By Jim Salfer, Published April 28 2009
Low milk prices leave many producers in survival modeST. PAUL – How times have changed! Some projections indicate that February and March farm milk prices may end up the lowest since 1978.
Can you remember 1978? The average household income was $17,000 and the average new house cost $53,000. Gasoline was 63 cents per gallon. Now milk prices have most producers in survival mode, at least for the next three to six months.
Here are some tips that may help you make it through this challenging time and be well positioned for the better times to come.
– Maintain working capital. Work with your financial adviser to determine your cost of production. If you do not have a financial adviser, look at all of your receipts for the last quarter of 2008. Then, estimate what your monthly expenses might be. Estimate your milk production and the milk price. Use this information to establish an estimated cash flow over this time. If there is a shortfall, now is the time to visit your lender. Lenders do not like surprises, so be as accurate and forthright as possible.
– Maximize income over feed cost. The goal over the next few months should not be to minimize feed costs, but to optimize feed costs while striving for good production. Examine feed additives, bunk management and shrink losses. Also, re-balance heifer and calf rations to minimize feed costs while meeting nutrient requirements.
– Reduce costs that do not reduce milk production. Do not reduce any costs that will affect cow performance, longevity or health. These include bedding, high-quality feed and vaccinations. However, there are costs that do not affect individual cows. Can you get volume discounts? Price shop and watch for bargains. Perhaps you can save money by splitting plant direct loads with your neighbors. Examine all areas of the operation and look for waste. Can you delay some purchases due to current inventory, such as semen? Examine “needs” versus “nice to have” items. Buy used or delay capital purchases if at all possible. However, be careful not to let preventative maintenance slip.
– Review asset use. Optimize cow numbers. Even though the industry needs fewer cows, make sure that your barn is full, but not excessively overcrowded. Can you sell any assets that you do not need to increase cash flow over the months ahead?
– Take care of yourself. You are not alone. Many in dairying and in other industries as well are facing very difficult issues. Continue to take some time off and do the things that you enjoy. Maintain your social network and visit with other dairy producers about ideas and options.
Jim Salfer is a dairy educator with University of Minnesota Extension.