Today’s economic environment requires a different approach. Dairy operations are doing a good job of meeting the ideal production goals. However, the industry has been less engaged to provide the same focus and emphasis on finance. Consultants will have the greatest impact on helping the medium profit herds. Knowing a herd’s financial numbers is a mandatory requirement if there is any chance of helping the dairy industry survive.
Action plan for determining if an operation is profitable.
Goal – Compile financial data for at least two years and examine the operation’s financial health.
Step 1: Complete a beginning and ending balance sheet along with an income statement.
Step 2: Work with the appropriate advisor to ensure all inventories, loans, and lines of credit are accounted for properly.
Step 3: Determine the operations net return over labor and management in addition to other financial ratios.
Step 4: Examine the problem areas on the farm – financial, crops, and/or cows to develop a plan to make improvements.
Step 5: Complete a balance sheet and income statement each year so the business’s performance can be evaluated on a historical basis.
Monitoring must include an economic component to determine if a management strategy is working or not. For the lactating cows, income over feed costs is a good way to check that feed costs are in line for the level of milk production. Starting with July 2014’s milk price, income over feed costs was calculated using average intake and production for the last six years from the Penn State dairy herd. The ration contained 63% forage consisting of corn silage, haylage and hay. The concentrate portion included corn grain, candy meal, sugar, canola meal, roasted soybeans, Optigen and a mineral vitamin mix. All market prices were used.
Also included are the feed costs for dry cows, springing heifers, pregnant heifers and growing heifers. The rations reflect what has been fed to these animal groups at the Penn State dairy herd. All market prices were used.
Note: July’s Penn State milk price: $18.66/cwt; feed cost/cow: $5.98; average milk production: 81 lbs.
Feed cost/non-lactating animal/day.