Plummeting prices in the dairy industry are creating critical cash-flow and long-term survivability issues on Ohio’s 3,328 dairy farms.
Cost-cutting decisions must be made with full awareness of both short and long-term production and economic consequences.
For instance, do you really save money by buying a bull and not purchasing frozen semen?
A first reaction might be, “yes, no more monthly semen and insemination bills, don’t have to pay someone to watch heats, etc.”
But is the answer really that simple? Can you feed your calves less and still have healthy calves? If you have plenty of corn silage, can you safely feed more?
The answers to these questions may be yes or no, depending on your farm’s current management strategies.
OSU Extension’s Dairy Working Group, a collaboration of OSU Extension and OARDC faculty is identifying and addressing critical issues in five areas:
- Nutrition and feed costs.
- Reproduction and health.
- Calf and heifer management.
- Business issues.
- People and stress management.
A series of Dairy Issue Briefs (DIBS) targets management issues being addressed on farms now.
The Dairy Issue Briefs can be found at the http://dairy.osu.edu Web site.
DIBS currently posted include:
DIB# 1-09 — Can I use more corn silage in my diets to reduce cash feed costs?
DIB# 2-09 — Is it time for Daisy to go on a truck ride?
DIB# 3-09 — Will changing from a confinement system to a grazing system reduce my short term costs?
DIB#4-0 — How can I lower feed costs in a management intensive grazing system?
DIB#5-09 — Should I remove feed additives from my diet to reduce short term costs?
DIB#6-09 — Observing signs of stress and depression.
DIB#7-09 — What happened to our dairy exports?
DIB#8-09 — Should I use silage additives this year?
DIB#9-09 — Should I wean calves earlier?
DIB#10-09 — Breeding programs: Natural Service or AI?
DIB#11-09 — How should I take on additional debt?
DIB#12-09 — Finpack, a tool to help make big financial decisions.
DIB#13-09 — Feeding calves “half rations.”
The emphasis is on “brief,” with a short explanation of the issue, the conclusion and contact information for the author(s) if you have further questions.
As additional DIBS are completed, they are posted to the OSU Resources for Ohio’s Dairy Industry Web site.
A final thought about debt: DIB #11 addresses taking on additional debt. There are currently some very good interest rates available to some farms.
If your farm has variable rate loans, you might consider converting these notes to fixed-interest notes to minimize the impact of increasing interest rates in the future.
Are there opportunities to decrease my debt payments?
Maybe. Interest rates have been declining, so it may be possible you have loans with higher fixed-interest rates than are currently available.
Refinance the loan
If so, it may be possible to shave a little — or a lot — off these fixed-rate loans by refinancing the loan at one of today’s lower rates.
There is typically an up-front cost or conversion fee to refinance a loan, so the potential savings in interest has to be greater than the cost to refinance.
Loans with flexible or variable interest rates have payments that fluctuate with interest rates and will already reflect lower interest rates.
Just be aware that the payments will also increase as interest rates increase. Potential savings are greater for loans with later maturity dates. More of each payment is going toward interest than principal.
In the last year or two of a loan, most of the payment is going toward the principal rather than interest, so savings may not be worth the fees to refinance the note.
Visit with your lender, find out what the opportunities might be and push a pencil before making a decision.
Bottom line #1
If you have not reviewed and refinanced your existing debt recently, there may be an opportunity to lock in lower interest rates, decreasing your total debt payments once conversion fees have been covered.
Because of the fees involved, most savings will be realized later this year and in future years.
Bottom line #2
Interest rates are currently very low. If you have variable interest rate loans, consider converting them to fixed-rate loans to lower the risk of interest rates increasing rapidly in the future.