With high prices come temptations

It has been a wonderful year with regards to our mailbox milk prices. I have heard many managers talk about how much easier it has been to cash flow farm expenses this year.

If I could wave a magic wand, I would wish our milk prices never dip down below $20 per hundred weight.

But since I seem to have misplaced the magic wand, I urge our farmers to develop their own magic by implementing a few strategies that will help them remain competitive with both high and low milk prices.

– Resist the new paint.

The high milk prices of 2007 have allowed our dairy farmers to dig themselves out of the hole into which the record low prices in 2006 sent many operations.

Existing debt. During high milk prices, we encourage farmers to pay down existing debt and resist the temptation of getting a lot of new paint (machinery).

Just because milk prices have been at record levels, do not get lulled into a sense of false security. The old adage of “what goes up must come down” has always held true in milk prices.

Yes, equipment needs replaced. Just ignore the urge to impulse buy until you have a chance to determine if payments can be made with $12 milk.

– Conduct a SWOT analysis.

A very valuable exercise dairy farm families can conduct is a SWOT analysis of their business. This analysis examines the Strengths, Weaknesses, Opportunities and Threats of the farm operation.

A SWOT analysis helps the business understand the production, financial, marketing and personnel management strengths and weaknesses of the business.

Fact sheet

Chris Zoller and Chris Bruynis, Extension educators, have written an OSU Extension fact sheet to help farm families with this process.

The SWOT analysis is a great end-of-the-year activity since you have the full year of income, expense and production data at your disposal.

A SWOT analysis is a time-consuming process, but it can be a valuable tool in determining what sacred cows, traditions and practices to keep and which ones to send to market.

– Find your benchmarks.

Regardless of milk prices, dairy managers should take time to compare their farm’s efficiencies against established benchmarks.

Compare

As we finish our harvest season, dairy managers should make a concerted effort to understand the strengths and weaknesses of their operation.

Your location Extension educator can help you compare your farm with similar operations in the Midwest.

There are some excellent data from the dairy business summaries from the Ohio State University, University of Minnesota and Cornell University. Managers should examine their operation for production and labor efficiency, cost control, use of farm capital and profitability performance.

An example of a benchmark that many dairy operations use is pounds of milk sold per each full-time worker. This efficiency factor combines labor efficiency and dairy herd productivity into a single indicator.

Calculations

To calculate this factor, all you need to do is divide the total pounds of milk sold by the farm’s total full-time equivalents for labor.

In Ohio, a full-time dairy worker is often defined as an adult that works 50 hours per week for 50 weeks (allowing for two weeks of vacation). This translates into 2,500 work hours for each full-time equivalent.

It is vital that you include all paid and unpaid labor into this calculation. The following table shows the benchmark for this factor.

– Stop and smell the roses.

As dairy farm families plan to stay competitive for the future, it is important that the family remember to keep “family” in the family farm. Dairy farming is definitely not an easy occupation and it is important that all family members take time to rest, unwind and to smell the roses.

Refreshed

It is important to take time to celebrate special occasions and take a vacation. These periods of rest and relaxation will allow you to be a better family member and to return to managing your farm more invigorated.

The dairy industry will continue to have its highs and lows. The question every dairy manager needs to ask themselves is where on the roller coaster do they wish to sit?

By taking time to examine your farm’s strengths and weaknesses, you will be able to see the dips and turns coming from the front of the coaster instead of being whipped around at the tail.

About the Author

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

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