Review revenue growth potential
Volatile times increase your stress level and make it difficult to focus on what you can control on a day-to-day basis on your farm. Careful review of accurate and timely business records, however, may help you identify areas that may help improve revenues.
• A review of your records might show potential revenue opportunities.
• Sell extra fresh cows or springers to help with cash flow.
• Work with lender to get in a financial position to succeed in 2010.
At the Midwest Dairy Expo in St. Cloud last month, business consultant Steve Bodart of Lookout Ridge Consulting, Baldwin, Wis., offered these suggestions:
• Asset evaluation. Do you have any assets that could be converted to cash? “We love our toys, but are we using assets to the fullest?” Bodart asked. It might be time to take a second look at nonproductive farmland, excess feed inventory, heifers, horses and “killer toys” such as the speedboat, motor home and snowmobiles.
• Maximizing efficiency. Would 3X milking pay for you? Are facilities used to their optimum level? Or, are your stocking levels so high that it’s overtaxing cattle and labor? “Each business, each manager, each facility is different in terms of animal stocking numbers,” Bodart said.
As a general rule of thumb, with top management and sand bedding, a six-row dairy barn may see maximum profitability at 10% to 15% overcrowding; a four-row barn at 15% to 20% overcrowding; and a cross-ventilated barn at 5% to 7% overcrowding.
• Milk yield and quality. As volume premiums go away, payments for milk components are more important. Review breeding and nutritional goals and guidelines to optimize components. As for milk shipped, is it the same amount as milk produced? What percentage of milk is dumped on your dairy and why? Can you get to 1.5% milk dumped or less?
• Cull cows. Review your culling strategy — quality of culls, timing of culls and consistency of management. “I’ve seen more cows dried off early because they are not bred on time,” Bodart said. “I’ve seen a lot of 90-day dry periods. Do you want that?”
• Value-added revenue. Stretch your thinking a bit with this one. Evaluate feed needs and sell excess crop inventory. Consider additional talents and skills of your employees. For example, a farm shop employee might be able to bring in outside work to do on the farm.
Or, if you do an excellent job with fresh cows, you could sell them or sell your springing heifers.
“You’ll see $200 to $300 more for fresh cows over springers,” he said. And the difference between selling a cull cow and a springing heifer? In early December, a dairy cull cow was selling for $500 to $600, compared to $1,500 to $1,700 for a springer.
• Restructure debt. If you’re looking at refinancing and/or deferring payments, make an appointment with your lender to discuss the year.
“Work with your lender so you can get in a position to succeed in 2010,” he said. At the same time, you should be trying to build and preserve working capital.
“Understand that the impact made today will affect your earnings and cash flow for the next two years,” he added. “Do not cut corners. Evaluate sensitivity analysis. Remember, too, the cows don’t know if milk is selling for $10 or $24. Make certain that you treat them like the queens they are today.”
This article published in the January, 2010 edition of THE FARMER.
All rights reserved. Copyright Farm Progress Cos. 2010.