Lancaster Farming. Saturday, July 4, 1998-A27
f== l \ 'O' Well-managed smaller farms, with larger margins of profit per cwt of milk, may be able to survive
J economic downturns better than a larger farm operating with a smaller margin of profit Note larger (arms
J t don’t necessarily have smaller margins of profit However, smaller margin of profit may result because ot
W p f~ a recent expansion that involves larger debt payments See Table 1
I, - M Table 1 Profit Margins vs Size (18,000 lb of milk per cow)
N DAIRY FARM r
I 50-Cow Herd and I 100-Cow Herd and
\ Larger Margins Smaller Margins
jW MANAGEMENT Descnntion Farm Cow Cwt Farm Cow Cwt
"/ D A CTPC \\ Cwt milk shipped 9,000 18,000
/ \ ' Original profit ($30,000) 30,00 600 333 30,000 300 167
/ _ , \ $ 100 milk puee drop 9.000 180 100 18.000 180 J_oo
/ A Farm Management Course by \ Revised profit 21,000 420 233 12,000 120 067
The last article looked at how farming methods can affect farm profits This week we will focus on size of ,
business and its impact on farm profits and profit margins Getting better might be more profitable than expanding - - at east until the expansion loans are paid ott
Situations will vary a lot from farm to farm, so push the pencol and use your own figures The mam point
is consider profit margins as well as size, try not to let profit margins shrink to the point where you
become extremely vulnerable to even the slightest changes in costs (i e teed) or returns (i e milk prices i
If you do expand, get better before gettm bigger, and be sure you are capable ot managing a larger
operation
Consider what size business you are capable of managing As you get larger, remember you start
managing more people, and you manage them differently than cows
Getting better before getting bigger has many advantages, especially when cash flow and equity are
limited It requires less capital, it is less risky, and a smaller operation is easier to manage
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In this example, both farms had the same original profit of $30,000 Then, milk price dropped S 1 00 per
cwt The larger farm experienced a larger drop ($lB,OOO vs $9,000) because it had more cwt's of milk
to take the hit Consequently, the larger farm ended up with less profit ($ 12,000 vs $21,000) A second
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