Dairy farm financial model: revenue, feed and cash flow

A dairy farm financial model connects milk sold, realized prices, feed and herd costs to monthly operating results and cash. Begin with the farm's production records and settlement statements, then add the expense ledger and scheduled cash payments. Keep accounting profitability and available cash as separate outputs.

Assemble the records around one period

Use a monthly workbook for a commercial dairy operation. Bring daily or monthly milk records, processor statements, feed purchases and inventory records, payroll, veterinary and bedding expenses, other site costs, equipment payments and opening bank balances.

Keep a period field on every source. Milk produced, milk shipped and milk paid for may have different dates. Revenue should follow the reporting basis the controller uses, while the cash schedule should follow expected or actual receipt dates.

Assign an owner to each driver. Farm operations approves productive cow counts and supplied yield assumptions. Procurement or the farm manager owns feed spending and inventory movements. Finance reconciles milk settlements, ledger classifications and cash. FP&A reporting puts that driver review into the wider management reporting cycle.

Outside data can check whether an assumption deserves investigation. USDA ERS publishes milk cost estimates by state and operation size. Those are reference points, not replacements for the farm's invoices, production mix or approved operating plan.

Build the production and expense inputs

The following invented US dairy has a 30-day planning month. Plan and actual both assume no feed inventory movement and no receivable or payable movement. Listed revenue is collected and listed cash expenses are paid in the month. That makes the first cash reconciliation transparent.

Put labels in A, plan in B and actual in C:

Here, cwt means a hundredweight of 100 pounds. Realized milk price includes the statement's premiums and deductions; expenses already deducted in arriving at that price are excluded from the separate cost rows. Other operating sales could include manure sales and should have their own supporting records.

For another operation that converts physical output into revenue, the wind farm financial model uses a different set of production drivers. Do not borrow its units or cost assumptions for a dairy.

Calculate the monthly result

Use these spreadsheet formulas and copy column B across to C:

B14 = B2*B3*B4
B15 = B14/100
B16 = B15*B5
B17 = B16+B6
B18 = B17-SUM(B7:B10)
B19 = B18-B11-B12
B20 = B13+B19

The references before the equals signs identify the output cells. Preserve full precision in calculations and round displayed dollar totals to whole dollars.

The operating subtotal is not accounting net income. The example omits depreciation, taxes and other noncash charges. USDA ERS documentation explains that its economic cost accounts include both cash expenditures and noncash costs, including unpaid labor and other resource costs. Do not compare that broader cost measure directly with this cash subtotal.

Explain the shortfall and check the balance

Actual milk revenue is $5,940 below plan. Split that movement in a fixed order so the effects add back exactly:

Feed spending is another $3,000 above plan. With other inputs unchanged, the operating subtotal falls by $8,940, from $15,500 to $6,560. The same movement reduces closing cash because financing and capital payments have not changed.

The cash proof is $25,000 + $6,560 − $8,000 − $5,000 = $18,560. Tie that balance to the bank reconciliation and trace milk revenue to the settlement records. Feed usage should reconcile opening stock plus purchases less closing stock to the quantity or value consumed.

As a separate sensitivity, hold every planned input constant except feed, increasing it to $52,800. Operating contribution becomes $10,700, cash movement becomes negative $2,300, and closing cash becomes $22,700. This isolates feed exposure from changes in production and milk prices.

For an operational threshold, planned costs net of other operating sales are $79,000. Dividing by 4,500 cwt gives a milk price of $17.56 per cwt to cover listed operating costs, rounded to cents. Including the $13,000 of financing and capital payments raises that simplified cash threshold to $20.44. Neither threshold is an accounting profit margin or a universal target.

Where it goes wrong

• Pounds mixed with hundredweight. Convert the quantity before multiplying by a price per cwt.
• Feed purchases treated as consumption. Inventory building changes cash before it changes feed used. Track both in a fuller working capital schedule.
• Deductions counted twice. Hauling or other statement deductions belong in the price bridge or the expense rows according to the chosen basis.
• Noncash costs mixed with payments. Keep depreciation and internal resource charges identifiable when reconciling profit and cash.

Compare your dairy workbook in Covirage

Upload your production, milk settlement and operating expense workbook, or bring a Google Sheet. Covirage maps the columns, its tools compute and check the supplied figures, and the external AI model explains actual results against plan with every figure traced to its rows. Create a free Covirage account, then set up your business and bring a sample of your own data.

See FP&A reporting for the supporting workflow.