Helping Farmers Know Their Bottom Line
By: Alayna DeMartini, Ohio State University
In this rural town, a short drive from Canton, Ohio, Mark Thomas had been running a 400-cow dairy farm for years.
That, plus row-cropping 2,000 acres, kept him outside, where he wanted to be most days. But the number-crunching side of his job—tabulating production costs, losses, and inventory—never thrilled him. He and his wife, Chris, made money, sure. They paid their taxes on time, always. But for a while, they weren’t able to keep as close a watch on their production costs as they could have. And though profits for milk have dipped in recent years, they kept on milking.
Last year, they stopped. Selling off their herd of Holsteins, they switched to raising heifers while continuing with cultivating corn, soybeans, and wheat. While it was tough to watch the milking cows leave their barn for good, the Thomases had the financial projections and analysis to show that it was likely the right move.
They used information from several years of analysis done through the Ohio Farm Business Analysis and Benchmarking Program in The Ohio State University College of Food, Agricultural, and Environmental Sciences (CFAES). Partly funded by a grant from the U.S. Department of Agriculture, the program assesses the financial health of a farm operation and generates reports that compare the operation to other comparable Ohio farms.
A decade ago when the Thomases first participated in the program, they had to dredge up a lot of receipts, bank statements, and loan information from a couple of years earlier.
“I’ve said before that I’d rather go through a colonoscopy or a tonsillectomy without anesthesia than go through that again, but we were a whole lot better as a result,” Mark Thomas quipped.
Since he first participated in the program in 2009, Thomas has been able to make informed decisions that put his business on a better track, the shift to raising heifers being the most recent decision.
At a time when national farm income is down, on average, and uncertainty abounds about how tariffs might affect foreign demand for corn and especially soybeans, it is invaluable for Ohio farmers to know their production costs in every part of their business. The business analysis program is designed to help Ohio farmers achieve financial success. Helping farmers in this way is one of the main reasons land-grant institutions such as Ohio State were created.
Ohio is home to 75,462 farms, and 83,491 people work in the state’s production agriculture sector, according to the most recent data from USDA and CFAES reports. The Ohio Farm Business Analysis and Benchmarking Program is just one of many programs to assist the state’s farmers so that they can continue pursuing, and making a sufficient profit in, what they’re most passionate about.
“We don’t always have good news for the farmer,” said Dianne Shoemaker, a dairy specialist with Ohio State University Extension, the outreach arm of CFAES, and manager of the business analysis program. “But the benefits a farm receives from doing an analysis each year include seeing what is going well and identifying issues that need to be addressed in a timely manner.”
Most farmers do cash-based recordkeeping, tracking money coming in and going out, so they might not separate out the contributions and expenses of each individual venture—such as livestock, dairy, or crop enterprises, Shoemaker said. The accrual adjustments used in the business analysis program take into account inventory changes and income and expenses when they occur, regardless of when the cash is exchanged.
More often than not, farmers juggle multiple ventures: raising crops and (possibly) livestock, selling seed, and/or running a pick-your-own produce business. Keeping track of exactly what each of those enterprises is adding to—or taking away from—the business is critical, Shoemaker said.
“It helps farms identify where they’re making money and where they have opportunities to improve,” Shoemaker said.
Any business that participates works directly with a technician who helps the business collect the necessary information and generates the farm analysis. In addition to providing the relevant reports, Shoemaker and the technicians work with the farm’s business owners to interpret and apply the results they see.
Getting a report that compares a farm or enterprise to comparable farm businesses can enable a farmer to know whether he or she could or should take a different approach to become more profitable.
“Sometimes farmers have to decide to discontinue an enterprise or sell a farm business, which is always sad, but they are able to make the decision with full information,” Shoemaker said.
The Thomases knew their milk production business wasn’t doing well. At first, they changed what they fed the cows to produce milk that was higher in fat and protein, milk that earned them more. Later, even that wasn’t enough. So, the Thomases decided to sell off their herd in June 2018 when they suspected it would be a good time.
“Then,” Mark Thomas said, “there was a solid market for the cows.”
For more information about the Farm Business Analysis and Benchmarking Program, visit farmprofitability.osu.edu or email Shoemaker at [email protected]
Mon, 04/08/2019 – 11:15
Cows on pasture.
Source: Dairy Herd