Even for folks who work at anticipating change, 2020 was one for the record books.
Who expected to experience a pandemic and its wide-ranging impacts, from dropping consumption to dumping milk to May’s $12.14 Class III price and $0.59 producer price differential (PPD) to July’s $24.54 Class III price and negative $8.02 PPD, the wide array of Coronavirus Food Assistance Programs and other complicating challenges?
All this after going into 2020 anticipating that milk prices were recovering from a 5-year trough.
Amid all the craziness, heifers grew, cows calved and made milk and farmers continued to manage their herds and employees and shipped milk.
Fortunately, we didn’t have widespread milk dumping in Ohio, but it was very real for the farms that were notified by their processors that pick-ups would be skipped. Twenty-one Ohio dairy farms participated in the 2020 Ohio Farm Business Analysis Program.
Of those farms, 18 completed their analysis, meeting all of the internal accuracy checks required to be included in the 2020 Ohio Dairy Summary. All but one of these 18 farms are located in northeast Ohio, and all are managed conventionally. The 2020 dairy and crop summaries can be downloaded at farmprofitability.osu.edu. Two of the farms are new to analysis; 16 are continuing farms.
Price and cost
The average milk price received by the 18 farms was $18.38 per hundredweight, very close to the USDA’s 2020 Ohio All-Milk price of $18.33, and $2.53 higher than the 2020 average statistical uniform price of $15.85.
On average, Ohio’s farms were able to add that value to their milk through higher component production and available premiums. The total direct and overhead cost of production averaged $19.30 per hundredweight for all farms and $18.54 per hundredweight for the high 25% of farm (these five farms generated the highest net return per cow).
While both of these are above the average milk price received, there are other sources of income to the dairy enterprise including sales of cull cows, bull calves, excess heifers, breeding stock and patronage dividends.
Farms enrolled in the Dairy Margin Coverage or other risk management programs could have received indemnities depending on the levels of coverage purchased. Income from these non-milk items are applied to the cost of production, resulting in the average total cost of production with revenue adjustments of $15.07 for all farms, and $14.48 for the high 25% farms.
In 2019, non-milk revenue sources averaged $1.68 per hundredweight for all farms, and $1.51 for the high 20%. In 2020, the pandemic relief programs were an additional other income source for participating farms. This non-milk income category was $2.55 per hundredweight higher than 2019, averaging $4.23 for all farms, and the $4.06 per hundredweight for the high 25%.
Without the additional dollars from a combination of pandemic relief funds, price-protection program indemnities and some additional dividends, it would have been a much more challenging year for dairy farms of all sizes, with the average net return per cow around $100 rather than the $759 per cow reported.
These returns allowed the farms to improve the average current ratio — a good indicator of cash availability — from 1.47 to 2.14, Moving from a rating of “caution” to “good.” While a welcome improvement, long term, we would like to see the current ratio for a dairy farm above 3.0.
As we move through 2021, challenges continue. Increased feed prices, still too much milk and ever-present uncertainty are some of them. What is certain is the need to know your numbers and use them to make informed decisions.
We are just three months away from 2022, and the next opportunity to start putting numbers together for your dairy farm. Contact me at [email protected] to set your farm up for your 2021 analysis.
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