Decisions 2000

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Your decisions in these times of depressed milk prices can have a lasting impact. Let’s look at some of the opportunities for you to gain a positive financial outcome.

1. Heifer raising

Take time to calculate the cost of replacement rearing. Many producers raise heifers because that’s the way they’ve always done it. But, it should be done strictly for economic reasons.

Include the price of feed in your calculation, and also factor in culling, death loss, labor, interest, growth rates, first-lactation performance and housing.

If you can justify raising a heifer economically, then evaluate your replacement facilities and feed supply to see if they are being under-utilized. A tremendous demand exists for replacement heifers today, and raising replacements for sale or for another dairy producer could provide additional revenue. Maximizing the heifer facilities gives you a better return on your capital investment.

2. Cow capacity

If the dairy has room for more milking cows, expand the herd to capacity. Running a dairy at less than capacity can have a negative effect on cash flow. Use existing equity to increase herd size and negotiate competitive interest rates with your lending institution. Evaluate your culling strategies. With low feed costs, consider dropping your milk per cow threshold to facilitate keeping cows in the herd longer.

3. Forage production

Explore custom farming and harvesting opportunities in your area.The cost to own and maintain farm machinery does not spread across enough acres or tonnage to justify its cost on many small farms.

4. Leasing vs. owning

If your dairy has a cropping enterprise, review the cost to own and maintain your farm machinery. Repair cost can be a major source of operational expense.

Consider leasing or possibly renting equipment on a limited basis. During peak usage times, such as harvesting silage, renting the appropriate tractor or a loader may prove more economical than owning your own equipment. The wear and tear occurs to someone else’s machine, and you can size the equipment to meet your harvest schedule.

Also, calculate the cost of repair per item for equipment. For those pieces of equipment with the highest cost of repair, look at leasing. Sometimes, the annual repair bill is more than the salvage value for that piece of equipment.

5. Trading in early

Trading in equipment with low hours of usage could have a positive impact on cash flow. For example, one of my clients was using two self-propelled silage choppers to harvest 1,200 acres. In 1999, his repair bill for the choppers was $33,500. Instead of facing that repair bill again this year, he purchased a larger single chopper with less than 200 hours which he can trade annually for around $25,000. This saves one employee, and hopefully will generate less down time and repair fees.

This decision was based on the knowledge of the financial health of the business. Evaluate your ability to service debt before embarking on this path to save money.

6. Machinery supplies

If you have an on-farm shop or repair facility, take an inventory of all of the tools and supplies. Hoses, belts, nuts, bolts, oil and grease can add up in cost. Plan your inventory needs ahead of time, and purchase in bulk those items with a rapid turnover. Avoid impulse buying when visiting your local hardware or auto parts store.

7. Machinery insurance

Look closely at the liability insurance policy for your fleet of farm equipment. I have seen machinery insured for more than its value. Visit your insurance agent on an annual basis to discuss your insurance coverage.

The future dairy industry will be for those that accept changes and adopt business plans that ensure survivability through profitability. Do not become so busy running the race that you fail to know where you are going.

Paul Johnson is a veterinarian and consultant in Enterprise, Ala.



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