The Impact of the Top 5 in 2016
Most agricultural products are commodities. That means corn looks like corn whether it is grown in Iowa, Brazil or China. Milk looks like milk no matter where in the world the cows are milked.
The market price of commodities moves based on supply and demand. As the supply and demand of commodities change – or worldwide cow numbers change – the result is a rollercoaster ride of income on the local farm.
Although 2016 is bringing us a price slide in gross income, avoid overreacting in the tougher markets. Sit down to think and talk with family, employees and key advisors. Sorting out possible decisions will soften short-term stress and long-term mistakes. Here are five starting blocks to begin:
- Keep cows comfortable and youngstock growing. Farm animals have no idea how big the milk check is. They first and foremost respond to comfort. Keep the bedding clean and inviting. Proper nutrition has an immediate result in the tank and long-term tail in health and breeding. Keep milk components up and somatic cell counts low. Comfort and nutrition directly impact these areas. Make sure all animals – from the wet calves to the freshening heifers – are not compromised in any way. They will need to be ready-to-go when the upside of the milk price returns.
- A business plan needs to be discussed now with family and employees involved in basic and major activities on the dairy. Large purchases and aggressive changes can be made in high milk price years. In low milk price years, only “need be” purchases should be made. Always keep the milking systems in top condition. Larger machinery and real estate buying with additional debt may have to be sidelined. The business plan needs to be agreed upon and written down so everyone sticks to it.
- Look at every detail of expense on the dairy. Seasoned dairy producers that have been through times like these have sat down with family, employees and key advisors and found dollars just floating off the farm. This might happen through expenditures for items that did not need to be replaced regularly. Leasing, particularly for tractors that will only be needed for a few months, might make good sense, but make sure you read the fine print on the lease agreement. Sometimes finding good used equipment during low milk prices can be a real buy as others exit the business or dealers need to move equipment.
- See the lender now. Take some time to do the homework and have accurate balance sheets. Revisit the average of the last three years of cash flows, the 2015 real cash flow, and a logical 2016 projected cash flow. Make an appointment with the lender. Bring along the business plan. Setting up lines of credit or extending the amortization on term loans when expecting short falls in the coming months will be welcomed by a lender. This is much better than making a frantic call in May when the suppliers are pressing for a payment.
- Do the “right thing” because the right thing is always the “right way” to run your dairy. World events, worldwide consumers of dairy products, and dairy producers around the world affect the milk check, yet nothing can be done about it. No one can change the milk price by fretting over it. Think, talk it out and plan based on the anticipated cash flow. Take care of what you can control on your farm and do the best job possible there.
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