Producers who face a cash-flow shortage must either reduce cost or increase milk sold. Here are some ways to accomplish these objectives.
1. Restructure debt
Review your short-term debt to determine if refinancing is advantageous. Refinancing short-term debt to longer terms reduces monthly cash-flow requirements. If new equipment is needed, investigate converting existing equipment to a lease and using the cash to fund purchases or fill immediate cash requirements. In addition, you can:
Try to structure loans with low fixed interest rates.
Call your credit card company and negotiate lower interest rates on any unpaid balances.
If your business has sufficient equity, establish a line of credit for smaller purchases instead of relying on vendor credit.
For large purchases, negotiate extended terms with no interest with the vendor.
Barter for goods and services whenever feasible.
2. Capital reinvestment
Take stock of your farm equipment and determine what has value to your operation and sell the rest. Take the proceeds from salvaged equipment and invest in items that will increase milk sold (more cows) or reduce costs.
Calculate your break-even cost of production. Review your herd and look for cows that produce below that mark. Sell unprofitable cows and purchase cattle that will generate a higher return.
If you have excess inventories of feeds and forages, look for opportunities to sell some for cash. Manure sales can increase cash flow, also. Look for ways to sell manure to horticultural or organic farming enterprises, or to neighboring crop farmers.
3. Scrutinize operational expenses
Feed cost represents the greatest expense on any dairy farm. When lowering feed cost, be careful not to jeopardize milk production. A reduction in feed cost should not lower your milk sold. Evaluate the efficiency of your rations. Your cows should produce at least 1.4 pounds of milk per pound of dry matter intake. If not, evaluate why and make changes.
Heifer cost. Calculate your cost per pound of gain for replacement heifers. Are they calving at an economical age and size?
Buy or grow your own? Calculate your cost to produce forages and feed. It may be cheaper to buy forages than to raise them.
Labor cost. Review the following labor benchmarks: pounds of milk sold per worker, cows per man hour milked, parlor throughput, and calves weaned per employee.
Insurance. Have your insurance agent review your insurance needs. Bidding out your insurance on a competitive basis may reduce premiums. Many carriers offer discounts if you institute employee safety protocols.
Buy smart. Compare prices on consumables, such as parlor chemicals, medications and dairy supplies. These may not reveal substantial savings, but, in the current market, every dollar counts. Pre-purchase supplies that have delayed billing so you can take advantage of discounts.
Maintain herd size. Reduced milk output due to lower herd inventory can wreck your cash flow. During these tough times, maximize your management to avoid unnecessary losses from involuntary culling such as, mastitis, lameness, reproductive failure, and death.
The buck stops with you
These are painful days, and painful days require painful decisions. Enlist the assistance of trusted advisers, such as your veterinarian, accountant, nutritionist, or banker, to help review your business plan. Talk to your staff about the crisis in the industry, and ask for their input on how to cut cost.
Most importantly, talk to your family. These burdens can be too much for one person to bear, and having the support of your family can make the difference in how you handle life’s daily challenges. Be a positive influence to your family, employees, friends, and community even when times are difficult. A positive attitude, backed up with the determination to succeed, will help you bridge the troubled waters we face each day.
Paul Johnson is a veterinarian and dairy producer in Climax, Ga.