Worksheet 1: Calculating Hundredweight Equivalent Production and
Costs of Production
(adapted from work by Gary Frank, Center for Dairy Profitability - Madison, WI)
Line
ITEM
Total Schedule F Income
1
(schedule F, line 11)
2
Form 4797 Income1
3
Change2 in Feed Inventory
4
Change2 in Livestock Inventory
5
Other Changes in Inventory
Total Farm Income
6
(add lines 1 through 5)
7
Average Milk Price3
Hundredweight Equivalent (CWT EQ) of Milk
Produced (divide line 6 by line 7)
8
Total Schedule F Expenses
9
(schedule F, line 35)
10
Change2 in Accounts Payable
11
Change2 in Prepaid Expenses
Total Interest Paid
12
(add schedule F lines 23a and 23b)
Wages and Benefits Paid
13
(add schedule F lines 17, 24, and 25)
Depreciation Claimed
14
(schedule F line 16 minus depreciation claimed on livestock)
Basic Costs of Production
15
[schedule F + inventory changes - interest, wages/benefits, & depr.]
(line 9 plus line 10 minus lines 11, 12, 13, and 14)
One Year Ago
________
Two Years
Ago _______
Three Years
Ago ______
Footnotes for Worksheet 1
1
When Form 4797 contains only income from the sale of culled raised dairy livestock, enter the
income reported. If it contains the sale of purchased dairy livestock and the “one-time” sale of some
other asset(s), such as an old plow adjustments must be made.
In the case of the “one-time” sale, that income must be subtracted from the Form 4797 Total Income
and the new value entered in the worksheet. In the case where purchased breeding livestock is
included, enter the net amount (sale revenue minus purchase costs). This net will take into account
the unrecovered basis that was claimed against this sale.
2
Change equals the ending dollar value minus the beginning dollar value. If beginning and ending
inventory records are available, then take the ending value of inventory minus the beginning value of
inventory and place the value you get in line 2 of worksheet 1. If the value of ending inventory is
higher than the value of beginning inventory then you will have a positive number to put into
worksheet 1 line 2. If the value of ending inventory is less than the value of beginning inventory
then you have a negative number to put into worksheet 1, line 2. Alternatively, you can estimate
inventory change by simply asking yourself if there was any change in the dollar value of this
inventory item during the year in question, i.e, did I have more dollars worth of this item on my farm
at the end of the year than I did at the beginning of the year. If the answer is “yes” then follow with
the question, “how much?” more (less). If the dollar value increased by say $3,000, then that means
that the value of ending inventory is$3,000 higher than the value of beginning inventory and you
thus put $3,000 in worksheet 1, line 2. If you believe the dollar value was $2,000 less then you put
negative $2,000 (-2.000) in worksheet 1, line 2.
3
The price you use, depends on how you are going to use the results. If you want to compare yourself
to others in the industry, then you need to use a common price, say the U.S. All Milk Price per
Hundredweight. This price was $12.27, $13.15, $12.86, $13.03, $12.86, $14.75, $13.36, $15.35,
$14.38, and $12.24 for 1991-2000 respectively (2000 value is only through October).
However, if your goal is to evaluate the change in your own farm’s costs from year to year then you
need to use a price that reflects the average price you received for milk on your farm. To find the
average price for your farm, divide your total milk income (before any deductions for hauling,
marketing, etc.) by the number of hundredweight of milk you sold during the year.
Worksheet 2: Estimating, Prioritizing, and Determining Price Targets to Pay for Costs of
Production and Farm Business and Family Goals
line
1
Expected Hundredweight Eq. (CWT EQ) Production This Next Year1
(use line 8, worksheet 1 as a guide) ------------------------------------------------------>
A
Priority
B
C
Cost or Goal
Estimated Total
Dollars Needed
This Year to
Pay for the
Cost or Goal
(for costs, you can use the actual figures from the last three years
recorded on worksheet 1 as a guide for what next years costs will be
with adjustments for changes in expected prices, operation changes,
etc.
Cost of Production1
Basic Costs (estimate column C based on worksheet 1, line 15)
Interest (estimate column C based on worksheet 1, line 12)
Wages & Benefits (estimate col. C based on worksheet 1, line 13)
Farm Business and Family Goals2
Worksheet 2 Continue on Next Page if Needed
D
Avg. Mailbox Price
Needed on All
Production to Pay
For This Cost or
Goal
(divide column C by CWT EQ
in gray box above)
Worksheet 2 continued if needed
line
1
A
Priority
Expected Hundredweight Eq. (CWT EQ) Production This Next Year1
(use line 8, worksheet 1 as a guide) ------------------------------------------------------>
B
C
Cost or Goal
Estimated Total
Dollars Needed
This Year to
Pay for the
Cost or Goal
(for costs, you can use the actual figures from the last three years
recorded on worksheet 1 as a guide for what next years costs will be
with adjustments for changes in expected prices, operation changes,
etc.
D
Avg. Mailbox Price
Needed on All
Production to Pay
For This Cost or
Goal
(divide column C by CWT EQ
in gray box above)
Footnotes for Worksheet 2
1
Worksheet 1 shows the value for the last three years. Use these historical values to estimate the
value for the coming year. Adjust for increasing/decreasing costs and prices, more/less expected
production, operation changes, etc.
2
The “Farm Business and family Goals” section is a place for you to state what farm business goals
you want the dairy business to pay for. For example, farm business goals might include asset
replacement, equity for expansion or remodeling, new calf barn construction, new TMR, etc. Items
can be broken down into smaller parts or aggregated as much as you wish. It is your plan so
structure it in what ever way works best for you. For example, asset replacement could be one line
and its cost could be estimated using the depreciation claimed on line 14, worksheet 1. On the other
hand, you may want to break down asset replacement into the bottom line cost of maintenance that
you have to bear just to keep the barn standing so to speak, versus asset replacement that goes
beyond merely a maintenance need. In the end, do what works for you.
In addition, this section is a place to state what family goals you want the dairy business to pay for,
such as family living essentials, Mom’s new kitchen, 25th wedding anniversary trip, college
educations, etc. Typically, a cash flow statement will have these types of expenses lumped together
in a line item titled “family living”. You may choose to leave family goals as just one item called
“family living”. However, if there is certain family living goals that have a higher priority than
others, then worksheet 2 provides a means to account for those priorities and plan your marketing
accordingly.
Worksheet 3: Putting It All Together To Determine What Average Mailbox Milk Price I Need On All Production to Pay My Costs and Meet Other
Farm Business and Family Goals - In Order of Priority
A
Priority
(from
wrsht. 2
col. A)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
B
C
D
E
F
Name of Cost or Goal
From Worksheet 2, Column B
Estimated Total
Dollars Needed
To Pay for This
Cost or Goal
Cumulative1
Total Dollars
Needed To
Meet All
Costs/Goals To
This Point
Avg. Mailbox
Price Needed On
All Production
to Pay For
Cost/Goal
Cumulative1
Mailbox Price
Needed on All
Production To
Meet
Costs/Goals
{put in order of priority based on worksheet 2
column A}
(worksheet 2, column C)
(worksheet 2, column D)
Worksheet 3 continued if needed
A
Priority
(from
wrsht. 2
col. A)
B
C
D
E
F
Name of Cost or Goal
From Worksheet 2, Column B
Estimated Total
Dollars Needed
To Pay for This
Cost or Goal
Cumulative1
Total Dollars
Needed To
Meet All
Costs/Goals To
This Point
Avg. Mailbox
Price Needed On
All Production
to Pay For
Cost/Goal
Cumulative1
Mailbox Price
Needed on All
Production To
Meet
Costs/Goals
{put in order of priority based on worksheet 2
column A}
(worksheet 2, column C)
(worksheet 2, column D)
16
17
18
19
20
21
22
23
1
To find the cumulative value, add the previous cumulative total to the column C (or column E) value in that row. For example:
Column Column Column
A
C
D Calculation
1
20,000
20,000
2
10,000
30,000
3
7,000
37,000
4
11,700
48,700
[0 + 20,000]
[20,000 + 10,000]
[30,000 + 7,000]
[37,000 + 11,700]
Worksheet 4: Summarizing Price Targets
Your completed worksheet 3 contains significant information about the financial needs of your dairy operation
including a detailed accounting of your production costs and other farm business and family goals that you are
asking the dairy to pay for in priority of need. Further, you have determined both the total dollars needed to meet
these costs and goals and the average price you need on this year’s production. These price targets are valuable
information for heading into the development of a marketing strategy. However, while very useful to see what
price is needed to accomplish each individual cost or goal, it is difficult to deal with this many different targets.
Worksheet 4 asks you to aggregate or lump together cost or goal items that have a somewhat common priority
need to be met. To use a car analogy, worksheets 1-3 provided the tools to 1) break down or disaggregate that car
into all its component parts including drive shaft, chasis, engine, radio, power steering, cloth seats, power
windows, and sun roof, and 2) prioritize which parts are the most essential versus those that it would be nice to
have but are not essential for getting from point A to B. Worksheet four now asks us to lump together or
aggregate those items that have similar priority. For the car, it might be that drive shaft, chasis, and engine are top
priority and are the very minimum of what your new car needs to include; radio and power steering are second
priority and can be considered a part of your basic requirements; and in 3rd priority are cloth seats, power
windows, and sun roof which would be a great optimistic goal for your new car.
The following steps will reduce your price targets from worksheet 3 to a more manageable number. This can be
done in a number of ways, but following is one method.
1. Go back to worksheet 3 and identify and draw a line between the categories listed below. An attempt has
been made to give the categories a descriptive name. You may want to change that name, or even change the
description or number of categories to suit your specific needs. The marketing plan is personal and thus you
should organize it in such a way that it works for you. Following is one model you could use.
-
-
-
[Minimum] Those costs and goals that at a minimum, must be met. This group of items are the essentials
that must be paid for this next year, i.e., the operation and/or family cannot continue into next year if
these go unpaid.
[Basic] Those costs and goals that you consider should be paid under “normal” profitability conditions,
i.e., if these items were paid for, you would consider the year to have been a success (you would have a
successful operation and good life if on average you could pay for these items year in and year out).
[Optimistic] This is the “wish list” of costs and goals that you would like to pay for, i.e., you don’t expect
the dairy to be this successful on average, but you would be ecstatic if it was.
2. After drawing the lines on worksheet 3 that separates the overall priority categories of minimum, basic and
optimistic needs (or your own designations), complete the following table.
A
B
C
D
Mailbox Price Target:
Category of
Costs/Goals
Cumulative Total
Dollars Needed To
Pay for this
Category of
Costs/Goals
Total Dollars
Needed Per Month
To Pay For This
Category of
Costs/Goals
(worksheet 3, column D)
(column B  12)
Cumulative Mailbox
Price Needed on All
Production To Pay
for this Category of
Costs/Goals
(worksheet 3, column
F)
Line
1
2
Minimum
3
Basic
4
Optimistic
5