MEADVILLE, Pa. — Dairy farmers crowded into the campus center at Allegheny College March 25, all looking for a little bit of hope for 2010 from presenters at the 2010 Ag/Dairy Day presented by Penn State Cooperative Extension.
Jason Karszes, a Cornell University farm management specialist with PRO-Dairy, said most farmers won’t disagree that 2009 was the worst business year in recent memory. What will differ now is how individual farms approach 2010.
Key is planning
One thing that helped many farms survive 2009 was the planning they did in 2007 and 2008, he added, like advance purchases of seed and feed.
Karszes said those decisions helped cash flow on many dairy farms. But, he added, even though they had cash flowing that didn’t mean they didn’t incur debt. That is because the farm income per cow dwindled across the board.
In his presentation, he used a set of 41 farms that had been analyzed. In 2008, the farms had an average debt of $2,729 per cow. In 2009, that same debt reached $2,896.
By the numbers
Karszes suggested every farmer build a budget. Collect the financial statements for the last year and create hard estimates of what will be the farm’s income, expenses, debt service and capital needs for the year.
Karszes said a budget is valuable on a farm because it provides a baseline comparison, a communication tool for the family, a planning tool (how much should you spend), what does the next year look like on paper and where should management spend its time?
Why do you farm?
Karszes also advised dairy farmers to have a mission or a vision for the farm and be able to answer some hard-hitting questions: Where is the business going? Where do you want to be in five or 10 years? Does the business still have the opportunity to meet your goals?
Farmers need to think carefully about decisions, and the impact those decisions have on the future.
He said there is a tractor in the middle of a field in a New York county he covers that has been there since this fall. He assumes when it broke, the farm simply didn’t have the money to make the necessary repairs and it has been there since then. Now it is spring, the work is about to begin in the fields and that means that farm will be forced to make those repairs or make some hard decisions.
Karszes said repairing and replacing equipment is at the top of the list for many farms. Farmers need to ask what maintenance needs to be performed in order to maintain operations.
Karszes suggested many farmers look at any short-term, high-interest rate, limited options debt, and try to pay that off because of the high cost incurred.
Karszes said some changes may be needed for farmers to stay in business, and farmers need to look at what they can invest in that will improve the current operations and lower their cost of production.
Karszes suggested dairy producers look at more than one alternative when looking at problems and ask some questions: What uses the least amount of capital? What impacts management the least? What has the fastest payback? And what has the least negative impact on labor?
“Just because you can cash flow (pay for it) a change, is it a good decision?”
Karszes also advised farmers to revisit their analysis of what is happening on the farm cash flow-wise, where are they in the operation (are they nearing retirement) and what can be done to invest back in the business.
His biggest advice to the dairy industry was simple: Position yourself for the future.
He said farms need to know where they are in terms of profits, trends and performance.
They need to invest cash in areas that will improve performance, build working capital and borrowing capacity to improve financial risk management, accept that price fluctuations will continue and realize there may be no longer a guaranteed ability to meet cash commitments.