Employing dairy business tactics for success
After four years of operating in survival mode, now might be a good time to review your business strategies. Here are areas to address for enhancing business success.
Reassess your risk management strategy
When it comes to risk management, the goal is all about protecting the business against downside risk, not just about maximizing prices. The new farm bill contains better dairy risk management options than any previous bills.
The dairy margin coverage program (DMC)— With the improved hay price formula and the $9.50 maximum margin over feed cost for the first 5 million pounds, DMC is much better than the old margin protection program.
The indemnity for the first five months of 2019 is more than $1.00 cwt at the $9.50 coverage level. This year's payment will cover the premium for the length of the program.
The dairy revenue protection program—This is another new insurance program allowing farmers to place a floor under their milk price for a very reasonable cost. An improved dairy livestock gross margin (LGM) program is also still available for farmers to use.
Another positive change is farmers can participate in both programs, simultaneously. The programs are not designed to guarantee a large profit, but will help stabilize income during low prices.
Review your financial position
Many farmers have borrowed their operating lines of credit to the limit and have been paying interest only on some loans. Farmers also have refinanced accounts payable such as feed and veterinarian bills into longer-term debt.
Now is a good time to meet with financial advisers and lenders to review financial position and develop a plan to get finances back on track.
Evaluate where to best invest profits
- Catch up on equipment, facility maintenance first.
- Review list of potential new investments
- Focus on investments to have a rapid return.
- Avoid purchasing equipment just to avoid taxes.
- Work with tax consultant on ways to minimize taxes without jeopardizing longterm financial position.
Review operational efficiencies
For a farm to be successful over a long period, it must control costs and focus on keeping a higher percent of each dollar of income. One of the biggest drivers for high profit farms is higher profit margins.
Continue to focus on operational efficiencies. This includes practicing good cost control and focusing on all the little details that, when added together, make a big difference in profitability.
Develop, use a trusted team of advisers
A good relationship with trusted advisers can be a major component in your business success. Having regular management meetings will help them understand your business to better meet your needs.
Take time to smell the roses
It has been a long run of low prices. Many farms have minimized time off and worked overtime to try to keep the business afloat. If there is some extra money, don't be afraid to reward yourself with enjoyable activities.
We all need time off for our mental health and will come back refreshed and better able to deal with challenges as they come along.
Salfer is a regional dairy educator for the University of Minnesota Extension, St. Cloud., MN.