great lakes dairy sheep symposium - the Department of Animal ...

SHEEP DAIRY FARM ECONOMIC ANALYSIS – COST OF MILK PRODUCTION
Introduction
Tom Kieffer and Dan Guertin
Wisconsin Sheep Dairy Cooperative
Strum, Wisconsin, USA
In 1996, the Wisconsin Sheep Dairy Cooperative (WSDC) was formed with an initial
membership of 26 farms. Of these farms, only 6 farms were actually milking sheep. The
remaining farms were in various stages of planning and/or setting up to milk. The primary
question asked by the initial members was, “How much will I be paid for my milk?” In the
ensuing 10 years, this question continued to be asked by everyone interested in either joining the
co-op or setting up an independent sheep milking operation. Of the original 26 farms, 6 farms
are still actively milking members of the WSDC. Three other farms became independent
farmstead operations and are currently making their own sheep milk products. The remaining 17
farms went out of the sheep dairy business. The reasons for farms not succeeding are varied,
some because of health issues, some because of lack of labor, but most because they were not
able to make enough money milking sheep. Over the last 10 years, the co-op has had
approximately 20 additional individuals who tried, or seriously investigated, sheep dairying. Of
these, 14 have ended up leaving the sheep dairying business.
Approach
The question of why some farms succeeded and others failed has been contemplated by the
WSDC Board of Directors for a number of years. All of the member farms were being paid the
same amount for their milk, yet some were able to cash flow their operations and other weren’t.
Trying to elucidate this answer has been very complicated because no two farm situations are the
same. Some farms had additional sources of farm income beside milk, some farms carried heavy
debt loads, some farms were milking 50 or fewer sheep while others were milking 300+ sheep,
and each farm had different levels of direct and indirect costs.
Since the Great Lakes Dairy Sheep Symposium is focused on sheep dairying, this
presentation is focused on developing a standardized system for recordkeeping and determining
the direct cost of milk production. The approach we have taken is to segregate the various direct
costs in a typical sheep dairy operation into ‘standardized’ categories, and then to address each of
the categories related to the direct cost of milk production. Clearly, if a farm is being paid
$0.55/lb of milk, but is spending $0.60/lb to produce the milk, the farm will not be viable over
the long term.
We wish to clearly state at the outset that we fully realize that by focusing only on the direct
cost of milk production, a farm will not be able to predict success or failure. We also realize that
each farm may allocate direct and indirect costs differently across multiple farm enterprises for
tax and overall farm budgeting purposes. The goal of establishing a standardized method for
calculating the cost of milk production, in isolation from the rest of the farm operation, is to
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