Observations on riding out low dairy prices

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Hello dairy farmers. It has been a long year for our dairy industry. As we inch closer to the December 2008 anniversary of when milk prices took their dive, I find myself thinking as I milk cows each morning about how much longer can many of our dairy operations hold on?

These are not pleasant questions to think about early in the morning.

As I think about our year-long struggle with milk prices, I know dairy farmers have been working hard to trim costs and increase their efficiencies.

Working hard

Our OSU Extension dairy team has also been working hard to offer advice as you make decisions. As you may recall, our team has written 25 Dairy Issue Briefs (DIBS) to advise you as you implement cost-cutting measures.

These decisions, however, must be made with full awareness of the short and long-term production and economic consequences. The DIBS examine the short and long term impact of a variety of nutrition, feed costs, reproduction, health, calf and heifer management and human resource issues. The 25 DIBS can be found at the http://dairy.osu.edu Web site.

Observations

As we continue to ride these low prices out (and yes, they will improve), I offer the following observations:

— Communicate with your staff and family. In tough times like we are experiencing now, do not try to hide things from your staff or family. Your body language is already telling them enough with regard to the financial difficulties you are experiencing. It’s OK to confide in them that the farm is experiencing tough economic times.

— Implement an advisory team. Now is the time to assemble key advisers to help develop strategies to improve cash flow and to talk about options for your business. Team members may include your veterinarian, nutritionist, agronomist, dairy consultant, extension educator, lender, accountant or financial adviser.

The team can help monitor production trends and help prevent small problems from turning into major catastrophes. You can also invite your team to conduct a walk-through to review any operating procedures or employee management corrections that could help improve your bottom line.

— Base your decisions on facts, not emotions. Bottom line, if you don’t measure it you can’t manage it. Having accurate information on which to base decisions is critical when managing in crisis mode. Evaluate your accounting system. If it does not allow you to easily calculate your cost of production and examine each of your enterprises (dairy, crop, forage), consider changing to a system that does.

Use your financial reports and help from your advisory team to pinpoint weaknesses. For instance, have you compared your production costs to those of the top 10-20 percent of profitable dairies? Have you used your DHI records or similar production records to evaluate herd performance?

It is imperative to stay up on of culling decisions to avoid keeping cows around that are costing, not making, you money.

— Communicate with your lender. Keep your lender informed about how the business is performing. Having the lender as a member of your advisory will go a long way to increasing his or her comfort level with any requests you might need to make in terms of loan servicing.

If you think you will have trouble making loan payments and maintaining sufficient cash flow to effectively run your operation, approach them with a plan that may include increasing a line of credit, having loans put on interest only or possibly restructured. Be sure to include how you plan to catch up on your payments when milk prices increase.

Final thoughts

These financial times can really add stress to a dairy farm family. Even the strongest individuals may find themselves extremely stressed. If you think you need to explore other options, don’t be afraid to ask for help.

It will not matter what others might say or think; what ultimately matters is the well-being of you and your family. Have a good and safe day.

(The author is an assistant professor and Agricultural and Natural Resources Extension educator in Ashtabula County. He can be reached at 440-576-9008 or marrison.2@osu.edu.)

About the Author

(David Marrison is an agricultural extension educator in Ashtabula County.) More Stories by David Marrison

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