The agricultural industry has a lot on its plate, and the focus right now is on survival.
The last five years have been extremely difficult for both crop and animal producers. As an industry, we realize the importance of the environment and implementing practices to keep water and air clean. However, there are significant costs involved, and right now producers do not have extra funds to pay for the installation and maintenance of new practices.
The Extension dairy business management team has completed an intensive multi-year project capturing the financial picture of the whole farm and the dairy enterprise. The numbers indicate a grim reality.
In the crops to cow project, 25 dairy operations ranging in size from 40 to 1,100 milking cows participated in a three-year study (2016-2018) evaluating corn silage quality, feeding management and profitability. All of the farms were very well managed and met the production benchmarks for milk yield, components, pregnancy rate, days in milk, age at first calving and dry matter intake efficiency.
But financial health, not production, is the bigger concern for the future of these farms.
High profit herds experienced a positive net return for either two or all three years. The medium profit group had a positive return only once, and the low profit group never had a positive return. Production metrics, which were good on all of these farms, did not explain profitability status.
An achievable financial benchmark for the dairy operation on a whole farm basis is a profit of $800 to $1,000 per cow. Based on the Penn State project evaluating the whole farm, the high profit group on average for the three years achieved a positive return of $450 per cow, the medium profit group lost on average $203 per cow, and the low profit group lost over $600 per cow.
The numbers for the dairy enterprise are even worse. The high group made $16 per cow and the medium and low profit groups lost $443 and $949, respectively.
And even though these operations had additional income from alternative enterprises, that was not always adequate to provide a positive profit or cash flow.
How successful will Pennsylvania be in meeting goals for sediment, nitrogen and phosphorus reductions when dairy producers do not have any disposable income?
The new reality of today’s economic environment is knowing the financial health of the business. The low profit herds are severely compromised. Based on the current markets, weather conditions and other unforeseen factors, they probably will not be around five years from now. The medium profit group still has opportunities to move into the high profit group with some adjustments in their cropping or herd management practices. The high profit group is sustainable, but even for them the additional cash to improve the business is limited.
If Pennsylvania’s watershed implementation plan is to succeed, there needs to be some flexibility in how farms can implement the desired practices and still obtain credit for meeting the desired goals. Also, emphasis should be on practices that have a direct connection to improving farm income with little to minimal cost for installation and maintenance.
These are truly challenging times for everything agriculture.