Dairy Enterprise and Crop Budgets for Pennsylvania

By VIRGINIA A. ISHLER and TIM BECK

The dairy industry has experienced many changes and challenges over the past decades. The three-year cyclic milk market no longer exists. In the past producers could rely on the cycle to produce a good, medium, and poor price year. In the past 20 years, 2007 and 2014 generated stellar milk prices, but the periods in between and since 2014 have not been sufficient to maintain competitive costs of production for many dairy operations. This has led to dairies going out of business or switching to alternative agricultural endeavors. For Pennsylvania dairy operations to be competitive nationally, breakeven margins must be sustainable allowing producers to cash flow, pay down debt, and reinvest in the business. The Extension Dairy Business Management Team has been using FINBIN® to summarize financial data and to compare to other state’s numbers. The University of Minnesota houses the financial data. Pennsylvania (PA) and Minnesota (MN) have the largest number of dairy farms represented and will be used for comparison.  

Pennsylvania ranks seventh and MN eighth in the country for the pounds of milk produced annually. The keystone state has 5,430 dairy operations with an average herd size of 89 cows compared to MN with 3,470 herds averaging 180 to 200 cows. Milk production and cow numbers are similar (Table 1). Minnesota has higher acreage devoted to grain production compared to PA, whereas the opposite is true regarding forage production.

Table 1. State dynamics for dairy operations in Pennsylvania and Minnesota for 2020.

Source: USDA NASS 2020 State Agricultural Overview (as of January 2021).

Four years of financial data was summarized using FINBIN® for PA and MN (Table 2). Even though the PA farms generated more income compared to MN, there was a large difference in the expenses resulting in a competitive cost of production for MN compared to PA.  Feed cost per cow explains part of the variation and the other differences are embedded in the overheads. Based on multiple years of analyzing PA herds, feed costs, especially home-raised feeds, are the bottleneck to sustainable costs of production.

The herd dynamics in the FINBIN® database are comparable to what was reported by USDA-NASS. Both states are similar however, the FINBIN® database contains larger herd sizes than the state average coupled with higher annual milk production. Both states had similar milk prices. The differences in cost of production have more to do with the expense side of the equation. Approximately 54% of the milk income from these herds is going toward feed costs. It is not just purchased feed, which can include both forages and grains, but the cost to produce home-raised feeds that can undermine a competitive cost of production.

Tables 3 through 6 list the financial summaries for corn silage, grass hay, corn grain and soybeans. Other forages are not listed since the FINBIN® database had a very low number of entries over the past four years. The financial database shows the same trends as the USDA-NASS report where MN is committing a higher amount of acreage to grain production compared to PA operations where more acreage goes to silage production.

Corn silage and grass hay were the two forages with the most data entries over the past four years (Tables 3 and 4). Even though both states had similar cost of production ($/ton) for silage, the yields were much higher for MN farms, which matches with the USDA-NASS data. Pennsylvania operations are doing a better job at hay production based on yield per acre. Comparing the cost of production ($/ton) for both states, MN can purchase grass hay cheaper (Table 1) than they can produce it (Table 4). Operations in PA however are producing hay much cheaper than the market price listed for 2020. The problem for PA herds is not having ample acreage for the number of animals on-farm. Many times, producers need to purchase grass hay to feed dry cows and heifers. Having to pay $174/ton for hay versus a cost of production of $111/ton can quickly increase feed costs and erode a competitive cost of production for the dairy enterprise.

For grain production (Tables 5 and 6), the cost of production is competitive for both states compared to what the market is paying for corn and soybeans. In the FINBIN® database, MN has much higher yields per acre for corn grain compared to PA, however, the keystone state has higher soybean yields. There are some noteworthy differences in the financial summary for grain production. The PA farms are dairy operations producing grains either to feed on-farm or to sell as a cash crop. The MN farms are probably a combination of livestock and crop only producers. These farms had additional expenses related to storage, handling, trucking, and marketing. This explains some of the higher expense categories on the MN operations compared to PA.  

The Extension dairy business management team has been working with dairy producers for several years analyzing their financial data for the dairy, whole farm, and cropping enterprises. Recently, PA added their data to the Minnesota FINBIN® database. This provides the opportunity for producers to compare their numbers to other PA farms as well as another similar state. The challenge for PA herds is lowering their cost of production to remain competitive with the rest of the nation. This is crucial if the dairy industry is to grow and thrive in the northeast.

Table 2. Four-year average financial summary for Pennsylvania and Minnesota (2016, 2017, 2018 and 2019)

* If a value is not listed, it is incorporated into another sub-category.
Note: Most values were rounded up.

Table 3. Four-year average corn silage financial summary for Pennsylvania and Minnesota (2016, 2017, 2018 and 2019)

Table 4. Four-year average grass hay financial summary for Pennsylvania and Minnesota (2016, 2017, 2018 and 2019)

Table 5. Four-year average corn grain financial summary for Pennsylvania and Minnesota (2016, 2017, 2018 and 2019)

Table 6. Four-year average soybean financial summary for Pennsylvania and Minnesota (2016, 2017, 2018 and 2019)