Profit By Numbers

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Profit By Numbers

Author:	Brian Lang - Dairy Technology Transfer and Planning Specialist/OMAFRA
Creation Date:	05 January 2001
Last Reviewed:	16 February 2001

While net farm income averaged $74,600 among a group of 205 Ontario dairy farms, the top 50 averaged $148,700 and the lowest 50 just over $20,000. This wide range in incomes raises questions:

Is bigger better?
Does more milk per cow mean a higher net income?
What about farms with higher breeding sales?
Or lower interest payments?

Comparisons that take these and some other factors into account are presented in the table on the page opposite. They're based on data from the 1999 Ontario Farm Management Analysis Project (OFMAP), which summarized financial results from 205 dairy farms across the province.

An Operating Cost Percentage (OCP) was used to calculate whether there was any significant advantage in the ratio of expenses to revenues. The OCP is calculated as total expenses excluding interest, depreciation and labour divided by total revenue.

To compare incorporated farms more fairly with proprietorships and partnerships, labour expenses have not been included in the OCP column and the net income per cow column. Corporations may record salary and wages to owners as a labour expense, while proprietorships and partnerships can't.

Larger Herds Versus Smaller Herds

The largest 50 herds clearly had a higher net farm income. But looking a little further shows that on a per cow basis, there was not much difference in the net farm income per cow.

A separate study of 33 herds with under 30 cows, done at the same time, shows the top third had a higher net income per cow than the larger herds. The small herd group also had a lower operating cost percent age. A low cost, well-managed small herd can be competitive.

Larger herds took advantage of their greater total production to generate more revenue. The study doesn't indicate the number of families supported by a herd. We would usually expect that larger herds would support more families from the net income.

Higher Production

A comparison of Holstein herds with the highest and lowest production per cow per year shows a clear advantage to the herds with the higher average production. Net returns for the higher producers were $848 per cow more. The advantage appears to come mostly from the additional 3,300 litres per cow. The cost of production per litre for the two groups was not that much different, but there were a lot more litres produced to generate additional income.

The Jersey herds included in the OFMAP study had a net income per cow identical to the average for the entire study. However, the Jersey group was quite small with only six herds included. The Jersey herd size in this sample does not appear to be representative of the breed.

Equity

As expected, debt makes a significant impact on net income. The low debt farms had $650 less in interest expenses per cow. The high debt herds had a lower feed cost per hL and shipped more milk per person, but generally were quite similar to the low debt herds in other comparisons.

Breeding Sales

The OFMAP study included 75 herds that recorded no breeding sales in the year. Compared to a group averaging $22,800 in sales, there was little difference in OCP. The breeding sale group had more cows. Most of the $320 per cow difference in income appears to be a result of those breeding sales.

Milk Sold Per Person

Herds with higher shipments per full time labour equivalent had an advantage in net income per cow, and a lower OCP. There was a clear difference in herd size and cow production in this group.

Feed Costs

OFMAP includes the cost of feed for calves, heifers, and dry cows. Provincially the average cost of feed was $21.40 per hL, with a range of more than $11 per hL between the 50 farms with the lowest and the 50 with the highest feed costs. Feed costs in part may be explained by more milk production per cow. The lower feed cost herds had a seven per cent advantage in the OCP and a higher net income per cow of $800.

In an interesting side note, herds that bought either a very high or low percentage of their total feed requirements came in below provincial averages for net farm income per cow. Both groups paid more interest per cow than average.

Operating Cost Percentage

It's logical that the herds with the lowest operating cost percentage would have a higher net farm income. The low cost group had a 20 per cent advantage or 20 cents less in expenses per $1 of revenue.

Summary

These group comparisons provide a few highlights for your consideration. However, each dairy farm in Ontario is unique. No single production factor can guarantee a successful operation.

You have to determine what best suits your operation.

If you' d like to examine the current OFMAP report in more detail, it's available through OMAFRA contact centres or on the website.

Table 1: 1999 Summary of Ontario Dairy Farms
	Net Farm Income (NFI)	NFI before Pd. Labour	NFI before labour Per Cow	Operating Cost Percentage	Percent Equity	Total Cows	Milk Sold per Cow per Year litres	Milk sold per person (Whole Farm)	Interest Paid per cow	Net Enterprise Income per hL	Feed cost per hL
Ontario Average (205)	$ 74,613	$ 97,484	$ 1,648	51.9%	79.2%	59.1	7,618	197,020	$ 392	$ 22.34	$ 21.20
High 50 by Net Farm Income	$ 148,764	$ 188,930	$ 2,164	46.1%	84.0%	87.3	8,348	241,242	$ 296	$ 27.24	$ 19.01
Low 50 by Net Farm Income	$ 20,070	$ 37,795	$ 854	60.4%	78.6%	44.2	6,825	158,901	$ 406	$ 17.20	$ 24.45
Size
Largest 50 by Number of Cows	$ 120,895	$ 175,277	$ 1,680	50.0%	77.2%	104.3	7,783	241,514	$ 469	$ 22.15	$ 20.60
Smallest 50 by Number of Cows	$ 42,997	$ 48,718	$ 1,519	54.0%	80.2%	32.1	7,400	150,164	$ 374	$ 21.02	$ 22.76
Small Farms (33)
Avg of Farms with Less Than 30 Cows	$ 31,320	$ 37,399	$ 1,381	* 56.0%	84.9%	27.1	7,275	131,143	$ 339	$ 21.61	$ 23.87
Top 11 of Small Farms by NFI	$ 52,780	$ 58,539	$ 2,127	* 46.0%	82.6%	27.5	8,199	156,098	$ 415	$ 26.60	$ 21.25
Production per Cow, Holstein
Average of 193 Farms	$ 75,893	$ 99,560	$ 1,659	51.9%	79.3%	60.0	7,677	198,573	$ 385	$ 22.19	$ 21.10
Top 50 Farms	$ 102,549	$ 131,620	$ 2,031	50.1%	79.8%	64.8	9,189	226,405	$ 417	$ 23.48	$ 19.01
Bottom 50 Farms	$ 49,888	$ 70,287	$ 1,183	53.0%	82.5%	59.4	5,888	150,937	$ 281	$ 18.57	$ 24.79
Jersey
Avg of 6 Jersey Farms	$ 55,940	$ 67,914	$ 1,649	52.4%	85.3%	41.2	6,065	152,250	$ 345	$ 27.15	$ 22.75
Equity
Top 50 Farms High Equity	$ 88,799	$ 116,534	$ 2,165	51.5%	97.6%	53.8	7,555	173,743	$ 53	$ 25.41	$ 21.53
Bottom 50 Farms Low Equity	$ 68,211	$ 81,465	$ 1,412	49.8%	60.4%	57.7	7,829	205,667	$ 710	$ 21.26	$ 19.97
Breeding Stock Sales
High Breeding Stock Sales 75 ($22,800)	$ 91,386	$ 125,409	$ 1,811	51.3%	82.3%	69.3	7,874	208,944	$ 331	$ 24.61	$ 21.58
Low Breeding Stock Sales 75 ($0)	$ 69,008	$ 84,635	$ 1,490	52.3%	75.7%	56.8	7,503	191,289	$ 444	$ 18.96	$ 21.97
Milk Sold per Full-Time Person(Whole Farm)
Top 50 Farms	$ 109,277	$ 140,559	$ 1,792	50.5%	75.3%	78.4	8,309	295,397	$ 628	$ 22.42	$ 19.42
Bottom 50 Farms	$ 43,421	$ 54,631	$ 1,324	55.1%	82.9%	41.3	6,593	120,648	$ 408	$ 20.75	$ 24.01
Feed Cost per hL
Highest 50 Farms	$ 53,416	$ 72,923	$ 1,268	55.1%	81.4%	57.5	6,640	162,244	$ 464	$ 17.14	$ 27.74
Lowest 50 Farms	$ 99,724	$ 125,811	$ 2,069	47.9%	79.3%	60.8	8,389	233,604	$ 492	$ 27.83	$ 16.13
Purchased Feed
High - Avg 57% Purchased (50 farms)	$ 68,181	$ 82,854	$ 1,501	53.8%	76.1%	55.2	7,794	216,226	$ 533	$ 20.49	$ 20.35
Low - Avg 21% Purchased (50 farms)	$ 54,935	$ 79,344	$ 1,517	51.3%	82.1%	52.3	6,862	165,486	$ 475	$ 22.25	$ 23.60
Operating Cost Percentage
Highest 50	$ 37,089	$ 55,411	$ 968	62.9%	78.9%	57.3	7,203	186,231	$ 456	$ 16.50	$ 23.78
Lowest 50	$ 114,137	$ 150,990	$ 2,066	42.4%	78.7%	73.1	7,674	186,305	$ 526	$ 26.90	$ 19.99

This article appeared in the February 2001 Ruminations column of the Ontario Milk Producer magazine.

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