Clear thinking with cloudy milk prices: 5 key ideas to see through the low-hanging price clouds
Seasoned dairy producers have been through our cyclical milk price swings. They recognize this low spot because they’ve been here before. Those with less experience may feel more uncomfortable in the current situation, but that’s not to say any dairy producer is pleased with the prices. Regardless, everyone must work through the low period.
Here are five ideas to start the preparation process for however long it will take to get back to a higher milk price.
1. Get your whole team on the same page. Communicating with family members and employees now is important so everyone understands the milk checks are getting skinny. Now is a good time to sit down to get everyone’s idea of what savings and efficiency improvements could be made to keep expenses in control without sacrificing production.
2. Cows do not know what is in the checkbook. They only understand good care and good feeding. The feed bill is the largest expense on a dairy, so it is easily seen on the radar screen. Milk production must continue to pay the bills. Make sure milk quality and somatic cell counts stay in line. Now – more than ever – components are important to the milk check. Keep those levels high. Avoid additional expenses by limiting metabolic issues in cows between 30 days pre- and post-calving.
3. Take a hard look at youngstock numbers. With the real cost of raising a heifer around $1,700, only keep and raise what is needed.
4. Talk with suppliers early in low milk cycles. They are aware of milk prices as well. Find out what their limits are. Make sure they know you are working with your lender to keep the supplier as current as possible.
5. Check in with your lender – the sooner the better. In critical times of low milk prices, the sooner you meet with your lender, the better off you’ll be. An appointment should be made at the lender’s office or – better yet – at the farm. Come to the meeting prepared with these documents:
- The last three years of the cash flow
- A realistic projected cash flow showing anticipated milk prices and expenses
One overlooked item that can be powerful in a lender meeting is the business plan. This can be as simple as a one-page handwritten summary of what plans you have for the next 12 months. Presenting the lender with the farm’s financial documents and a business plan makes for a good discussion. Lenders appreciate and respect a dairy producer that has a handle on the farm’s financial position. After you make your presentation, give the lender plenty of time to ask questions and share some of his or her ideas.
Lenders have some options once they have a clearer picture of the dairy farm’s needs. Lines of credit can fill cash flow shortages. They may be able to extend amortizations on loans or add money to existing loans. Depending on the lender’s policies, interest-only payments for a period of time can ease the payment demand.
Based on current futures markets, it may take some time to see higher milk prices. The sooner these five ideas are realized and acted upon, the more likely you are to see through the clouds a bit more clearly.
Stay tuned! In future Dairy Performance articles, the author will provide tips for working with your lender and discuss options a lender might be able to provide to help your farm make it through this downturn in milk prices.
About the author: Gary Sipiorski is the Vita Plus dairy development manager. He grew up on his family’s dairy farm in eastern Wisconsin and attended the University of Wisconsin-River Falls. Sipiorski spent 17 years with Citizens State Bank of Loyal and worked his way up to president and CEO. In 2008, he transitioned to his current role at Vita Plus and continues to serve on the CSB board of directors. In addition, he served on the advisory committee on agriculture and industry for the Federal Reserve Bank of Chicago. He is also an advisor for the Professional Dairy Producers of Wisconsin and a regular contributor to Hoard’s Dairyman and other agricultural publications.
Business and economics
Feed quality and nutrition
Milk production and components