Benchmarking helps farmers track progress

DBA board president Greg Siegenthaler

Dairy farmers can use benchmarking to see where they stand against their own prior performance, comparable farms or the industry average, Dairy Strong attendees learned during a breakout session.

Jim Moriarty, vice president of ag lending-dairy for Compeer Financial, said farmers can use benchmarking to their advantage.

“Benchmarking can support and sharpen your management focus,” he said.

The first step in benchmarking is developing a set of results that you want to compare, such as milk mailbox price, equity to asset ratio, net earnings per cow, interest expense ratio or milk cost of production. The second step is to then track those results over several years.

“Benchmarking is all in the details. Be consistent where you are putting the costs each time, so you don’t place a certain cost one time in one category and the next time in another category,” Moriarty said.

As an example, if you place hoof trimming one time in animal health, make sure you always put it in that column and not place it the next time in labor.

“If you have unreliable data, you’ll have skewed benchmarking,” Moriarty said.

Curtis Gerrits, a senior animal ag lending specialist-lending for Compeer Financial, said farmers need to understand the numbers they are looking at.

“You need to have reliable sources of data. Look to your accountants, lenders, dairy consultants and nutritionists and look at the financial records to gather the numbers and if you don’t understand them, be sure to ask questions,” he said.

Once you have reliable data, make sure the performance is measured in the same way, whether it’s per cow, per hundredweight or for the whole enterprise.

“You definitely need to know the type of information you’re looking at when you’re looking at the numbers,” Gerrits said.

Moriarty said every farm is different with its own strengths and areas it can improve on.

“You can analyze the trends you see over time as long as your timing is the same — you’re looking at the same quarter, the same timeframe,” he said.

Looking at industry benchmarks, Moriarty said a lot can change depending on different practices. For example, does the farm purchase its feed or does it grow it all? That answer may dictate how your farm’s numbers look against the industry average.

The same goes for the farm’s size.

“A farm’s labor costs is directly influenced by the number of enterprises that a farm has — do you have heifers that need to be cared for? Are you cropping? Labor is one of the bigger factors in growth plans,” Moriarty said.

Benchmarking is not a one-time event, Gerrits said.

“You need to take time to revisit your plan and update it,” he said. “If you understand your benchmarking data set being utilized, are consistent with data collection and recording and leveraging your professional team, you’ll be able to see where you are and where you stand against the industry average.”