Another year is nearing its close, and as we begin to reflect on what has taken place over the last 12 months, we should ask ourselves these questions: Has our way of life changed? Has our industry been affected by the tragedies of last September? Have we prepared ourselves for future bad times? Did we strengthen our financial positions while prices re-mained high much of the past year?
I see the industry as having had one of its best years ever. The price of milk has rebounded from the depths of despair to some of the highest prices ever received - and for an extended period of time.
At the same time, we saw feed prices remain fairly stable, while the price of replacement heifers escalated above anything we could ever imagine. We have had dairy producers experience problems in obtaining permits to build new, more efficient dairies. I see dairy producers taking advantage of the newest technology for their day-to-day operations. I see industry partners continuing to provide new improved ways of enhancing the dairy business, while providing new and improved products and equipment for the dairy.
At the same time, interest rates have dropped to the lowest levels I have seen in my career. Borrowing is being encouraged to strengthen the American economy. Bankers are competing for the best clients, while continuing to find new and improved ways to serve these customers. It has been one of the most memorable years that we will ever see.
So, what might your banker expect, given these circumstances? He hopes that you have reduced your debt, improved your leverage position, and improved your reporting techniques, along with looking at estate planning and having a plan for the future. He hopes that you have recognized this successful year and used it to your advantage to strengthen your operation for the next decade. He hopes that you have taken the time to look at new technology and tried some things to make your operation more efficient. Probably most important, he hopes that you better recognize the need for good financial reporting and how this reporting can work as a management tool for you.
Good financial reporting is your key in maximizing your partnership with your banker. As I have said before, you should be doing projections for more than just 30 days. Projections should be for at least 12 months - and 24 months is even better. These projections serve as your outline, your tool to help you understand what happens when:
- Hay prices increase by $10 per ton.
- Grain prices increase by $5 per hundredweight of milk produced.
- Milk prices fall by $1 per hundredweight.
- Interest rates go up by 0.5 percent.
A solid projection will allow you to make changes and still see what effect it has on the bottom line of your operation. Understanding break-even analysis is as important as understanding your feed rations. Numbers tell a big story.
Finally, some of you may be asking yourselves, "When is enough?" It is when you have exhausted every available opportunity to improve your business and you can retire each evening knowing that you have done your best and that your best was enough.
Anthony DeRose is executive vice president of Wells Fargo Bank in Visalia, Calif.