Dairy Sense: Yield Determines Crop's Cost of Production

May 2023

Production perspective

A successful cash flow plan for dairy operations relies on the strength of the cropping enterprise. Quality is important in relation to how cows will perform and is instrumental in generating milk income. Quantity produced is key for keeping feed costs in line for the dairy business. However, yields are significant to the cropping enterprise as that defines whether the feed produced is at a lower price compared to what the market is offering. As preparations begin for planting and harvesting, it would be worth examining any bottlenecks to the cropping program’s performance.

The extension dairy business management team has focused on analyzing the cropping enterprise over the years coupled with the dairy enterprise. Table 1 compares farms averaged over a five-year period spanning from 2016 through 2020. The top and bottom 40 percent of the total farms analyzed were compared for soybeans, corn grain and corn silage. Typically, there is the assumption that the lowest performing operations are overspending on direct or overhead costs. The reality is yes and no. If evaluating the costs alone, there is little difference between the high profit and low profit farms. It is the amount produced that determines the profitability. For example, corn grain had similar input costs for both profitability groups, however, the bottom group lost $151/A compared to the top group that netted $450/A. The top performing farms are producing substantially more feed compared to the bottom group, which allows the costs to be spread out over a larger volume.

A major goal of the cropping program is to produce feed cheaper than what can be purchased on the open market. For soybeans, the average market price was $9.03, and it cost the bottom 20 percent $9.05 to produce. With corn grain, the bottom 40 percent costs averaged higher than the market price for those years (Table 1).  The bottom groups for both soybeans and corn grain would benefit from discussions on the merits of using the acreage for another crop such as forage and possibly purchasing their corn and beans.

Corn silage was not as dramatic on unit costs compared to market price. The bottom group still produced forage at a somewhat competitive price. The big difference comes from the net return per acre. The bottom group netted almost $18/A versus the top group at almost $800/A. The underlying question is “What are the high profit farms doing consistently to generate high yields?” Management of time and labor are probably the big factors making a difference because all profit groups are spending about the same for input costs. When a producer can visualize the impact yields have on their bottom line, then the conversation can begin on strategizing change. What happens in the cropping enterprise has a ripple effect on the dairy and the whole farm system. It is worth examining the obstacles to obtaining high yields.

Source: Extension dairy business management team, Penn State University, 2023.

Note: Market price is from the Penn State Feed Price List. Cost of production data is from FINBIN (2021). Center for Farm Financial Management: University of Minnesota. Retrieved from FINBIN