What are we asking cows to do?

June 3rd, 2015 by Dianne Shoemaker

Dairy Excel Column

For 5/14/2015 Issue

Farm and Dairy



Debt.  A four-letter word, but not necessarily a “bad” word.  The majority of Ohio’s dairy farms have debt, and it makes good business sense for them to have debt and manage it wisely.  Our farms grow when additional returns generated by a carefully planned investment made using borrowed dollars exceed the interest owed on the loan.  That “growth” may be growth in farm size, or it may be growth in ability to produce milk efficiently.

We are fortunate in Ohio to have more than one lending institution that wants to have dairy farms as part of their portfolio.  This gives farmers an opportunity to shop for their borrowing needs among cooperative lenders such as Farm Credit or Ag Credit, privately owned community banks as well as larger commercial banks.

Managing debt at the farm level is important to the long-term profitability of a farm, and we will wrap up our discussion of debt looking at what we ask our cows to repay each year.  Our earlier discussions this year focused on what we can learn from the farm’s balance sheet.  Today, we will use balance sheet information as well as the dairy farm’s total revenues to evaluate what we are asking cows to do.

Table 1 shows the repayment schedule measures from the “15 Measures of Dairy Farm Competitiveness” calculated for the 35 farms that participated in the 2013 Ohio Farm Business Summary (farms are working on their 2014 analysis now).


Table 1.  2013 Ohio Dairy Farm Business Summary.  Repayment Schedule.

Debt Per Cow


Scheduled debt payment per cow simply takes the total scheduled principal and interest payments, plus any capital lease payments (these would be for buildings, machinery, equipment, or livestock – not land rent) for a year and divides it by the number of cows (milking and dry).  These are the dollars that we are committing, up front, to making principal and interest payments from the dollars generated by a cow in our herd.  Historically, we would like to see this number at $500 per cow or less.  Interestingly, the top 20% of farms have a higher scheduled debt payment per cow than the average of all farms.  Is this a problem?  We have to look at the bigger picture to decide.

When we look at the scheduled debt payments as a percentage of the farm’s gross receipts, the top 20% of farms are generating more dollars per cow, and 3.48% of their gross income is committed to scheduled principal and interest payments, nearly half of the 6.5% committed for all farms.  With a goal of less than 15% of gross revenues being obligated to repaying scheduled debt (this does not include the farm’s line of credit or accounts payable), both groups of farms are in good shape in this respect.

These are just a few of the important numbers you should know about your farm business.  Analysis of your farm business is available through the Ohio Farm Business and Benchmarking Program.  If your farm records are good, you can start right into an analysis of 2014.  The Ready, Set, Go! Program is available this year to work towards an analysis of 2015.  Contact us to talk about what would work well for your farm at 330.533.5538 or shoemaker.3@osu.edu.


Shoemaker, Dianne. “What are we asking cows to do?” Farm and Dairy 14May2015. Print.

Knowing your farm’s numbers will help you plan for low milk prices

Dairy Excel Column

For February 12, 2015 Issue

Farm and Dairy


how will farm fareIt is discussed everywhere.  In hard copy, in the coffee shop, and on the internet.  2015 will not be the year that 2014 was.  Class III milk prices averaged $22.34 per cwt in 2014., the highest year ever, and $4.35 per cwt. higher than 2013’s $17.99.


How well each farm will fare through the coming year of substantially lower milk prices will be heavily influenced by the financial health of the farm going in.  Cash or near-cash reserves will be tapped.   Cash is cash, but what is near-cash?  Here we are looking at the Current Assets (CA) of the farm business.  These include cash, savings, pre-paid expenses, accounts receivable, crop and feed inventories, supplies, and any market livestock such as bull calves and steers; items that will be used in the coming year to produce crops and milk.


So how do we evaluate the farm’s cash position, or liquidity – the ability to buy what is necessary to grow crops and make milk and pay the bills- when they are due?  Three simple measures.  Current ratio, working capital, and working capital to gross income.  These are calculated using the farm’s balance sheet.


Table 1. 2013 Ohio Dairy Farm Business Analysis, Top 20% sorted by net return per cow. Liquidity

Current Ratio

Here we are comparing the current assets to the current liabilities of the farm.  Current liabilities (CL) include any bills the farm owes including the “usual” monthly bills and any other bills owed including credit cards. CL also includes balances on lines of credit, and the principal due on any term debt in the next 12 months.


So after we divide CA by CL, we would like to see a current ratio of at least 1.5 which means there is at least $1.50 of current assets for every $1.00 of current liabilities.  Higher is better!



Working Capital

This one is about as simple as it gets.  CA minus CL. It needs to be positive, and the bigger the better.  How big is enough?  Read on.


Working Capital Compared to Gross Income

Now we take the working capital and compare it to the gross income generated by the business.  We would like to see working capital of 25% or more.  Is this all cash?  No, remember that we are looking at all of the current assets.  For dairy farms, a great deal of working capital will be tied up in feed inventories and prepaid expenses as well as cash.


Looking at these measures for the 35 Ohio dairy farms that completed their farm business analysis for 2013 (Table 1), all farms and the top 20% of farms had excellent current ratios (CR), but the top 20% have a CR more than twice as high as the average of all the farms.


Both groups of farms also have large, positive working capital figures, but when we take that next step of comparing working capital to gross income, it is clear that the top 20% have the advantage going into 2015 with working capital of 32.4% of their gross sales compared to all farms with working capital of almost 19%.


These are some important, basic numbers that each farm should know for their farm business.


If your current system does not allow this sort of analysis, 2014/2015 is a prime time to join the Ohio Farm Business and Benchmarking program.  There are two ways to participate depending on what records and information you kept in 2014.  If you have good records, you can start right into an analysis of 2014.  If existing records aren’t so good, you can work towards an analysis of 2015.


Cost is minimal due to generous grant funding, at only $100 per farm for either method.  Visit http://farmprofitability.osu.edu to view past analyses and find out more about Ohio’s program. Contact us to talk about what would work well for your farm at 330.533.5538 or shoemaker.3@osu.edu.


Shoemaker, Dianne. “Knowing your farm’s numbers will help you plan for low milk prices.” Farm and Dairy 12 February 2015. Print.

OSU Extension Planning Meetings to Help Dairymen Assess Options

June 3rd, 2015 by Christina Benton

Two short years ago, in July, we were focused on harvesting drought-stressed corn for silage in many parts of the state.

This year, we anxiously review weather apps hoping to see projections for sun, or at least no rain clouds, for three consecutive days in hopes of making some hay.

What a change a year or two will make.

Another horizon to watch

Additional changes loom on the horizon for both crop and dairy farms as provisions of the 2014 farm bill are implemented.

There are some general “knowns,” and a multitude of “unknowns” as the process moves from the legislation passed this spring through the rule making and implementation stages.

The USDA’s Farm Services Agency is tasked with developing the process and procedures through which the farm bill’s provisions will be implemented.

sep 1st

Circle Sept. 1

For dairy producers, the farm bill indicates that the rules are to be in place by September 1.

On the milk production side, farms will have to decide to participate or not to participate in the Dairy Producer Margin Protection Program (DPMPP). Existing “price support” programs will expire.

If dairy farms choose to participate in the DPMPP, the next decision will be at what level to participate. Specifically, what percent of their base production, and what level of margin protection.

If farms choose not to participate in this program, then they are free to look at other ways of managing price risk including futures and options, livestock gross margin insurance for dairy, or accepting whatever the cash market brings.

Crop side

On the crop side, there will be other decisions facing farm managers. The first decision will concern base acres and yields, and whether a farm wants to adjust their base yields.

The second decision relates to program participation, ARC or PLC.

Still in works

If the details are sketchy here, there are two reasons: as with dairy, rules are being developed now, and my limited understanding of farm bill issues and programs related to crops.

August meetings

To help Ohio’s agriculture community sort through the issues, information, and software tools that will be released later this summer and fall, OSU Extension is developing programs and workshops with partners across Ohio.

The first series of meetings focuses on general farm bill provisions and is a collaboration with Farm Credit Services, Ohio Farm Service Agency, and Farm Bureau. These will be held in August, on the 18th in Wooster, and the 19th in Defiance, and Wilmington.

Contact your local Extension office for more information.

More meetings

To specifically address the Dairy Margin Protection Program, we have planned a multi-pronged approach. Regional workshops focusing on rules and implementation will be held in September, on the 3rd in Mercer County, the 11th in Mahoning County, and the 15th in Wayne County.

The software tools available to assist in decision making will be demonstrated.

Follow-up meetings will be scheduled across Ohio to assist farms with use of these software tools and evaluating participation alternatives for both the crop and dairy programs.

For farms that are not interested in participating in the DPMPP, the Ohio Dairy Producers will be offering meetings with brokers and cooperatives that offer assistance with futures and options as well as LGM-Dairy margin insurance.

There are currently many questions about how these farm bill provisions will operate, and when and how decisions will need to be made. Meanwhile, new information continues to be posted as it becomes available.

Bookmark this site for emerging dairy information: http://dairymarkets.org/


Shoemaker, Dianne. “OSU Extension Planning Meetings to Help Dairymen Assess Options.” Farm and Dairy 3 July 2014. Print.

Judge 2014 Progress With a Look at 2013 Numbers

Dairy Excel Column

For January 1, 2015 Issue

Farm and Dairy

Dianne Shoemaker

Back arrow

You were probably relieved to hear that Congress and the President worked together to pass a twelfth-hour extension of Section 179 expensing to help manage your income tax liability for 2014.  For many dairy farmers this extension will help as long as it is applied through needed purchases rather than “wants” that may not improve long-term profitability.

A better way to monitor how well the farm business is performing is through annual analysis and then benchmarking your farm’s performance against peer farms as well as the best in the industry.  While we are gearing up for 2014’s analysis, let’s take a look back at the analysis completed for 2013.

Thirty-five Ohio dairy farms completed not only a whole farm analysis for 2013, but also evaluated their dairy enterprise and each crop enterprise on their farm.  This is an excellent investment of valuable time resources that allows them to identify strengths and areas for improvement across their farm.


Table 1: 2013 Ohio Dairy Farm Business Analysis Highlights.  Raised feed

valued at cost of production.

2014 December 2013 Anal Review Table

*Including revenue adjustments, labor and management charge

**Before labor and management charge


The top 20% of farms are sorted by net return per cow, and this group of farms averaged nearly $1,000 more per cow than the average of all farms.  While the net return for all farms averaged $544 per cow, there was a tremendous (and typical) range, from farms losing up to $500+ dollars per cow, to farms netting more than $2,000 per cow.  Each year, the summary has clearly shown that it doesn’t pay to be average in the dairy industry.  Shoot for the upper third of dairy farms.

How do you know where you are?  In the farm office, bookkeeping has to go beyond what is needed for the tax preparer.  Some bookkeeping programs go beyond the basics and allow the operator to generate income statements, balance sheets and cash flow statements.  These are integral parts of a year-end analysis.  However, unless the accountant or bookkeeper is enterprising information, it is difficult to accurately pinpoint how individual enterprises contribute to the bottom line.

The bookkeeper is not the only critical piece in this puzzle.  The guys outside have to keep good production records as well.  When these two pieces are integrated into a final analysis, the result is a wealth of information for making sound business decisions.

If your current system does not allow this sort of analysis, 2014/2015 is a prime time to join the Ohio Farm Business and Benchmarking program.  There are two ways to participate depending on what records and information you kept in 2014:


  1. “I have good financial and production records and balance sheets.”  In this case you are ready to jump in with an analysis of 2014.  You will receive your complete analysis as well as benchmark reports personalized to show your farms’ performance compared to the other Ohio farms.
  2. “I don’t have balance sheet information, and I’m not sure I can say how much seed, fertilizer and other crop input costs should go to each of the crops I raise.  I just enter the amount I paid to the co-op.  But I really want to start getting cost of production numbers for my farm.”  In this case, going back and trying to figure out the details for 2014 could cause a mild to severe migraine!  However, you are not alone.Because this is fairly common, we secured a risk-management grant that allows us to mentor up to 21 farms through 2015, working with each farm to develop balance sheets (learning what they are and how to use them in your business), review record-keeping systems to make sure that needed information is captured during the year, and ending 2015 with the second balance sheet and an analysis of 2015’s business.  Not only will you end up with quality numbers to use in management of the farm, but each farm will be set to continue analysis in the following years.


Cost is minimal due to current generous grant funding, at only $100 per farm for either method discussed above.  Table 1 above shares a few basic numbers from the analysis.  Visit http://farmprofitability.osu.edu to view past analyses and find out more about Ohio’s program. Contact us to talk about what would work well for your farm at 330.533.5538 or shoemaker.3@osu.edu.

Shoemaker, Dianne. “Judge 2014 Progress with a Look at 2013 Numbers.” Farm and Dairy 2015: A5. Print.

Ready, Set, Go: Preparing Farms to Sucessfully Manage Risk

Farm Financial Analysis – The Ready, Set, Go Program

Dianne Shoemaker, OSU Extension Field Specialist, Dairy Production Economics

Barry Ward, OSU Extension, Leader, Production Business Management, Department of Agricultural, Environmental, and Development Economics


Was 2014 a profitable year for your farm? Which enterprises were profitable?  Which were not?  How does your farm compare to similar farms in efficiency?  In profitability?  What does the competition look like?   Recent volatile feed, grain, milk, land and rental markets have created uncertain profit margins and financial security concerns.

Completing a farm financial analysis is an effective way for farms to know their costs of production, profitability, and financial ratios. Farms can track year-to-year changes, identify problems early, and benchmark against peer farms as well as control information critical to effective participation in risk management programs.

The Ohio Farm Business Analysis and Benchmarking Program can help farms answer these questions by completing a financial analysis of the whole farm and each enterprise.  An analysis will provide a farm with:

Year’s Beginning Balance Sheet

Income and Cash Flow Statements

Year’s Ending Balance Sheet

Financial Standards Measures

Enterprise Analysis including:

-Cost of Production

-Benchmarking Reports

Can’t go back and find the information needed to analyze 2014?  Through the Ready, Set, Go program, you will learn what financial and production information to keep and how to collect it in real time.   By the end of 2015 you will have everything needed to analyze how your farm business performed and will learn how to use your analysis to manage your farm and your farm’s risk.

Choose from classes, on-line webinars or videos along with personal assistance to guide you through the year from start to finish with a Farm Business Analysis.   Cost for the program is $100 per farm which will include up to 3 on-farm consultations.


For more information, contact Dianne Shoemaker at shoemaker.3@osu.edu or Christina Benton at 330.533.5538

Welcome to the Farm Profitability Blog!

December 21st, 2012 by Eric Barrett

Making informed and profitable decisions about the future of your farming operation is important.  Ohio State University Extension can help you through a financial analysis of your farm.  We will begin taking requests for these analyses in January 2014 for the 2013 calendar year financials.  We can provide:


  • Whole Farm analysis – A review of the farm operations overall.


  • Enterprise analysis – A review of the dairy vs. the crops; Corn vs. Soybeans; or dividing the farm up however you need to see what is profitable and what needs to be worked on.

We will soon be publishing the 2012 Ohio Farm Business Summary – come back soon!

bubble pic 2

Welcome to farm profitability!  By working with the Ohio Farm Benchmarketing Program, we will complete a financial analysis of your farming operation.  This analysis will help you understand where your areas of profitability are in the business.  We will give you tools to understand what the numbers mean.  Finally, you will be able to compare your farm business to similar businesses across Ohio to see how you stack up to the competition.  There may be an area of expense you can work on reducing or another area of the business where you are able to make management decisions for a profitable future for your farm family.

NEW – 2014 Calendar Year Input Forms are now available!  Click on the “Input Forms” tab above to download the forms for your farm.

If your farm is interested in an analysis:

Dianne Shoemaker     shoemaker.3@osu.edu

Christina Benton         benton.132@osu.edu


Please refer others from your county or area.