Production Costs in 1999 on Selected Wisconsin Organic Dairy Farms Introduction

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Production Costs in 1999 on Selected Wisconsin Organic Dairy Farms
By: Tom Kriegl
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Introduction (Pages two and three contain the actual cost of production report.)
All of the organic farms in the summary met the organic grazing standards, but only two practiced management
intensive grazing in 1999.
Because six farms is a very small group to make conclusions from, this data was not released in the single year
format until several years of data was judged to be reasonably consistent from year to year.
Data Source
The same six Wisconsin organic dairy farms provided useable data from 1999 to 2006 and are summarized by AgFA
2 3
in the following cost of production report for 1999. , These farms ranged in size from 31 to 61 cows with an average
herd size of 48.4 cows averaging 15,260 lbs of milk sold at an average price of $18.12/CWT sold in 1999. Two farms
dropped out after 2006, but fortunately data from additional farms was added after 1999.
Selected Financial Measures of Studied Farms
In 1999, income per cow averaged $3,225 with milk sales being $2,765 of that total. The average income per cow on
the 721 Wisconsin dairy farms in AgFA that were NEITHER grazing nor organic was $3,606 with milk sales
4
accounting for $2,965 of that total. However, their allocated costs per cow were $2,975 versus only $2,378 for the
organic farms in this study. This leaves this group of organic farms with a NFIFO/cow of $847 versus a NFIFO/cow of
$631 for the other 721 dairy farms, although they had more cows - averaging 110 per farm.
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 $200 per cow for the Wisconsin organic farm
dairy herds in 1999. On the 721 Wisconsin dairy farms in AgFA that were NEITHER grazing nor organic it was $243
per cow.
In 1999 the organic farm’s average cost per cow was $40 for breeding fees, $52 for insurance, $371 for purchased
feed, $65 for utilities, $170 for supplies, $61 for property taxes, $50 for veterinary fees and medicine, $186 for
interest, $1 for livestock depreciation and $500 for other depreciation.
In 1999, for every dollar of income the average organic farm generated: 49.6 cents went to Basic Costs, 24.1 cents
went to Non-basic Costs and 11.4 cents went to economic profit. Looking at it another way, 73.7 cents went to
Allocated Costs (Basic plus Non-basic Costs) and 26.3 cents went to NFIFO.
Wrapping Up
When comparing the relative performance of dairy systems, recognize that manager of each system tended to have a
different focus in their pursuit of profitability. 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. Yet, costs (in terms of face value dollars) continue to increase over time for all
dairy systems.
When comparing organic financial performance relative to other systems, recognize that it is at its relative best in
years in which the organic price premium is highest relative to non-organic prices. This price premium was high in
2000, 2002, 2003, 2006, and 2009, but low in 2004, 2007, and 2008.
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.
AgFA @(Agriculture Financial Advisor) – http://cdp.wisc.edu
3
The Center for Dairy Profitability uses an active/real time database [email protected]) 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. nonlivestock depreciation plus equity interest).
2
Cost of Production
1999
Income
Total Income
1999
1999
Cost (tax)
per Head
per CWT EQ
156,124.45
3,224.60
14.36
1999
1999
1999
Expenses
per Farm
per Head
per CWT EQ
Basic Cost
Cost of Items for Resale
0.00
0.00
0.00
Breeding Fees
1,920.67
39.67
0.18
Car and Truck Expenses
761.83
15.73
0.07
Chemicals
436.17
9.01
0.04
Conservation Expenses
0.00
0.00
0.00
Custom Heifer Raising Expenses
0.00
0.00
0.00
Custom Hire (Machine Work)
3,894.33
80.43
0.36
Feed Purchase
17,943.50
370.61
1.65
Fertilizer and Lime
2,338.17
48.29
0.22
Freight and Trucking
1,139.00
23.52
0.10
Gasoline, Fuel, and Oil
3,669.33
75.79
0.34
Farm Insurance
2,526.50
52.18
0.23
Rent/Lease Equipment
117.67
2.43
0.01
Rent/Lease Other
5,145.83
106.28
0.47
Repairs and Maintenance
716.17
14.79
0.07
Building and Fence Repairs
943.50
19.49
0.09
Machinery Repairs
10,474.33
216.34
0.96
Seeds and Plants Purchased
3,116.83
64.38
0.29
Supplies Purchased
8,220.33
169.78
0.76
Taxes - Other
2,975.83
61.46
0.27
Utilities
3,165.33
65.38
0.29
Veterinary Fees and Medicine
2,408.33
49.74
0.22
Other Farm Expenses
1,835.67
37.91
0.17
Marketing & Hedging
2,594.33
53.58
0.24
Other Crop Expenses
416.17
8.60
0.04
Other Livestock Expenses
475.17
9.81
0.04
- Change in Prepaid Expenses
470.67
9.72
0.04
Change in Accounts Payable
(305.00)
(6.30)
(0.03)
Depreciation on Purchased Breeding Livestock
25.33
0.52
0.00
77,426.00
1,599.16
7.12
Total Basic Cost
Interest Cost
Mortgage Interest
4,886.50
100.93
0.45
Other Interest
4,117.17
85.04
0.38
9,003.67
185.96
0.83
Total Interest Cost
Labor Cost
Employee Benefits - Dependents
0.00
0.00
0.00
Employee Benefits - Non-Dependents
878.50
18.14
0.08
Labor Hired - Dependents
0.00
0.00
0.00
Labor Hired - Non-Dependents
3,624.67
74.86
0.33
Value of Unpaid Labor & Management
17,086.40
352.90
1.57
Total Labor Cost
21,589.56
445.91
1.99
Depreciation & Equity Cost
Machinery, Equipment, Building Depreciation
24,188.00
499.58
2.22
Interest on Equity Capital
14,230.24
293.91
1.31
Total Depreciation & Equity Cost
38,418.24
793.49
3.53
Total Non-Basic and Opportunity Costs
69,011.46
1,425.37
6.35
Total Expenses
146,437.46
3,024.53
13.47
Total Income - Total Expenses
9,686.99
200.08
0.89
Net Farm Income from Operations (NFIFO) Summary
Total Allocated Costs
115,120.83
2,377.71
10.59
Net Farm Income From Operations (NFIFO)
41,003.62
846.89
3.77
Gain (Loss) on Sale of All Farm Capital Assets
0.00
0.00
0.00
Net Farm Income (NFI)
41,003.62
846.89
3.77
Benchmark Criteria
Number of Cows
Pounds of Milk Sold per Cow
Hundredw eight Equivalent (CWT EQ) per Cow
Gross Milk Price
Total Crop Acres per Cow
Pasture Acres per Cow
Owner/Operator/Families
Primary Enterprise: Dairy
Report On: All Data Sets
1999 Data Sets: 6
Confidence Level Range: 88 to 100
States: Wisconsin
Organic Producer: Yes
1999
1999
1999
48.42
15,260
225
$18.12
4.70
1.02
1.00
48.42
15,260
225
$18.12
4.70
1.02
1.00
48.42
15,260
225
$18.12
4.70
1.02
1.00
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