“The highs will be higher and shorter, the lows will be lower and last longer than the highs.”
This general summary of what dairymen can expect in the future was predicted by David Kohl at the recent Northeast Ohio Dairy Management Conference.
Any dairy type familiar with the numbers on their farm should not find this hard to believe.
Kohl also made another important observation: “… when prices are high, prepare for the lows … don’t do anything stupid.”
Looking better. Undoubtedly we are in the midst of a milk price high. Verification is as close as local talk radio shows that bring up the topic of increasing milk and cheese prices, and how farmers are getting rich.
(The opposite topic never comes up when prices hit historic lows – and retail prices barely budge.)
However, in spite of the frustrations of pooling, depooling and negative producer price differentials, the net milk check should look considerably better for a while.
Smart actions. Absolutely, the first priority with improved income is to make sure all accounts are current.
Interest charges on open accounts at 1.8 to 2 percent per month may sound minor, but can easily be equivalent to an annual interest rate of more than 24 percent.
Equally important, pay off credit card balances whose rates are considerably higher.
If balances are hard to control, consider chopping up all but one credit card for emergency use.
Budget. Budget additional expenses and income for the year.
Currently, high feed prices will pick off some of the additional income on many farms. Fuel prices are also higher as we go into the planting and early forage harvest season.
Pay down lines of credit. Not only will you save interest on the balance, but you are rebuilding credit reserves to help you through the next downturn.
Put some money back. Checking accounts that pay interest, CDs, whatever investment vehicle pushes your buttons.
It needs to be safe, should generate some return and be readily available for your use during the next down cycle.
Please tell me you won’t. It is soooo tempting to splurge when prices are really good.
If you can splurge for $100, $500 or $1,000 (whichever is less likely to make your spouse turn pale,) go ahead, you’ve earned it.
Undertake this activity only after the accounts are current. A wise spouse will include the other spouse in this process.
For example, balance the hunting rifle or big TV with a weekend away or help in the garden.
New paint disease. Please don’t buy something stupid. New paint disease is particularly contagious when milk prices are high.
I guarantee you that someone in your community will start buying stuff. Who cares? Their decisions (which may or may not be good) should not guide yours.
Ask several questions before purchasing:
1. Is this a purchase that we were planning before milk prices increased?
2. How will this (machine, tractor, cow, building, 4-wheel-drive king-cab super truck – fill in the blank) increase my farm’s profitability?
3. How will we pay for this when milk prices are back to average or below average?
4. Will this purchase compromise our cash reserves?
If this purchase was not in the long term plans and won’t increase the farm’s bottom line, reconsider.
If how the purchase will be paid for in less than optimal milk price times is unclear, just don’t do it.
Get solid now and prepare for the future. With careful planning and restraint, the current milk prices give us a chance to do just that.
(The author is the northeast Ohio district dairy specialist with OSU Extension. Send comments or questions in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)