This last year has provided some valuable, yet painful, lessons for everyone in the dairy business — like the roller coaster effect of dairy revenue on their cash flow.
“While income over feed cost is an extremely useful tool to assess the opportunity to have favorable cash flow for the dairy operation, we need to use it in conjunction with a cash-flow plan to actually exert some control over the farm’s financial situation in advance of these drastic changes,” says Tim Beck, Penn State University extension educator in dairy business management.
Cash-flow planning can take two forms: strategic planning and tactical planning. In a difficult year like this one, the short-term plan for survival must work in order to move forward toward any longer-term strategic objectives, says Beck.
“Dairy managers are encouraged to prepare both types of plans. Focusing only on the immediate future causes great discouragement during low price cycles like this one, so we need to remind ourselves of long-term goals to keep our perspective clear,” he adds.