Dairy Channel: Dairymen: ‘What’s in your wallet?’

The rather tired line spouted by Vikings, aliens and other assorted bad guys in credit card advertisements on television. (How much do people get paid to think up this stuff?)

The dairy-farm version of this line that we should ask ourselves in 2004 is: “What’s in your farm account?”

In a perfect world, we would have asked this question Jan. 2 as profit and loss (P&L) statements were generated for 2003 and cash flows predicted for 2004.

In most cases, profit and loss statements are limited to what has to be generated for the accountant and tax preparer. Cash flow projections? Maybe. Probably not.

A bad, bad year. No news to you, 2003 was a financially dismal year for the majority of dairy farms.

For a variety of reasons, there will be a few that did well – there always are. But overall, net farm income will be down for dairy farms.

I strongly suspect that for many farms who participated in the MILC program, total MILC payments received will be most, if not all, of the total net farm income.

That is, if net farm income was positive.

A review. Now, before time-absorbing cropping activities start, is a good time to review income and expenses from last year and project cash flows for this year.

One bonus of procrastinating this year is that prospective milk prices currently look much better than they have in a long time.

Of course, if you purchase your grain inputs and don’t lock prices in some way, projecting feed expenses will be rather depressing.

Unexpected twist. Another interesting and unexpected twist for those who use bST is the current supply rationing and price increases associated with that product.

Certainly, the budget projections for purchases will be less.

Slightly lower feed intake and costs would logically follow, as well as lower milk production.

Often producers ask if the product really makes a difference or not.

If you were using it, in a few months you will have a clear answer to that question for your farm’s management strategies.

Ins and outs. In any farm’s cash flow projections, there will likely be months when cash outlays do not match inflows.

Planting time, with major outlays for seed, fertilizer, fuel, unexpected repairs and custom work can stress a farm’s cash flow.

Typically, the farm’s cash reserves or lines-of-credit are used to cover these shortfalls.

Credit limits. It stands to reason that the dairy situation of the last two years may have either depleted cash reserves and pushed existing lines of credit toward their limits on many farms.

Anticipating the “when” and “how much” of those shortfalls ahead of time will allow the farm to line up additional resources (expand the line of credit, rob a bank (OK, not the best choice)) before a potential crisis emerges.

Managing cash flow by hoping there is money left in the checkbook at the end of the month takes the least effort. It also offers the least accuracy and control.

Ahead of time. Projecting cash flows and needs offers opportunities to work through potential obstacles ahead of time.

You also know when there will be excess cash that should be invested in some type of interest-bearing activity. (Hey, we’re being optimistic here!)

You’ll also be prepared the next time some Hun comes galloping over from the neighbor’s farm asking “What’s in your farm account?”      

(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.)

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