Production Costs in 2011 on Selected Wisconsin Grazing (Not Organic) Dairy Farms By: Tom Kriegl 1 Introduction (Pages two to four contain actual cost of production report.) The number of grazing herds in this summary has declined substantially since 2005 because several of the grazing farms that submitted data have become certified organic. Since 1995, each year at least one of the graziers, from which we were collecting financial data, was in the process of transitioning to organic. This may have reduced the financial performance of that herd in those years. Since 1999, the data included a few grazing farms that were receiving organic milk prices. Until 2006 the presence of these organic farms had minimal impact on the grazing group’s Net Farm Income from Operations (NFIFO) but a difference in financial structure began to show in 2006. Therefore, beginning in 2006 the Wisconsin grazing cost of production report does not include any herds receiving organic milk prices. Data Source Twelve Wisconsin grazing dairy farms providing useable data in 2011 were summarized by AgFA in the following cost of production report. 2 3 These farms ranged in size from 29 to 173 cows with an average herd size of 64.7 cows averaging 14,840 lbs of milk sold at an average of $20.77 milk income per cwt. sold. Selected Financial Measures of Studied Farms In 2011, income per cow averaged $3,641 with milk sales being $3,087 of that total. The average income per cow on the 402 Wisconsin dairy farms in AgFA that were NEITHER grazing nor organic was $5,647 with milk sales accounting for $4,573 of that total. However, their allocated costs 4 per cow were $4,943 versus only $2,902 for the graziers in this study. This leaves this group of graziers with a NFIFO/cow of $740 versus a NFIFO/cow of $704 for the other 402 dairy farms, although they had more cows - averaging 180 per farm. For graziers these values compare with $2,667 in allocated costs and $938 in NFIFO in 2010. NFIFO is not economic profit. Economic profit requires farm income to exceed all costs, including the opportunity costs of unpaid labor, management, and equity. Economic profit was $116/cow for the Wisconsin grazing dairy herds in 2011. On the 402 Wisconsin dairy farms in AgFA that were NEITHER grazing nor organic it was $264 per cow. In 2011 the grazier’s average cost per cow was $32 for breeding fees, $44 for insurance, $936 for purchased feed, $87 for utilities, $176 for supplies, $44 for property taxes, $72 for veterinary fees and medicine, $140 for interest, $35 for livestock depreciation and $388 for other depreciation. In 2011, for every dollar of income the average grazier generated: 62.0 cents went to Basic Costs, 34.8 cents went to Non-basic plus Opportunity Costs and 3.2 cents went to economic profit. Looking at it another way, 79.7 cents went to Allocated Costs (Basic plus Non-basic Costs) and 20.3 cents went to NFIFO. Wrapping up When comparing the relative performance of dairy systems, recognize that managers of each system tended to have a different focus in their pursuit of profitability and sustainability. Generally the organic system focuses more on obtaining a higher and more consistent milk price. Graziers focus more on reducing all costs and confinement systems focus more on increasing income via high production levels. 1 Farm Financial Analyst Emeritus, Center for Dairy Profitability, University of Wisconsin-Madison/Extension. The author thanks coworker Arlin Brannstrom and emeritus coworker Gary Frank for reviewing the document and making helpful suggestions. 2 AgFA @(Agriculture Financial Advisor) – http://cdp.wisc.edu 3 The Center for Dairy Profitability uses an active/real time database AgFA@) for collecting and analyzing data. The number of records may increase throughout the year. Casual users of AgFA may not be able to exactly duplicate this report. 4 All costs except the opportunity cost of unpaid labor, management and equity are called “allocated costs.” Total income minus “allocated costs” equals Net Farm Income from Operations (NFIFO). “Total costs” are divided into two other categories: basic costs and non-basic and opportunity costs, with it having 3 sub-categories (1. paid interest, 2. all labor and management, and 3. non-livestock depreciation plus equity interest). This benchmark report's selection criteria are on the last page. Benchmark Report Cost of Production Report Basis: Whole Farm, per Head, per Hundredweight Equivalent, Depreciation Method: "Cost (tax)" Income 2011 per Farm Animal Product Sales Raised Non-Breeding Livestock Sales Crop Sales Sale of Raised Breeding Livestock Other Income Total Income Expenses 2011 per CWT EQ 2011 per Head 199,737.56 4,790.39 3,559.25 13,422.19 14,124.63 3,086.54 74.03 55.00 207.41 218.27 17.07 0.41 0.30 1.15 1.21 235,634.02 3,641.24 20.14 2011 per Farm 2011 per CWT EQ 2011 per Head Basic Costs Cost of Items for Resale Depreciation on Purchased Breeding Livestock 0.00 2,076.58 2,640.27 1,108.92 0.00 291.67 12,698.70 60,590.84 5,548.86 2,479.76 7,253.69 2,829.67 485.49 3,616.83 6,327.62 510.67 1,602.42 5,156.26 6.58 11,388.58 2,869.06 5,616.15 4,638.18 1,699.75 2,149.67 652.25 860.08 (1,437.37) 224.67 2,257.15 0.00 32.09 40.80 17.14 0.00 4.51 196.23 936.31 85.75 38.32 112.09 43.73 7.50 55.89 97.78 7.89 24.76 79.68 0.10 175.99 44.34 86.79 71.67 26.27 33.22 10.08 13.29 (22.21) 3.47 34.88 0.00 0.18 0.23 0.09 0.00 0.02 1.09 5.18 0.47 0.21 0.62 0.24 0.04 0.31 0.54 0.04 0.14 0.44 0.00 0.97 0.25 0.48 0.40 0.15 0.18 0.06 0.07 (0.12) 0.02 0.19 Total Basic Costs 146,142.97 2,258.34 12.49 Breeding Fees Car and Truck Expenses Crop Chemicals Conservation Expenses Custom Heifer Raising Expenses Custom Hire (Machine Work) Feed Purchase Fertilizer and Lime Freight and Trucking Gasoline, Fuel, and Oil Farm Insurance Rent/Lease Equipment Rent/Lease Other Repairs and Maintenance Building and Fence Repairs Machinery Repairs Seeds and Plants Purchased Storage and Warehousing Supplies Purchased Taxes - Other Utilities Veterinary Fees and Medicine Other Farm Expenses Marketing & Hedging Other Crop Expenses Other Livestock Expenses - Change in Prepaid Expenses Change in Accounts Payable Printed: 11-01-2013 Page 1 of 3 Prepared by: AgFA Center for Dairy Profitability Non-Basic Costs Interest Cost Mortgage Interest Other Interest 4,897.17 4,155.67 75.68 64.22 0.42 0.36 Total Interest Cost 9,052.83 139.89 0.77 Employee Benefits - Dependents Value of Unpaid Labor & Management 0.00 1,311.83 0.00 6,173.58 33,002.67 0.00 20.27 0.00 95.40 509.99 0.00 0.11 0.00 0.53 2.82 Total Labor Cost 40,488.08 625.66 3.46 Machinery, Equipment, Building Depreciation Interest on Equity Capital 25,085.14 7,358.63 387.64 113.71 2.14 0.63 Total Depreciation & Equity Cost 32,443.78 501.35 2.77 Total Non-Basic and Opportunity Costs 81,984.69 1,266.91 7.01 228,127.66 3,525.25 19.50 7,506.35 116.00 0.64 Net Farm Income From Operations (NFIFO) 187,766.36 47,867.65 2,901.55 739.70 16.05 4.09 Gain (Loss) on Sale of All Farm Capital Assets 1,416.67 21.89 0.12 Net Farm Income (NFI) 49,284.32 761.59 4.21 Labor Cost Employee Benefits - Non-Dependents Labor Hired - Dependents Labor Hired - Non-Dependents Depreciation & Equity Cost Total Expenses Total Income - Total Expenses Net Farm Income from Operations (NFIFO) Summary Total Allocated Costs Printed: 11-01-2013 Page 2 of 3 Prepared by: AgFA Center for Dairy Profitability 2011 Benchmark Criteria Number of Cows Pounds of Milk Sold per Cow Hundredweight Equivalent (CWT EQ) per Cow Gross Milk Price Total Crop Acres per Cow Pasture Acres per Cow Owner/Operator/Families Primary Enterprise: Report On: 2011 Data Sets: Confidence Level Range: States: Pasture Management: Organic Producer: Printed: 11-01-2013 2011 64.71 14,840 181 $20.77 3.12 1.46 1.00 2011 64.71 14,840 181 $20.77 3.12 1.46 1.00 64.71 14,840 181 $20.77 3.12 1.46 1.00 Dairy All Data Sets 12 12 12 80 to 100 Wisconsin = Management Intensive Grazing <> Yes Page 3 of 3 Prepared by: AgFA Center for Dairy Profitability