This document summarizes a presentation about dairy farm business planning. It discusses evaluating key areas of a dairy farm business, including herd production and health, facilities, and financial position. Specific factors that affect dry matter intake and milk production are examined, such as reproduction rates, udder health, milking frequency, and genetics. Financial ratios for evaluating a farm business's equity, liquidity, solvency, debt service capacity, and profitability are also outlined. The presentation provides tools and programs to help dairy farmers assess their current business and develop plans to improve profitability.

1. Dairy Farm Business Planning Presented by: Tom Armstrong BSc(Agr), DVM, MBA Simcoe County Ag Info Day, Barrie Ontario. January 20, 2006 “ How to take your dairy farm from where it is, to where you want it to be.”

2. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status 2. Facilities 3. Financial Position

4. Dry Matter Intake DMI - most important factor to profitable dairy production - should be > 23 kg - increase DMI by 1 kg = 2.5 - 3 L more milk - maintenance feed cost = $2.00/day - feed costs to produce 1 L of milk = 7 - 10 cents - l L of milk returns 65 cents

5. Quota Loan Cash Flow Analysis (8,000 litres/cow/year)

6. Quota Loan Cash Flow Analysis (8,000 litres/cow/year)

7. Quota Loan Cash Flow Analysis (9,000 litres/cow/year)

8. Quota Loan Cash Flow Analysis (9,000 litres/cow/year)

9. Factors Affecting DMI typical cow day - 10 to 14 hrs/day - resting - 1 additional hour lying = 1 kg milk - 5 to 6 hrs - eating - average 11 meals/day - 2 to 3 hrs - standing/walking/grooming/estrus - 1/2 hrs - drinking - 21 - 22 hrs - total time needed - 1.5 to 2.5 hrs - milking and holding area

20. Tie Stall Dimensions

24. Free Stall Dimensions A B C Width milking 70 72 50 52 lact 1 68 70 48 48 dry 70 72 50 54

36. Factors Affecting DMI social behavior - separate heifers from cows - increase DMI 2.5 kg - cow movements - 2-5% decrease in milk production - over stocking - affect individuals not groups - increase competition - increase submissive cows - submissive cows - heifers, injured, new cows, fresh cows - no change in high ranking cows - low ranking - decrease lying - increased lameness

37. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status litres/cow determined by - DMI - reproductive status - udder health - milking frequency - genetics 2. Facilities 3. Financial Position

38. Reproductive Status Average days in milk - 160 to 170 For every day greater than 160 days in milk production drops .08 litres/cow/day. Example - 100 cows milking - past 12 months ave days in milk 185 185 - 160 = 25 days 25 days x .08 litres/day x 365 days x 100 cows = 73,000 L 73,000 L x 65 cents/L = $47,450 in loss milk sales or 8,000 litres/cow/year - milk 9 less cows

40. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status litres/cow determined by - DMI - reproductive status - udder health - milking frequency - genetics 2. Facilities 3. Financial Position

44. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status litres/cow determined by - DMI - reproductive status - udder health - milking frequency - genetics 2. Facilities 3. Financial Position

46. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status litres/cow determined by - DMI - reproductive status - udder health - milking frequency - genetics 2. Facilities 3. Financial Position

48. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status litres/cow determined by - DMI - reproductive status - udder health - milking frequency - genetics 2. Facilities 3. Financial Position

50. Commercial Break

51. Where Is Your Dairy Farm Business Today? Areas to measure, evaluate and improve 1. Herd Production and Health Status litres/cow determined by - DMI - reproductive status - udder health - milking frequency - genetics 2. Facilities 3. Financial Position

53. Equity How much are you worth? Indicates how much collateral available to borrow additional funds. Equity = total assets (FMV) - total liabilities (*average $2,060,000) * taken from OFMAP Ontario Dairy Summary 2003

54. Liquidity Your ability to pay financial obligations as they come due. - cash for monthly payables, loan payments - safety cushion for unanticipated events - liquid cash for unanticipated opportunities Current ratio = current assets current liabilities vulnerable strong 1 2 (ave .98)

55. Solvency How much you owe vs. how much you own. - ability of the farm to pay off debt if sold tomorrow - indication of financial risk and borrowing capacity - .25 ratio means for every $1 of assets the bank provides 25 cents and the farmer 75 cents Debt to equity ratio = total liabilities equity vulnerable strong 1.2 .4 (ave .25)

56. Debt Service Capacity How much you can afford to pay in loan payments. - indicates if the business can produce enough cash to pay annual principal and interest loan payments - .81 coverage means for every $1 of principal and interest payments the business generated 81 cents Debt service coverage ratio = net accrual income + interest + depreciation - living expense annual principal and interest payments vulnerable strong 1.1 1.4 (ave .81)

57. Profitability Return to assets (investment) - ave. rate of return on all investments since assets composed of equity and debt capital (farm loans) - should be higher than interest rate on borrowed money Return to assets = net income + interest total assets vulnerable strong 5% 2% (ave 4%)

58. Profitability Return to equity - ave. rate of return on owners investment in the business - compare to other investment opportunities Return to equity = net income equity vulnerable strong 7% 4% (ave 3.6%)

60. Dairy Farm Business Planning Where is your dairy farm business today? Where will it be tomorrow, next year, next generation? How will you get your business to where you want it to be?

61. Canadian Farm Business Advisory Services Helps to cover the cost of hiring a qualified consultant who can help you develop your business plan.

62. Farm Business Assessment For a $100 fee, eligible producers can receive up to 5 days of consultation services Farm Financial Assessment : 3 days - review farms past and current situation, discuss objectives and identify options to meet your business goals. Action Plan : 2 days - assess different options to increase profitability with projected cash flows and written business plan. Follow-up : one day consultation the following year to discuss progress.

63. Questions ?