A24-LII
When the bam is full, the cows are doing well, and we have cut expenses in quite a few areas, it
is easy to fall into the trap of thinking we don’t need to know what it costs us to produce milk Then we realize
that lately the milk check has been spent before all the expenses are paid, which means we need to
calculate where the money is going and how to make our farm profitable
Using a record keeping system makes calculating the cost of production easier, but for those who
don't have a system, it helps to use the Schedule F form from the federal tax return For the sake of
discussion we have made up numbers for three fictitious herds Here are "Amos King's" Schedule F figures
To calculate the cost of production per hundredweight (cwt) of milk, we divide the total of all
Schedule F (Form 1040)
Nam* of Proprietor Amoi King
Farm Incoma-Cash Mathed.
11 Grow Incorm. 11 $95,020*
[•Arnos King sold 6800 cwt milk for SB9 420, as he had 17 0001 b average for 40 cows,
and 11 cull cows ®sslo ea for $5,600]
13 Chemicals
IS Custom hire
IS Feed purchased
11 Fertilizers and lime
20 Freight and truckmc
21 Gasoline, fuel and oil
22 Insurance
23 Interest
Mortgage
24 Labor hired
38 Total expenses
expenses by the number of cwt sold for the year, which can be figured by adding up the pounds of milk
sold as recorded on the milk check receipts In Amos King's case the expense total was $95 448, divided
by 6800 cwt of milk which equals $l4 04, which is his cost of production per cwt of milk
To figure out the cost per cwt of each expense separately, just divide the total for each expense
by the total cwt of milk sold (Keep in mind that family living expenses are not included when using the
Schedule F form figures)
T o see what the total income per cwt was for the year, divide the amount on line 11 of the Schedule
F form by the total cwt sold The figure on line 11 might not include cull cow and calf income, depending
on how the accountant fills out the form so make sure that income is added in
GREETINGS OF
> .Vsr
PEACE
Let’s worship the ONE who
gives meaning to this season.
n automatic
farm
systems
Ififn IA * 608 Evergreen Rd.
{[•III V Lebanon, PA 17042
tS? (717) 274-5333
How and Why to Figure the Cost of Production
2295
22.153
2257
435
2849
3431
35 $95,448
&
• Machinery
bother (landl
Repaira
Utilities
Veterinary etc
[bedding, etc
Other
M Cedar Crest Equipment
Two Convenient Locations
3041
1493
9468
8139
CRAFT-BELT
CONSTRUCTION INC.
FARM-HOME BUILDING
1242 Breneman Road
MANHEIM, PA 17545
PH: (717) 665-4372
BUILDING & REMODELING FOR—
DAIRY RESIDENTIAL
SWINE POLE BUILDINGS
BEEF STORAGE
608 Evergreen Rd.
Lebanon, PA 17042
(717)270-6600
1-800-646-6601
Here is a companson of three herds in graph form
I Bnmcm
■lull
*IH j
tl« 4
1401 4-
ISM -
17 M -4
II M i
Ame*ua|
OMrM*
Note "Feed Cost" includes chemicals, custom hire, purchased feed, fertilizer, lime, seed, and gas "Debt
Repayment" includes depreciation, interest and rent "Other" includes supplies, utilities, vet, breeding,
bedding, hauling, insurance, labor, repairs and any other expenses
From these figures we can see that the cost of production is too high in all three herds These farmers
have two options (a) Hope the pnce of milk goes up, and if it doesn't, they will probably sell out, or (b) Find
a way to lower their cost of production
Let's try making one change in each herd and seeing how it affects the cost of production
For Amos, let's assume the reason his milk production is at the level of 17.000 lbs. per cow for 40
cows is that his cows don't always have lots of feed in front of them Amos decides that he doesn't mind
taking trough sweepings out to his heifers, and because he now feeds his cows more, his milk production
goes up to 20,000 lbs per cow He is still able to feed his cows for $4.50 per cwt, but now sells 8000 cwt
of milk instead of 6800.
David's debt is what makes his cost of production so high The rest of his costa appear reasonable
His debt is fixed over 15 years. He decides to buy some cows, increasing the herd to 50, which means he
sells 10,000 cwt milk per year. He pays $12,000 for the cows, which adds $1,200 to his interest payment
and $2,000 more for depreciation. His purchased feed goes from $3 08 to $3 30 per cwt because he now
also has to buy some forage
David might have been able to avoid this situation by doing some projections before he signed the
loan. We will write more on this subject in a later article and would appreciate any suggestions or examples
readers would like to share with us.
Roy has a high herd average, but his feed costs are way too high He decides to quit feeding some
of those expensive "super feeds” that his feed man sells After all, he figures, what good does a high herd
average do if you aren't making a profit? He drops his feed cost to $4.50 percwt, losing a b.t of production,
which means he probably was getting a small response to his "super feed," but not enough to make it
worthwhile
Here's what the charts look like after these changes have been made
■ ftHtM
D®eW*we*ee
■ ••et
•••i (•(
There are many different ways to lower the cost of production so that the farm becomes profitable
But first it is necessary to figure out what the costs are and compare the total expenses per cwt to income
per cwt Those figures will pinpoint where the money is going and how much profit or toss there is Then
the farmer can decide what options he has calculating what affects certain changes will have on the totals
and make whatever adjustments are necessary to make a profit
As always we invite readers to send us their idea.' and experiences so that we can all learn from
them
KEN CLUGSTON
(717) 665-6775
NsyHMtoi
NEED YOUR
FARM BUILDINGS
PAINTED?
Write:
Daniel’s Painting
637-A Georgetown Rd.
Ronks, PA 17572
(or leave message)
■■ (717) 687-8262
Unique one-piece, 4-pomt double-edge blade.
Designed for chopping -- no bolt-on sickle blades
Chops newspaper, hay and straw.
Easy and quick to reverse or replace blades.
Hinged deck for easy access to blades.
External bearings on rotor shaft.
Choice of adjustable grates.
Length-of-cut option.
Unmatched serviceability.
Convenient controls.
11, 13, and 14 hp. engines.
Available as stationary chopper.
Available with b.lower and hose or pipes.
Patz financing makes it affordable.
Contact us for a brochures demonstration
Palz
I1«1I T
IMW |
(UN -
Let us give' you a price!
Spray on and Brush
in Painting
/*\
AafetyA
RD 2 Box 271
East Eart, PA 17519
(717)354-0584
□