New Tool to Help You Calculate Your Cost of Production
By: Katie Holzhause and Jeffrey Bewley Printable Version
Knowing your cost of production is an important aspect of running a dairy farm business. Estimating the cost per cow or cost per CWT is way to help farmers become more aware of their overall costs, not just their cash flow.
The University of Kentucky and Kentucky Dairy Development Council have created a tool that allows farmers to calculate their cost of production based on real numbers from their farm. This tool will also allow extension personnel to calculate an average cost of producing a CWT of milk in Kentucky using data submitted by Kentucky dairy farmers. All data collected is anonymous. Data that is submitted will be summarized for benchmarking against other farms data. Once data is available from enough farms, we will summarize this information so farmers can compare themselves to others in the state. No names are included in the Cost of Production program. Farmers across Kentucky are encouraged to participate in the program to help calculate the total cost of producing milk on their own farm.
The cost of production calculator is available online and in a paper format for those participants without internet access. The “lite” paper version may not include all costs to determine the fixed costs, but will provide a starting point to calculate your variable cost of production. By determining the cost of production on your farm, you can see opportunities for improving profitability on the farm and have information to make additional financial decisions about your dairy farm operation. All anonymous data provided will also help calculate numbers for dairy farm profitability across the state.
To begin to estimate your cost of production, you should collect your financial records for the farm for the last year. If you participate in the KY Farm Business Management program, you can use your KFBM data to put into the COP tool. You may also use your personal records from taxes, your on-farm record keeping tool such as QuickBooks, DHIA, record books from the extension office, co-op records of milk shipped, etc. It is important to gather your information so that it is simpler to input into the COP tool.
Once you have your records accessible, you can enter your data into the website or paper form. First, you should input your average number of cows( milking and dry), milk yield, and annual variable costs. The tabs at the top of the page allow you to choose a section to input your data:Variable Costs, Sales, Herd Data, Inventory, Loans, Equipment, and Other Loans are the tabs you can select to enter your information. Once you have entered all your information, you can enter a comment (if desired) and click the submit button. The anonymous data will then be entered into a database for analysis with other Kentucky dairy farms. Remember the more accurate your input information is, the more accurate your cost of production analysis will be.
If you are interested in participating, please fill out the paper cost of production form with your farm records for the last calendar year. You can mail the completed form to KDDC or UK (Katie Holzhause, 400 WP Garrigus Building, Lexington, KY 40546). If you choose to submit online data, the online cost of production calculator is available at: http://www.uky.edu/Ag/AnimalSciences/dairy/decisiontools/cop/cop.htm.