tnOM
tnOM
tnOM
bu
bu
bu
ProdJAcre
3.40 tn OM
16.21 tn
5.41 tn OM
2.09 tnOM
4.44tnOM
108.61 bu
58.76 bu
28.94 bu
*This column represents the average acreage for the farms producing that crop. Average acreages including
those farms not producing were com grain 83, oats 2, tillable pasture 26, and idle 17.
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 fanners. 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
22 Large Herd Dairy Fanns, 1993
Item
Total tillable acres per cow
Total forage acres per cow
Harvested forage dry matter, tons per cow
Average
1.91 .
1.60
7.10
My Farm
20
Croppioe Analysjs (continued)
A number of cooperators have allocated crop expenses among the hay crop, com, and other
crops produced. Fertilizer and lime, seeds and plants, and spray and other crop expenses have been
computed per acre and per production unit for hay and com. Additional expense items such as fuels,
labor, and machinery repairs are not included. Rotational grazing was not used on these farms.
CROP RELATED ACCRUAL EXPENSES
Large Herd Dairy Farms Reporting, 1993
Item
No. of farms reporting
Ave. number of acres
Fert.nime
Seedlplants
Spray/other crop expo
TOTAL
Total
Per
Till. Acre
22
1,127
$30.65
17.68
J.2..Q1
$67.40
All
Com
Per Acre
10
598
$36.03
24.23
25,67
$85.93
Com Silage
Per
TonDM
Com Grain
Per Dry
Sh. Bu.
$ 6.58
4.43
$0.31
0.21
$
$
$
$
$
$
$
$
$
$
$
$
~
Jl.22
$15.70
$0.74
Hay Crop
Per
Per Ton
Acre
DM
10
391
$20.58
$5.99
14.87
4.33
7,51
2.19
$42.96
$12.51
My Farm:
FertJ1ime
Seeds/plants
Spray/other crop expo
TOTAL
Most machinery costs are associated with crop production 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. Although machinery costs have not been
allocated to individual crops, they are shown below per total tillable acre.
ACCRUAL MACHINERY EXPENSES
22 Large Herd Dairy Farms, 1993
Machinery
Expense Item
Fuel, oil & grease
Machinery repairs & parts
Machine hire, rent & lease
Auto expense (farm share)
Interest (5%)
Depreciation
Total
Average
Total
Per Till.
Expenses
Acre
$29,132
$25.85
74,683
66.27
13,036
11.57
2,340
2.08
22,920
20.34
67.578
59.96
$209,690
$186.06
My Farm
Total
Per Till.
Expenses
Acre
$
$._-­
$
$
21
Dair.)' Analysjs
Analysis of the dairy enterprise can reveal a great deal about the strengths and weaknesses of
the dairy fann business. Infonnation on this page should be used in conjunction with DHI and other
dairy production infonnation. 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 appreciation is
attributed to physical changes in herd size and quality. Any change in inventory is included as an
accrual fann receipt when calculating all of the profitability measures on pages 7 and 8.
DAIRY HERD INVENTORY
22 Large Herd Dairy Fanns, 1993
Dairy Cows
Heifers
Item
No.
Beginning year (owned)
+ Change wlo apprec.
+ Appreciation
End year (owned)
End including leased
Average number
547
My Farm:
Beginning year (owned)
+ Change wlo apprec.
+ Appreciation
End of year (owned)
End including leased
Average number
620
629
590
Value
$536,054
69,397
2.455
$607,906
Calves
No.
Value
Open
Bred
No.
Value
No.
Value
209
$146,875
-13,348
540
$134,067
82
$42,892
28,372
3.673
$74,937
174
150
107
127
$31,584
6,511
795
$38,890
430 (all age groups)
$._­
$--­
$-­
$,-­
$--
$--­
$-­
$-­
_
(all age groups)
Total milk sold and milk sold per cow are extremely valuable measures of size and
productivity, respectively, on the dairy fann. These measures of milk output are based on pounds of
milk marketed during the year. Fann 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
22 Large Herd Dairy Fanns, 1993
Item
Total milk sold, lbs.
Milk sold per cow, lbs.
Average milk plant test, percent butterfat
Average
11,766,034
19,936
3.64
MyFann
22
The cost of producin~ milk has been compiled using the whole fann 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 fann method, operatin~
costs of producin~ milk are estimated by deducting nonmilk accrual receipts from total accrual
operating expenses including expansion livestock purchased. Purchased inputs cost of producin~ milk
are the operating costs plus depreciation. Total costs of producin~ mille include the operating costs of
producing milk plus depreciation 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 AND COST OF PRODUCING MILK
22 Large Herd Dairy Fanns, 1993
Item
Accrual Costs of
Producin~ Milk
Operating costs
Purchased inputs costs
Total Costs
Accrual Receipts From
Milk
Total
Average
Per Cow
PerCwt.
$1,221,644
$1,353,796
$1,512,725
$2,070
$2,294
$2,563
$1,549,437
$2,625
My Farm
PerCwt.
Total
Per Cow
$10.38
$11.51
$12.86
$--­
$--­
$---
$,--­
$,--­
$---
$--­
$--­
$--­
$13.17
$
$
$
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
22 Large Herd Dairy Fanns, 1993
My Farm
Average
Item
Purchased dairy grain & conc.
Purchased dairy roughage
Total Purchased Dairy Feed
Purchased grain & COIlc. as % of
milk receipts
Purchased feed & crop expo
Purchased feed & crop expo as %
of milk receipts
Breeding
Veterinary & medicine
Milk marketing
Cattle lease
Other livestock expenses
Per Cow
PerCwt.
Per Cow
$749
15
$764
$3.76
0.08
$3.84
$
$
$
$
$4.48
$
$0.15
0.41
0.47
0.03
0.75
$
29%
$893
34%
$ 29
82
93
5
149
PerCwt.
- %
- %
$
$
23
Cost of Producine Milk
The cost of Producin& milk has been compiled below using the whole farm method. The
following steps are used in the calculations.
1. The cost of expansion livestock is added to total accrual operating expenses to offset any related
inventory increase included in accrual receipts.
2. Accrual milk sales are deducted form total accrual receipts to get total accrual nonmilk receipts
which are used to represent total nonmilk operating costs.
3. Total accrual nonmilk receipts are subtracted from total accrual operating expenses including
expansion livestock to calculate the operating costs of producing milk.
4. Machinery depreciation and building depreciation are added to operating costs to determine the
purchased inputs cost of producing milk.
5. The opportunity costs of equity capital, operator's labor and operator's management and the value
of unpaid family labor are added to all other costs to obtain the total costs of producing milk.
This cost includes all the operating, depreciation, and imputed costs of producing milk.
COST OF PRODUCING Mll..K WHOLE FARM METHOD CALCULATIONS
22 Large Herd Dairy Farms, 1993
Item
Total Accrual Operating Expenses
Expansion Livestock. Accrual
Average 22 Farms
$1,433,623
+ 72.363
1. Total Accrual Operating Expenses, Including Expansion Livestock
Total Accrual Receipts
Milk Sales, Accrual
$1,505,986
$1,833,778
- 1.549.437
2. Total Accrual Nonmilk Receipts
- 284.341
3. Operating Costs of Producing Milk
Cwt. of Milk Sold
Operating CostslCwt
Machinery Depreciation
Building Depreciation
$1,221,645
4. Purchased Inputs Cost of Producing Milk
Cwt. of Milk Sold
Purchased Inputs CostlCwt
Family Labor Unpaid ($I,400/month)
Real Interest on Equity Cap.
Value of Operating Labor & Management
5. Total Costs of Producing Milk
Cwt. Milk Sold
Total Costs/Cwt.
+
=
117,660.3
$10.38
+ 67,578
+ 64.574
$1,353,797
+
117,660.3
$11.51
=
+ 1,722
+ 90,161
+ 67.046
$1,512,726
117,660.3
= $12.86
+
24
Capital and Labor Efficiency Analysis
Capital efficiency factors measure how intensively the capital is being used in the farm
business. Measures of labor efficiency are key indicators of management's success in generating
products per unit of labor input.
CAPITAL EFFICIENCY
22 Large Herd Farms, 1993
Per
Worker
$249,329
Item
Fann capital
Real estate
Machinery & equipment
Asset turnover ratio
My farm:
Fann capital
Real estate
Machinery & equipment
Asset turnover ratio
Per
Cow
$5,530
2,485
784
Per TIllable
Acre
$2,896
$--­
$--­
35,336
Per TIllable
Acre Owned
$4,744
2,132
410
.58
$--­
$--­
LABOR FORCE INVENTORY AND ANALYSIS
22 Large Herd Dairy Farms, 1993
Years of
Labor Force
Operator number 1
Operator number 2
Operator number 3
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
($1,4OOImo.)
Family unpaid ($1,4OO'mo.)
Hired
Total Labor
Machinery Cost
Total Labor & Mach.
Value of
Age
Months
Education
Labor & Mgmt
15
12.00
$39,682
46
15
17,909
42
6.05
9,455
43
14
3.86
4.73
1.23
129.23
157.10 /12 = 13.09 Worker Equivalent
1.83 OperatorlManager Equivalent
112
Worker Equivalent
/12
OperatorlManager Equivalent
Average
My Fann
Total
Per Worker
Total
Per Worker
590
45
11,766,034
898,758
1,127
86
5,732
438
=
=
Total
$30,674
1,722
310.159
$342,555
209.690
$552,245
Average
Per Cow
PerCwt.
$52
3
$0.26
0.01
--5..22
---.2..M
$580
$2.91
-lti
-l..1.8.
936
$4.69
MyFann
Per Cow
PerCwt.
$
$
$-­
$
$
$-­
$
$
$
Total
25
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 perfonnance. The five figures in each column represent the average of each 20
percent or quintile of farms included in this summary. Each column of the chart is independent of the
others. The farms which are in the top 20 percent for one factor would llil.t necessarily be the same
farms which make up the 20 percent for any other factor. Use this infonnation to identify business
areas where more challenging goals are needed.
FARM BUSINESS CHART FOR FARM MANAGEMENT COOPERATORS
22 Large Herd Dairy Farms, 1993
Rates of Production
Tons Hay Tons Corn
Crop
Silage Per
Milk Sold
Per Cow OM/Acre
Acre
Size of Business
Number
Pounds
of
Milk
Worker
EquiValent
Cows
Sold
(11)*
23.2
12.4
10.4
9.1
8.1
(11)
1,174
551
401
366
324
Pounds
(11)
22,553,675
11,544,889
8,378,335
7,457,236
6,254,412
(10)
21,798
20,963
20,252
19,276
17,952
(9)
5.0
3.9
3.3
2.6
1.8
Labor Efficiency
Cows
Pounds
Per
Milk Sold
Worker
Per Worker
(9)
19
17
16
14
12
(11)
53
46
44
39
32
(11)
1,052,581
963,390
877,787
770,610
644,383
Cost Control
Grain
Bought Per
Cow
(10)
$575
745
762
790
887
Per
Cwt
•
(11)
$1.95
2.22
2.55
2.81
3.13
% Grain
is of
Milk Receipts
Machinery
Costs
Per Cow
(10)
22%
26
29
32
34
(11)
$244
338
366
417
483
Hired Labor Expense
Per Hired
As % of
Worker Equiv.
(CALC)
Milk Sales
(CALC)
$19,840
24,179
26,333
30,895
32,848
15%
16
20
21
29
Labor &
Machinery
Costs Per Cow
Feed & Crop
Expenses
Per Cow
Feed & Crop
Expenses Per
Cwt. Milk
(11)
$811
881
949
1,023
1,132
(10)
$ 758
871
911
942
1,079
(10)
$3.64
4.38
4.53
4.88
5.22
Expenses Per Cwt
Milk
Marketing
Veterinary &
Other
Medicine
Livestock
(10)
$0.28
0.31
0.39
0.55
1.03
(10)
$0.30
0.36
0.39
0.44
0.53
(10)
$0.45
0.62
0.72
0.78
1.28
*( ) = page number of the participant's OFBS where factor is located.
CALC=Need to calculate for each farm; refer to the Glossary for definition.
26
MachiDe[y & Crew Expense
Per TIllable
Acre
(CALC)
$126
145
154
189
255
Per Ion
Dry Matter
(CALC)
$31
36
46
58
71
Cost Control (con't)
Qperatin2 Cost
Per
Per
Cow
Cwt
(10)
(10)
$1,826
$9.24
1,985
9.87
2,097
10.32
2,148
10.79
2,348
H.45
Iotal Cost
Per
Cow
(10)
$2,306
2,509
2,603
2,742
2,950
Per
Cwt
(10)
$11.70
12.26
12.74
13.66
14.74
Expense Ratios
Operating
(CALC)
74.2%
78.6
81.6
84.8
89.4
Interest
(CALC)
2.0%
3.2
4.8
5.8
7.5
Depreciation
(CALC)
4.2%
5.2
6.1
7.7
11.2
Income Generation
Milk Receipts
PerCwt.
(10)
$13.73
13.39
13.16
12.92
12.75
Net Milk Receipts
PerCwt.
(CALC)
$13.13
12.86
12.60
12.49
12.20
Milk Receipts
Per Cow
(10)
$2,942
2,777
2,630
2,526
2,370
Dairy Cattle
Sales Per Cow
(10)
$568
320
242
219
187
Dairy Calf Sales
Per Cow
(10)
$64
56
48
44
38
Debt Management
Farm Debt Per Cow
Intermediate &
LongIerm
Iotal
(5)
(5)
$1,208
$800
1,471
1,969
2,319
1,865
2,795
2,338
2,914
3,464
Cost of
Borrowed
Capital
(CALC)
3.5%
5.8
6.5
6.9
7.8
Planned Debt Payments
Per
Per
Cow
Cwt
(8)
(8)
$0.87
$55
1.71
288
406
2.48
585
3.26
876
4.45
27
Amount Available for Family
Debt Service & Invesunent
Per Cow
Per Cwt.
Uyin~,
(12)
(12)
$988
682
601
490
293
$4.74
3.39
3.03
2.50
1.50
Farm
Capital
Per Cow
Real Estate
Investment
Per Cow
(11)
(11)
$3,953
4,841
5,471
6,187
7,789
$1,246
1,750
2,351
2,935
4,030
Percent
Equity
Leverage
Ratio
(CALC)
0,29
0.56
0.73
0.90
1.46
(5)
74%
59
54
49
41
Labor and
Mgmt. Income
Per Operator
(3)
$250,416
73,228
47,621
24,710
-39,722
Cash Flow Analysis
Personal Withdrawals
& Family Expenditures
PerCwt.
Per Cow
(CALC)
(CALC)
$2.00
$406
243
1.19
0.82
161
135
0.67
77
0.39
Capital Efficiency
Machinery
Total Labor Cost
PerWocker
Investment
Per Cow
Equivalent
(11)
(CALC)
$19,112
$ 536
22,149
663
24,734
793
28,646
936
1,314
30,858
Solvency
Debt to Asset Ratios
Current/Intenned..
Total
(3)
Net Farm Income Without Appreciation
Per Cow
Per Cwt.
(CALC)
(CALC)
$645
$3.03
421
2.06
1.53
300
251
1.28
26
0.15
(8)
2.59
1.36
0.86
0.70
0.28
Asset
Turnover
Ratio
(11)
0.78
0.66
0.55
0.49
0.44
LongTenn
(5)
(5)
(5)
0.22
0.39
0.18
0.36
0.48
0.55
0.76
0.00
0.20
0.33
0.62
0.75
0.44
0.49
0.58
Profitability
Rate Return to EQ.u.ity Capital
Without
With
Appreciation
Appreciation
17.1%
9.8
6.9
3.7
-4.0
Cash Flow
Coverage
Ratio
Rate Return to AU Capital
With
Without
Appreciation
Appreciation
(3)
(3)
11.5%
8.2
6.2
4.9
20.2%
14.9
9.4
5.9
-1.1
-0.9
Net Farm Income
From Operations
Ratio
(CALC)
18.3%
13.4
10.0
8.3
0.9
(3)
13.3%
10.9
8.2
5.7
0.9
Net Income
Efficiency
Ratio
(CALC)
20.2%
14.2
8.4
5.8
2.2
28
IDENTIFY AND SET GOALS
If businesses are to be successful, they must have direction. Written goals help provide
businesses with an identifiable 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 proper direction. Goals should be
SMART:
1. Goals should be Specific.
2. Goals should be Measurable..
3. Goals should be Achieyable but challenging.
4. Goals should be
Rewardin~.
5. Goals should designate a.l:iJm when each goal will be achieved.
Goal setting on a dairy farm does not have to be a complex process. In many cases it provides
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 values of the owners.
b.
Identify 4-6 objectives.
c.
Identify SMART goals.
Worksheet for Setting Goals
I.
Mission and Objectives
29
Worksheet for Setting Goals (Continued)
II. Goals
What
How
When
Who is Responsible
Summarize Your Business Performance
The Farm Business Charts on pages 25-27 can be used to help identify strengths and
weaknesses of your farm business. Identify three major strengths and three areas of your farm
business that need improvement
Strengths:,
_
Needs improvement:,
_
30
GLOSSARY AND LOCAnON OF COMMON TERMS
Some of the following defmitions include fonnulas for calculating the factor being described. Page
references to the individual Dairy Fann Business Summary are provided in parentheses for ease of
calculation for your farm.
Accounts Payable - Open accounts or bills owed to feed and supply finns, cattle dealers,
veterinarians and other providers 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 - (defmed on page 6)
Accrual Receipts - (defined on page 6)
Annual Cash Flow Statement - (defined on page 14)
Appreciatioo - (defined on page 7)
Asset Turnover Ratio - The ratio of total fann income to total fann assets, calculated by dividing
total accrual operating 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.
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 16)
Cash Paid - (defined on page 4)
Cash Receipts - (defined on page 6)
Change io Accounts Payable - (defined on page 6)
Change in Accounts Receivable - (defined on page 6)
Change in Inventory - (defined on page 4)
Cost of Borrowed Capita) - A weighted average of the cost of borrowed capital to the fann.
Calculate by multiplying end of year principal of each loan that is borrowed by the interest rate for
each loan at that time. Add up each amount that is calculated for each loan and then divide by total
amount of borrowed funds. Do not include accounts payable. This infonnation is found on pages 8
& 9 of the data entry form.
31
Cunent Portion - (defined on page 9)
Dairy (farm) - A fann business where dairy fanning is the primary enterprise. operating and
managing this farm is a full-time occupation for one or more people and cropland is owned.
Debt Per Cow - Total end-of-year debt divided by end-of-year number of cows.
Debt to Asset Ratios - (defmed on page 10)
Deferred Taxes - (defined on page 9)
Depreciation Expense Ratio - The percentage of Total Accrual Receipts that is charged to
depreciation expense. Machinery Depreciation (DFBS p. 2) plus Building Depreciation (p. 2) divided
by Total Accrual Receipts (p. 3) times 100.
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.
Equity Capital - The farm operator/manager's owned capital or fann net worth.
Expansion Livestock - Purchased dairy cattle and other livestock that cause an increase in herd size
from the beginning 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 16.
Farm Debt Payments Per Cow - Planned or scheduled debt payments per cow represent the
repayment plan scheduled at the beginning of the year divided by the average number of cows for the
year. This measure of repayment ability is used in the Financial Analysis Chart.
Financial Lease - A long-term non-cancellable contract giving the leassee 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.
rured Labor Expense per Hired Worker Equiyalent - The total cost to the farm per hired worker
equivalent. Divide accrual hired labor expense (p. 2) by number of hired plus family paid worker
equivalent (p. 11).
Hired Labor Expense as % of Milk Sales - The percentage of the gross milk receipts that is used
for labor expense. Divide accrual hired labor expense (p. 2) by accrual milk sales (p. 3).
Income Statement - A complete and accurate account of fann business receipts and expenses used
to measure profitability over a period of time such as one year or one month.
Interest Expense Ratio - The percentage of Total Accrual Receipts that is used for interest expense.
Total Accrual Interest (p. 2) divided by Total Accrual Receipts (p. 3) times 100.
Labor and Manaument Income - (defined on page 8)
32
Labor and Manaeement 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.
Leyeraee Ratio - Dollars of debt per dollar of equity, computed by dividing total liabilities by total
equity.
Liquidity - Ability of business to generate cash to make debt payments or to convert assets to cash.
Machinery & Crop Expenses per Tillable Acre - A measure of the cost to produce crops on a
tillable acre basis. Add total crop expenses (p. 9) and total machinery expenses (p. 9), then divide by
number of tillable acres, owned & rented (p. 9).
Machinery & Crop Expense per Ton Dry Matter - A measure of the cost per ton of DM to
produce a crop. It is not a measure of total costs to produce feed. Add total crop expenses (p. 9)
and total machinery expenses (p. 9), then divide by total forage, production, tons DM (p. 9).
Net Farm Income - (defined on page 7).
Net Farm Income (rom Operations Ratio - The percentage of each gross dollar that is generated
that is net farm income. Net Farm Income without Appreciation (p. 3) divided by Total Accrual
Receipts (p. 3) times 100.
Net Farm Income without Appreciation per Cwt - The amount of net farm income, without
appreciation, per cwt, that the farm generated. Divide net farm income without appreciation (p. 3)
by number of cwt of milk sold, which is total milk sold (p. 10) divided by 100.
Net Farm Income without Appreciation per Cow - The amount of net farm income, without
appreciation, per cow that the farm generated. Divide net farm income without appreciation (p. 3) by
average number of cows for the year (p. 10).
Net Income EfficiencY Ratio - A measure of how efficiently the business is in generating net income,
taking into account the differences in number of operators, debt levels, and amount of unpaid family
labor being used on a farm. Net farm income without appreciation minus unpaid family labor charge
(p. 3), plus Accrual Interest Paid (p. 2), divided by number of operators (p. 3), divided by Total
Accrual Receipts (p. 3) times 100.
Net Milk Receipts per Cwt - The mail box price received by farmers before any farmer authorized
assignments or deductions. Accrual Receipts from milk, per cwt (p. 10) minus accrual milk
marketing expense per cwt. (p. 10).
Net Worth - The value of assets less liabilities equal net worth. It is the equity the owner has in
owned assets.
Operatine Costs o(Producine Milk - (defmed on page 22).
Operatine Expense Ratio - The percentage of Total Accrual Receipts that is used for operating
expenses, excluding interest & depreciation. Total Accrual Expenses (p. 2) minus Machinery
Depreciation (p. 2), minus Building Depreciation (p. 2), minus Accrual Interest Expense (p. 2),
divided by Total Accrual Receipts (p. 3) times 100.
33
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 hislher most qualified alternative position.
Other Livestock Expenses - All other dairy herd and livest.oek expenses not included in more
specific categories. Other livestock expenses include; bedding, DHIC, milk house and parlor supplies,
livestock board, registration fees and transfers.
•
Personal Withdrawals and Family Expenditures Includioe 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.
Personal Withdrawals & Family Expenditures per Cwt. - The amount of money on a per cwt.
basis that the family uses for family living and personal expenses. This is the total amount, per cwt,
used by the family, including farm and nonfarm income. Personal withdrawals/family expense,
including nonfarm debt payments (p. 7) divided by pounds milk sold (p. 10) times 100.
Personal Withdrawals & Family Expenditures per Cow - The amount of money on a per cow
basis that the family used for family living and personal expenses. This is the total amount, per cow,
used by the family, including farm and nonfarm income. Personal withdrawals/family expense,
including nonfarm debt payments (p. 7) divided by average number of cows (p. 10).
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 Producine Milk - (defmed on page 22).
Repayment Analysjs - an evaluation of the business' ability to make planned debt payments.
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 9).
Return on Total Capital- (defined on page 9).
Return to Operators' Labor. Manaeement. and Equity Capital- (defined on page 8).
Solvency - The extent or ability of assets to cover or pay liabilities. Debt/asset and leverage ratios
are common measure of solvency.
Total Costs ofProducine Milk - (defmed on page 22).
Total Labor Costs per Worker Equivalent. All Labor - The average cost per worker equivalent
when considering all labor (hired, paid family, family non-paid, and operators) used on the farm and
total costs for this labor. Total Labor Cost (p. 11) divided by number of worker equivalents (p. 11).
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 expenses to detennine the costs of producing milk.
34
INDEX
Page(s)
Accounts Payable
5, 10
Accounts Receivable
6, 10
Accrual Expenses
5, 7
Accrual Receipts
6, 7
Acreage
19
Advanced Government Receipts
9, 10
Age
24
Amount Available for Debt Service
16
Annual Cash Flow Statement.
14
Appreciation
7,13,21
Asset Turnover Ratio
24
Balance Sheet...'...................................... 10
Bam Type
4
Business Type
4
Capital Efficiency
24
Cash From Nonfarm Capital Used in
the Business
14
Cash Flow Coverage Ratio
16
Cash Paid
4
Cash Receipts
6, 14
Change in Accounts Payable
5
Change in Accounts Receivable
6
Change in Inventory
4, 6
Change in Net Worth
13
Crop Expenses
5, 19
CroplDairy Ratios.................................. 19
Current Portion
9, 10
Dairy (farm)
4
Dairy Cash-Crop (farm)
4
Debt per Cow
12
Debt to Asset Ratios
12
Deferred Taxes
11
Depreciation
5, 12
Dry Matter
19
Education
24
Equity Capital
9
Expansion Livestock
5, 14
Expenses
5
Farm Business Chart
25,26,27
Farm Debt Payments as Percent
of Milk Sales
16
Farm Debt Payments Per Cow
16
Financial I...ease....................................... 10
Income Statement
4
Page(s)
Inflows
14
Labor & Mgmt. Income
8
Labor & Mgmt. Income Per Oper
8
Ubor Efficiency
24
Land Resources
19
Liquidity
12
wst Capital
12
Machinery Expenses
5,20
Milking Frequency
4
Milk Production
21
Milking System
4
Money Borrowed
14
Net Farm Income
7
Net Investment
12
Net Worth
: 10
Number of Cows
21
Operating Costs of Producing Milk 22,23
Opportunity Cost.
9
Other Livestock Expenses
5
Outflows
14
Part-Time Cash-Crop Dairy
4
Part-Time Dairy (farm)
4
Percent Equity
11,12
Personal Withdrawals and Family
Expenditures Including Nonfarm
Debt Payment.
14
Principal Payments
14
Profitability "
7
Purchased Inputs Cost
22,23
Receipts
6
Record System
4
Repayment Analysis
16
Replacement Livestock
5
Retained Earnings
13
Return on Equity Capital
9
Return on Total Capital
9
Return to Operator's Labor &
Mgml & Equity Capital
8
Solvency
'"
12
Total Costs of Producing Milk
22,23
Whole Farm Method
22,23
Worker Equivalent
24
Yields Per Acre................................ 19
•
3S
OTHER AR.M,E. EXIENSION BULLETINS
(Fonnerly A.E. Extensio Publications)
No. 94-15
Dairy Farm Business Summary
Eastern Platea egion 1993
Robert A Millig
Linda D. Putnam
John . Carlson
Carl Crispell
Gerald A LaClar
No. 94-16
Extra- arket Considerations in
Fannland and Agricultural Policy
Gregory L. Poe
No. 94-17
Financial Considerations When
Expanding Your Dairy Fanning
Operati n
John R. Brake
No. 94-18
Your Dairy in Transition Your Farm
and the
ustry
Faculty & Staff
rnell Unive ity
No. 94-19
Your Dairy in Transition A
Planning Process ~ r Considering
Dairy Farm Expansi n
Faculty Staff
C me Univ ity
No. 94-20
Your Dairy in Transition Winding
Down Your Farm Operation
John R. Brake
No. 94-21
Dairy Farm Busines ummary
Eastern New Yo Renter Summary
1993
Stuart F. mith
Linda D. Publam
No. 4-22
Income
Consequen of Farm
Debt Cancellati n an Bankruptcy
George Casler
No. 94-23
Farm Income Tax Management and
Reporting Reference Manu
George L. Casler
S a F. S ith