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15 Measures of Dairy Farm Competitiveness

By Dr. Maurice L. Eastridge

In an effort to strengthen the financial stability of dairy farm families, a group of Extension personnel at Ohio State published the first copy of the 15 Measures of Dairy Farm Competitiveness in 1997. The publication was revised in 2008 to mostly update some of the benchmarks for the respective 15 measures. The new release of this publication in 2019 not only provides updates to all of the measures, but some of the measures were totally revised and some new measures provided. The financial benchmarks were primarily developed from data provided by the Ohio Farm Business Summaries, New York data published by Cornell University, and the Northeast Dairy Farm Summaries published by Northeast Farm Credit. The 15 measures described in the publication are listed in Table 1.

During the 22 years since the first publication on the 15 measures, the dairy industry has incurred many changes. During this time period, the average milk yield per cow in Ohio has increased about 5,600 lb, yet the rate of return has ranged from $36 (2015) to 1,263 (2014) per cow. You will also note that the time period from the highest to the highest rate of return was only one year. During the 22-year time period, the average US milk price ranged from $12.11 (2002) to 23.97/cwt (2014). These magnitudes of volatility in net farm income and milk prices create many challenges for dairy farm families, thus management of key financial measures is a must for survival. During the past 22 years, the average number of cows in the US has remained somewhat constant (~ 9.3 million cows), but the Ohio dairy herd has decreased from 280,000 to 253,000 cows. The number of farms has decreased from 123,700 to 37,468 and from 6000 to  2100 for the US and Ohio, respectively.

The new publication was prepared by ten OSU personnel to provide the most up-to-date information on dairy farm financial management and to address other key issues of management on dairy farms. The complete publication is available at: https://dairy.osu.edu.

Table 1. List of the measures in the new publication “15 Measures of Dairy Farm Competitiveness”.
 

MeasureCategoryDescriptionBenchmark
1Rate of ProductionPounds of milk sold per worker>1,000,000 ECM1
2Cost ControlFeed cost per cwt milk sold and income over feed costTop 25%
3Cost ControlOperating expense ratio<70%
4Capital EfficiencyDairy investment per cow<$11,000
5Capital EfficiencyAssess turnover ratio>0.60
6ProfitabilityNet farm income per cow>$1,300
7ProfitabilityRate of return on farm assets>10%
8LiquidityCurrent ratio (CR) and working capital (WC)CR 3.0 to 3.5
WC >25% gross revenue
9Repayment ScheduleScheduled debt payment<10% gross receipts
<$400 per cow
10SolvencyDebt to asset ratio<30%
11SolvencyDebt per cow<$3,000 if not expanding
<$4,300 if expanding
12Mission StatementManagement team agrees on why they are in businessWritten mission statement
13Maintain Family’s Standard of LivingMaintain or increase standard of living5 to 10% of gross farm income
14Motivated Labor ForceManagers use personnel management practices which lead to commitment to the mission and goals of the farmWell-trained, enthusiastic, and empowered family members and employees
15Manure Nutrient ManagementProper utilization of manure nutrientsMinimize the cost of nutrient management and reduce environmental risks

1ECM = Energy-corrected milk

Source: osu.edu