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Presentation to the Dairy Industry Advisory CommitteeApril 13 – 15 , 2010
Dairy Farm Financial Conditions
Mitch Morehart
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Presentation to the Dairy Industry Advisory CommitteeApril 13 – 15 , 2010
Data Source
Agricultural Resource ManagementSurvey (ARMS)
ARMS Data Productshttp://www.ers.usda.gov/data/arms/
http://www.ers.usda.gov/ Briefing/ARMS/
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Presentation to the Dairy Industry Advisory CommitteeApril 13 – 15 , 2010
Dairy Farm Businesses
Farms where 50% or more of the total value of farm production comes from milk and dairy products
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Farms Farm businesses
Source: Agricultural Resource Management Survey, USDA
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Presentation to the Dairy Industry Advisory CommitteeApril 13 – 15 , 2010
Farm-level Partial Budgeting Model
The model incorporates elements of income, and expenses to project cash flow. Totals for assets and debt are used to forecast major elements of the balance sheet and debt repayment ability. Parameters from the Short-term Forecast Model, the Baseline Model, and FAPSIM are used as input.
Uses most recent Agricultural Resource Management Study (ARMS) as the base.
Results can be summarized across various grouping of farms such as region, commodity specialization, or size categories.
The model is static and therefore does not account for changes in crop rotation, weather, and other local production impacts that occurred after the base year.
http://www.ers.usda.gov/Briefing/FarmIncome/Businessincome.htm
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Presentation to the Dairy Industry Advisory CommitteeApril 13 – 15 , 2010
Average Dairy Farm Business Net Cash Income
0
50
100
150
200
250
2004 2005 2006 2007 2008 2009f 2010f
EstimateError-lowForecast 1/Error-high
Thousand dollars
1/ The farm level forecasts are derived from partial budget modeling on the 2008 ARMS using parameters from the sector forecasts. The model is static and therefore does not account for changes in crop rotation, weather, and other local production impacts that occurred after the base year.
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Presentation to the Dairy Industry Advisory CommitteeApril 13 – 15 , 2010
Dairy Farm Business Assets, Debt, and Equity
0
20
40
60
80
100
120
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009f 2010f
$ Billions
Equity
Debt
Source: Agricultural Resource Management Survey, USDA
Assets
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Presentation to the Dairy Industry Advisory CommitteeApril 13 – 15 , 2010
Dairy Farm Business Debt Repayment
0%
10%
20%
30%
40%
50%
60%
70%
80%
Below 40% 40-80% 80-120% Above120%
20082009f2010f
Distribution of FARMS by debt repayment capacity utilization category
DRCU Category
Source: 2008 Agricultural Resource Management Survey, USDA. Forecasts are derived from partial budget modeling on the 2008 ARMS using parameters from the sector forecasts.
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Presentation to the Dairy Industry Advisory CommitteeApril 13 – 15 , 2010
Dairy Farm Business Debt Repayment
0%
10%
20%
30%
40%
50%
60%
Below 40% 40-80% 80-120% Above120%
20082009f2010f
Distribution of DEBT by debt repayment capacity utilization category
DRCU Category
Source: 2008 Agricultural Resource Management Survey, USDA. Forecasts are derived from partial budget modeling on the 2008 ARMS using parameters from the sector forecasts.
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Presentation to the Dairy Industry Advisory CommitteeApril 13 – 15 , 2010
The economic cost ratio (ECR) gives the economic rather than accounting cost required to produce each dollar of agriculture’s value of producing crops and livestock. Economic costs differ from accounting costs in that economic costs consider imputed costs, i.e.; the cost of the owner’s own resources used in production. The ECR is defined here as:
(Cash expenses + depreciation +noncash labor expenses + charge to management + charge to operator and unpaid labor + contractor reimbursed
operating expenses)*100
Value of production (excluding landlords’ share) + government payments + insurance indemnities
The report “Economic Effects of U.S. Dairy Policy and Alternative Approaches to Milk Pricing” extended this approach to examine dairy farms.
Dairy Farm Business Economic Cost Ratio
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Presentation to the Dairy Industry Advisory CommitteeApril 13 – 15 , 2010
Dairy Farm Business Long-run Viability
0
10
20
30
40
50
60
70
80
90
Low Medium High
2008$14/cwt$10/cwt
Sensitivity of FARM distribution by economic cost ratio to milk prices
Source: 2008 Agricultural Resource Management Survey, USDA
Percent
Economic Cost Ratio
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Presentation to the Dairy Industry Advisory CommitteeApril 13 – 15 , 2010
Dairy Farm Business Long-run Viability
0
10
20
30
40
50
60
70
Low Medium High
2008$14/cwt$10/cwt
Sensitivity of PRODUCTION distribution by economic cost ratio to milk prices
Source: 2008 Agricultural Resource Management Survey, USDA
Percent
Economic Cost Ratio
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Presentation to the Dairy Industry Advisory CommitteeApril 13 – 15 , 2010
Dairy Farm Business Cost Structure Differences
Low Medium HighNumber of cows 306 144 45
Annual hours operator labor 3,360 3,749 3,741
Dollars per cwtFeed 6.17 7.81 7.84
Hired labor 1.66 1.87 1.46
Fuel 0.52 0.73 1.30
Interest 0.52 0.70 1.00
Depreciation 1.27 1.86 3.02
Operator labor & management 1.15 2.75 9.68
Source: 2008 Agricultural Resource Management Survey, USDA
Economic Cost Ratio
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Presentation to the Dairy Industry Advisory CommitteeApril 13 – 15 , 2010
Dairy Farm Businesses Management Strategies
7%
11%
24%58%
Used no toolCost controlMarketingBoth cost control & marketing
Cost control
Locking in the price of inputsUsing farm management or other advise servicesShopping for best price from multiple sourcesNegotiating price discountsParticipating in buying clubs or other alliances
Marketing strategies
Direct sales to consumersSales to retail outletsAdvisory servicesFuturesOn-farm storageContract shippingCollaborative marketing or networking
Source: 2008 Agricultural Resource Management Survey, USDA
