Strengthening your dairy business for long-term success
Dairy producers across the country are breathing a collective sigh of relief after receiving better milk prices and pandemic relief from USDA. These two factors have gone a long way to rebuilding the capital and liquidity base of dairy operations that eroded significantly in recent years.
So now is the time to keep a keen focus on business results to position your business for what is predicted to be a volatile and uncertain future. Here are several practical steps you can take that are within your control.
Keep financials up-to-date
Making sure you have a reliable set of accrual financials for your business is a great place to start. Monitor the actual performance of your farm against the budget forecast and look to the coming months and anticipate shortfalls in cash flow.
Interest rates continue to be at unprecedented low levels. Lock up long-term fixed rates. This will help to store earnings away on your balance sheet that you can access in the future.
The largest expense for dairy is feed, which generally is the first cost to be evaluated.
Experts would caution you against eliminating any feed ingredients, as that could impact production performance. While this is sound advice, many producers need to carefully review their feed costs, as they represent 40 to 50 percent of the dairy farm’s expenses. Make a careful evaluation of ingredients.
Think through investing decisions
You may consider capital investments that have been delayed the past few years, but be sure they meet the test of increasing revenue, lowering cost or improving efficiency.
One option dairy operations are looking at is formulating your ration to maximize the combined amount of butterfat and protein sold per cow per day. It is a step forward in efficiency, for the market rewards producers that sell high-component milk. In addition to generating more money, it also yields healthier cows.
While most every dairy business has a good inventory of replacement heifers on hand, be sure not to raise replacements in excess of the farms’ needs. We encourage you to work with your consultant, lender and reproductive specialist to understand what the replacement needs are for your dairy operation.
Expand marketing knowledge
Today’s market prices may provide a good opportunity for profit, but you must protect available prices and not take on the uncertainty of being open to the market. This can be accomplished by using the new risk management tools like DRP and DMC. Taking time to work with marketing, insurance and business consultants to understand how these tools work to manage price opportunities will pay dividends.
Keep your lender informed
Your lending experts can often provide insight, plus tools and resources to help you effectively manage your finances during uncertain economic times. Lenders will welcome candid discussion. It is also an excellent time to provide year end financials, next year’s budget and capital investment plan to your lender so they can proactively identify solutions tailored to your situation.
Steele is a senior dairy lending specialist with Compeer Financial