Use your tax information to calculate true cost of production

Posted on February 16, 2021 in Dairy Goat Performance
By Sarah Adamson

It’s tax season.  Whether you dread it or enjoy it, one benefit of tax season is it provides you with an opportunity to break down and itemize your expenses.  Completing this process provides you with valuable insight into your true cost of production.

True cost of production includes more than just the costs to purchase grain and hay for your lactating herd; it encompasses every expense related to raising a productive dairy goat herd.  Among many things, it includes costs related to milk replacer and youngstock feed, bedding, farm loans, gas for equipment, the farm’s share of electricity and insurance, veterinarian visits and treatments, milk house supplies, weekend help, etc.  All these various expenses, which can be tracked using your Schedule F tax form, need to be considered to give you the most accurate cost of production.

Once you know your true cost of production, you can calculate how much each goat needs to produce to pay for their portion of the farm.  This is a key part of good management because it will help you make better culling decisions, choose better replacements and be more financially successful.  After all, if your lactating herd isn’t paying for these expenses, who is?

To calculate your average cost of production per goat, you need to add up the costs related to the various expenses listed in this article, and any others you determine to be important to your production, and divide that total by the number of goats in your lactating herd.  For example, if the cost of all farm expenses in 2020 was $150,000 and you milked an average of 250 goats, then the average cost of production per goat would be $600.  That is the lowest amount of money each goat must make each year to cover their cost of production, but how many pounds of milk is that?

To calculate that number, take your average cost of production and divide it by $0.38, which is the average price per pound of milk in 2020.  If we use our previous example, then $600 per goat divided by $0.38 equals an average of 1,579 pounds of milk per goat.

While that number will vary due to several factors, in this scenario, each doe will need to produce around 1,579 pounds of milk per year to breakeven.  It’s also important to remember these numbers don’t include a personal paycheck or living expenses.

Your creamery should send you a year-end production report that will tell you how many pounds of milk your herd produced last year.  If you take that number and divide it by the average number of goats you milked that year, you will get your rolling herd average (RHA).  How does your RHA compare to the amount of milk you need to produce to breakeven?  If it is higher, then you are likely covering your cost of production.  If it is lower, you may need to take a closer look at your expenses or make some decisions regarding your lower-producing goats.

Knowing your true cost of production is an important part of making sound management decisions and being financially successful.  Talk with your Vita Plus consultant if you have any questions or need help calculating your true cost of production.

About the author:  Sarah Adamson grew up on her family’s commercial dairy goat farm in southern Wisconsin.  She attended the University of Wisconsin-Platteville and received her bachelor’s degree in animal science, with an emphasis on dairy science.  Adamson spent time as a manager on an 8,000-head dairy goat farm before joining Vita Plus in 2018.  As the Vita Plus dairy goat specialist, Adamson is responsible for product development for the entire dairy goat program as well as technical support for field staff in the Vita Plus market area.

Category: Business and economics
Dairy Goat Performance