Keeping your dairy operation on a successful path
The year 2020 delivered government intervention in the markets and a roller coaster of milk prices, which affected the strategies and financial performance of many. Yet, despite all that it was a good year for dairy. And that brought healing to farm balance sheets that were negatively impacted from 2016 to 2018.
After a couple of profitable years for many dairy operations, 2021 affords the opportunity for continued success. Many dairy producers have made changes in recent years to how they manage their business. Those changes include:
- Focusing on producing high components
- Continuous improvement in milk quality
- Managing heifer inventories
- Breeding a portion of the herd to beef
- Managing expenses intensively
- Making strategic investments
Many became more astute at creating budgets and projections, and setting operational and financial targets. While several benefitted from a high level of government support in 2020, it is difficult to imagine a repeat of that in the normal course of industry cycles. It is important to continue to manage all aspects of business to ensure success in 2021.
The next couple of months will see the closing of financial information to determine exactly how 2020 ended. Now is the time to concentrate on the 2021 budget for next year, if that hasn’t already been started. Establishing an accurate budget is imperative, including realistic estimates for revenue and expenses to determine cash flow needs.
With an improved financial position and liquidity many operations will likely also look for opportunities to reinvest into their operation. If that is the case, develop a plan for capital expenditures for 2021 and share it with all stakeholders in the operation. Open communication with on-farm team members, advisors, and farm lender are essential to successfully implementing a plan for 2021.
In the last couple of years the net effect of milk prices has been positive. However large inventories of dairy products, increased productivity and a growing national cow herd can potentially pressure prices over the next 12 months. Feed costs also need to be top of mind, as there have already been some big jumps in the corn and soybean markets. Make sure to assess the degree to which financial performance is at risk. Continue to build on the last two years’ results to further strengthen the operation.
No one can predict when the government will intervene in an industry. If government intervention was detrimental to the 2020 strategy, maintain discipline and direction in 2021. And here’s to another strong year in the dairy industry.