Dairy Business Analysis Project: 1999 Summary for Florida and Georgia Dairies

UGA Extension contacts:
Lane Ely

The Dairy Business Analysis Project was initiated in 1996 to measure and document the financial performance of Florida dairy businesses using standardized accounting measures, so uniform comparisons could be made among participants. Formal collaboration between the Universities of Florida and Georgia began in 1998. This publication presents the results from fiscal year 1999 information.

Introduction

The Dairy Business Analysis Project was initiated in 1996 to measure and document the financial performance of Florida dairy businesses using
standardized accounting measures, so uniform comparisons could be made among participants.

Since its inception, participation has grown, allowing for a variety of regional and management comparisons to be made.

Formal collaboration between the Universities of Florida and Georgia was started in 1998. Presented in this summary are the results from fiscal year 1999
information.

Method of Data Collection

The project uses accounting measures and assumptions as advised by the Farm Financial Standards Council. [Farm Financial Council. 1997. Financial
Guidelines for Agricultural Producers] The main feature of these assumptions is the use of accrual adjusted accounting procedures. Accrual adjusted
accounting takes into account changes in inventory, prepared expenses, accounts receivable, and accounts payable. This results in farm profits that are
linked to changes in the balance sheet of the business.

In the report, all revenues and expenses were accrual adjusted. This means that revenue and expense categories were free from any distortions that may
have been caused by cash basis accounting practiced by many participants. This also means that revenue or expenses may be calculated even though cash
does not enter or leave the business. This was especially true for the revenue categories of cow sales, heifer/calf sales, and crop sales. Keep this in mind
when interpreting the report. Depreciation for livestock was included for capitalized livestock with gains/losses on sale of capitalized livestock computed
on the change in capital base from the beginning to the end of the year.

Machinery and building/improvement depreciation were taken from tax records. Balance sheet data were based on market values.

Because accrual adjusted accounting takes into account changes in the balance sheet, it was possible to validate the financial performance measured for
each dairy. The statement of cash flows reconciles the net cash flow of the business with beginning and ending cash balances reported for the year. The
statement of owner’s equity similarity matches equity changes with the beginning and ending equity balances. An imbalance suggested incomplete or
incorrect information.

Included Dairies

The 1999 information was summarized from 25 dairies providing complete and verifiable financial data. This sample was collected from voluntary
participants and does not represent the average values for either Florida or Georgia. Each of the dairies used in this report had an owner’s equity imbalance
of less than 10 percent of beginning equity and a cash imbalance of less than 10 percent of total cash receipts. These dairies were also screened for unusual
circumstances. Dairies in start-up conditions or rapid expansion were excluded from this report.

Florida and Georgia Comparison

Table 1 lists revenues, expense and descriptive statistical information sorted by state. The first item of note is the differences in revenues for the two
states. Florida dairies had total revenue of $19.47 per cwt milk sold, 7 percent above the $18.20 average for Georgia dairies. Most of the differences was
due to a difference in milk sales, Florida dairies averaged $18.22 per cwt which was 5.8 percent higher than the $17.22 per cwt received by the Georgia
dairies.

While the Florida group had higher total revenue than Georgia dairies, total expense were also higher. The Florida dairies had total expense of $17.20 per
cwt which was 13 percent higher than the Georgia dairies average of $15.22 per cwt. The largest difference between the two was the purchased feed
expense, $7.74 per cwt for Florida dairies compared to $6.41 per cwt for Georgia dairies.

Florida dairies had higher expenses than Georgia dairies for personnel, machinery, interest, and other expenses. Georgia dairies were higher than Florida
dairies for livestock, and milk marketing expenses. Crops, real estate, machinery depreciation, building/ improvement depreciation, and livestock
depreciation expenses were similar for Florida and Georgia dairies.

Georgia dairies had a net farm income from operations of $2.98 per cwt, which is 31 percent higher than the net farm income from operations for the
Florida dairies, $2.27 per cwt.

The average herd size was 1,321 cows for the Florida dairies which is 85 percent larger than the Georgia dairies average of 712 cows. Total assets for the
Florida dairies was $4,147 per cow which is 5 percent greater than the Georgia dairies average of $3,951 per cow. The Florida dairies had total liabilities
of $1,648 per cow, which is 54 percent higher than the Georgia dairies average of $1,069 per cow.

The Georgia dairies had a higher rate of return or assets (16 percent versus
12 percent), operating profit margin (15 percent versus 13 percent) and asset
turnover ratio (122 percent versus 91 percent) than the Florida dairies.

Level of Production

The data was sorted by level of production into three groups; low (<15,000 pounds milk sold per cow), medium (15,000 to 20,000 pounds milk sold per
cow), and high (>20,000 pounds milk sold per cow). The data is shown in Table 2. There were 5 low herds, 11 medium herds and 9 high herds.

The medium level of production had the lowest total revenue and milk sales ($18.39 per cwt and $17.39 per cwt) while low and high production herds had
similar total revenue ($19.35 per cwt and $19.51 per cwt) and milk sales ($18.29 per cwt and $18.09 per cwt). The medium production herds had the
lowest cow sales and the highest crop sales.

Total expenses were highest for the low producing herds ($17.17 per cwt), lowest for the medium producing herds ($16.14 per cwt) and intermediate for
the high producing herds ($16.98 per cwt). This resulted in net farm income from operations of $2.18 per cwt for low producing herds, $2.25 per cwt for
medium producing herds and $2.53 per cwt for high producing herds.

High producing herds had the highest rate of return on assets (16%) and operating profit margin (18%) while medium producing herds had the highest
asset turnover ratio (116%).

Herd Size

The data set was sorted by herd size into three groups: <500 cows, 500-1000 cows and >1000 cows. The data is presented in Table 3. The <500
cow group averaged 366 cows and 17,312 pounds of milk per cow, the 500-1000 cow group averaged 718 cows and 17,721 pounds of milk per cow and
the >1000 cow group averaged 1823 cows and 18,944 pounds of milk per cow.

Total revenues were highest for the >1000 cow group ($19.57 per cwt). The <500 cow group and 500-1000 cow groups had similar total revenues of
$18.43 per cwt and $18.61 per cwt respectively. Milk sales were $18.46 per cwt for the >1000 cow group, $17.76 per cwt for 500-1000 cow group and
$17.13 per cwt for <500 cow group.

The total expenses were highest for the >1000 cow group with $16.95 per
cwt, intermediate for <500 cow group with $16.01 per cwt and lowest for the
500-1000 group with $15.89. The net farm income from operations was highest
for 500-1000 cow group with $2.72 per cwt, intermediate for >1000 cow group
with $2.62 per cwt and lowest for <500 cow group with $2.42.

Summary

How does your dairy compare to the benchmarks? In the short term, it may not make much difference whether or not a dairy is above or below average
for a certain characteristic. What does matter, however, is the ability to generate revenues sufficient to cover expenses, service debt and retain a profit for
capital replacement and return to management.

The database provides benchmarks for producers to evaluate their financial performance. The values can be used to highlight areas for improvement or
areas that are performing satisfactorily.

Participants in the Dairy Business Analysis Project have provided the date to develop these benchmarks and each farm has received analysis reports for
their individual farm.

Continued and expanded participation is needed to improve the data base and to provide increased evaluation of management and financial performance.

Related Publications

Hoekema, M. J., A. Andreasen, R. Giesy, P. Miller, M. Sowerby, T. Seawright,
C. Vann and L. Ely. 2000. Dairy Business Analysis Project:
Financial Opportunities and Constraints on Georgia and Florida Dairies.
Bulletin 1188, University of Georgia Cooperative Extension.

Table 1. Dairy Business Analysis Project 1999. Overall, Florida and Georgia Summary Information.
Category (per cwt, milk sold)		Total	Florida	Georgia
Number of Dairies		25	15	10
Revenues
	Milk Sales	17.82	18.22	17.22
	Cow Sales	0.54	0.60	0.46
	Calf/Heifer Sales	0.24	0.16	0.35
	Other Livestock	0.03	0.04	0.02
	Crops	0.34	0.48	0.13
	Other	0.18	0.24	0.10
Gain (Loss) on capital livestock sale		0.19	0.27	0.08
Total Revenue		19.07	19.47	18.20
Expenses (per cwt)
Personnel		2.39	2.65	2.00
Purchased Feed		7.21	7.74	6.41
Crops		0.27	0.26	0.28
Machinery		0.84	0.90	0.76
Livestock		1.53	1.36	1.80
Milk Marketing		1.03	0.96	1.15
Real Estate		0.61	0.61	0.62
Interest		0.53	0.66	0.35
Other		0.77	0.87	0.62
Machinery Depreciation		0.37	0.35	0.39
Building / Improved Depreciation		0.14	0.15	0.12
Livestock Depreciation		0.70	0.69	0.72
Total Expenses		16.40	17.20	15.22
Net Farm Income Farm Operations¹		2.67	2.27	2.98
Number of Cows		1078	1321	712
Number of Heifers		565	821	182
Milk sold per cow (pounds)		18,152	17,220	19,450
Cull Rate		34%	33%	35%
Cows per full time equivalent		58	57	60
Milk sold per full time equivalent (milk in million pounds)		1.026	.940	1.153
–
Average total assets per cow²		$4069	$4147	$3951
Average total liabilities per cow²		$1417	$1648	$1069
Rate of return on assets³		14%	12%	16%
Operating Profit Margin⁴		14%	13%	15%
Asset turnover ratio⁵		104%	91%	122%
¹ Net farm income from operations was computed as accrual adjusted revenues minus accrual adjusted expenses. This represents the return to unpaid management and capitol.
² Balance sheet information computed as average between beginning and ending value for year divided by average number of cows.
³ Rate of return on assets was calculated by adding interest expense to net farm income from operations, subtracting a $50,000 charge for unpaid management, dividing remainder by ending total assets.
⁴ The operating profit margin was determined by adding interest expense to net farm income from operations subtracting a $50,000 charge for unpaid management dividing the remainder by gross revenues.
⁵ The asset turnover ratio was calculated by dividing gross revenues by average total assets.

Table 2. Dairy Business Analysis Project 1999: Comparison of Production Level
Category		Low¹	Medium	High
Number of farms		5	11	9
Revenues (per cwt)
	Milk Sales	18.29	17.39	18.09
	Cow Sales	0.68	0.29	0.77
	Calf/Heifer Sales	0.28	0.26	0.19
	Other Livestock	0.09	0.02	0.01
	Crops	0.11	0.46	0.32
	Other	0.14	0.17	0.29
Gain (Loss) on capital livestock sale		(0.24)	(0.20)	(0.16)
Total Revenue		19.35	18.39	19.51
Expenses (per cwt)
Personnel		2.42	2.24	2.56
Purchased Feed		7.89	6.95	7.14
Crops		0.24	0.24	0.33
Machinery		0.73	0.83	0.92
Livestock		0.69	1.88	1.58
Milk Marketing		1.22	0.94	1.04
Real Estate		0.74	0.80	0.31
Interest		0.70	0.48	0.50
Other		0.89	0.70	0.79
Machinery Depreciation		0.30	0.31	0.48
Building/Improved Depreciation		0.12	0.10	0.20
Livestock Depreciation		1.23	0.67	1.13
Total Expenses		17.17	16.14	16.98
Net farm Income from Operations		2.18	2.25	2.53
Average Herd Size		885	757	1589
Rate of return on assets		11%	14%	16%
Operating Profit Margin		14%	12%	18%
Asset turnover ratio		90%	116%	96%
¹ Low = <15,000 pounds per cow; Medium = 15-20,000 pounds per cow; High = >20,000 pounds per cow.

Table 3. Dairy Business Analysis Project 1999: Comparison by Herd Size
Category		< 500	500 – 1000	> 1000
Number of farms		9	5	11
Average cow per herd		366	718	1823
Average production per cow		17,312	17,721	18,944
Revenues (per cwt)
	Milk Sales	17.13	17.63	18.46
	Cow Sales	0.57	0.54	0.52
	Calf/Heifer Sales	0.10	0.11	0.42
	Other Livestock	0.05	0.02	0.03
	Crops	0.45	0.07	0.34
	Other	0.11	0.18	0.25
Gain (Loss) on capitol livestock sales		0.02	0.06	(0.48)
Total Revenue		18.43	18.61	19.57
Expenses (per cwt)
Personnel		1.93	2.69	2.63
Purchased Feed		7.28	6.45	7.49
Crops		0.31	0.22	0.26
Machinery		0.88	0.85	0.81
Livestock		1.26	2.29	1.42
Milk Marketing		0.96	1.02	1.09
Real Estate		0.85	0.52	0.46
Interest		0.40	0.50	0.66
Other		0.90	0.47	0.80
Machinery Depreciation		0.35	0.43	0.35
Building/Improvement depreciation		0.10	0.14	0.17
Livestock depreciation		0.79	0.31	0.81
Total Expenses		16.01	15.89	16.95
Net farm income from operations		2.42	2.72	2.62
Rate of return on assets		9%	14%	19%
Operating profit margin		11%	13%	16%
Asset turnover ratio		93%	103%	112%

¹Animal and Dairy Science Department, The University of Georgia

²Department of Dairy and Poultry Sciences, University of Florida

³Dairy Strategies, Gainesville, Florida

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