Where do you invest your dairy dollars?

Posted on November 6, 2012 in Dairy Performance
By Gary Sipiorski

With today’s markets, dairy producers are wearing their business hats around the clock.  Every dollar counts when looking at the long-term financial success of your business.  So when you make a profit, where’s the best place to invest your money and increase your potential for future success? The first step:  Know your numbers. Do you know where your return was last year?  Do you have an accurate picture of your farm’s balance sheet?  Get those numbers on paper and then look at your investment options.  Note that I’m not a certified investment advisor nor do I have a Series 7 license.  These are just a few suggestions for things to consider as you invest real earned income or place borrowed money:

  • Make sure your payables are paid as suppliers generally charge 18-percent interest on past-due accounts.  This includes paying down any outstanding balances on credit cards too.
  • Move up your equity.  If you are not at 50 percent equity, make a plan to get there.  It make take some time, but do it so that you have a cushion in lean years.  You should get a better interest rate on your loans with a better equity position.  Paying down debt and/or adding productive assets improves equity.
  • Pay down lines of credit (LOC).  These lines will generally have higher interest rates.  Lenders are likely to renew LOC and extend new lines when needed if they see they are paid down or off occasionally.
  • Fill your facility with productive cows.  Cows generate gross income.  Do not overload, but make sure you are full.
  • Invest in pre- and post-fresh housing if you do not have enough.  Plenty of on-farm research shows a multiple return in this area.  Limiting transition problems with cow comfort pays big.
  • Make animal housing as comfortable as possible.  Have a consultant evaluate your facilities if you think you are too close to your dairy to see any pitfalls.
  • Is your milking facility up-to-date?  Milking should be the most pleasant time in a cow’s day.  It also needs to be comfortable for your employees.
  • If you raise youngstock, consider building facilities that cut down on labor.
  • Buy machinery that improves yields, efficiencies and labor.
  • Buying land close to home may make sense.  Be careful on this move.  Have a good down payment and a cash flow to support the purchase.
  • If you are making money with your dairy, does an expansion or buying another dairy make sense?
  • Perhaps you could invest in other projects on or off your dairy, such as raising steers, or other non-agriculture businesses.  Make sure you do enough homework on these before investing.
  • Are you investing in new software and education time for you and your employees?  Margins are only going to get tighter.  Does everyone who needs to know understand everything about the numbers and what is driving them?

Finally, don’t forget the basics:  Make sure you are feeding them right, invest in good genetics for the future, and do not give up milk. We may be facing long-term business stagnation in today’s business world.  Good returns may be hard to come by in the future.  Invest in what you know best and what makes money. This article was originally included in the “Money Matters” column of the October 25, 2012 issue of Hoard’s Dairyman. 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.

Category: Business and economics
Dairy Performance