29 Pork News & Views Better Pork | February 2024 February 2024 Using benchmark data to help with cost of production planning The Ontario Farm Financial Analysis Summaries (OFFAS) uses information from the business risk management programs to help provide you with an overall financial picture of the swine sector. By using benchmark data, the OFFAS can help you make decisions while cost of production planning. Table 1 shows how the standardized reporting format breaks down farm expenses into five categories, showing the costs included in each category. Financial data from specialized farrow to finish (F-to-F) and finishing operations are summarized using the standardized financial reporting format. In Table 2, you can see the data of all farms in the BRM program and the top 25th percentile sorted by EBT (percent of farm revenue). These are updated annually, and the five-year averages have remained consistent over time. Reporting costs as a percent of revenue measures financial efficiency and reflects both changes in revenue and costs each year. In Figure 1 below, you can see the movements of the farm input price index and market prices and how they influence profit margin. From 2012 to 2021, input prices were steadily increasing while market prices were much more volatile. As expected, there is a strong relationship between profitability and market prices. In Table 3, you will see an example of how to use the F-to-F benchmarks and turn them into earnings per head numbers. In the first Figure 1: Impact of input prices and market prices on F-to-F profit margins (2012-2021) Farm Revenue Revenue from farming operations Cost of Goods Sold (COGS) Feed, livestock purchases, veterinary, breeding, crop inputs Direct Operating Expenses Operating labour, fuel, repairs, custom work, marketing costs, trucking Operating Overhead Expenses Utilities, insurance, office, professional fees, management labour Annual Cost of Capital (ACOC) Depreciation, leases, rent, property taxes Interest Expense Operating and term loan interest Net Farm Income: Earnings before taxes (EBT) Farm revenue minus all costs F-to-F F-to-F Top 25th* Finishing Finishing Top 25th* Cost of Goods Sold 56% 47% 74% 74% Direct Operating 19% 15% 13% 13% Operating Overhead 3% 2% 2% 2% Annual Cost of Capital 11% 11% 8% 8% Interest 3% 2% 1% 1% EBT (Profit Margin) 11% 22% 2% 2% Table 1: Standardized Farm Financial Reporting. Table 2: Five-year average financial results (2017 to 2021). *due to rounding, numbers may not add precisely
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