When good times arrive – high milk prices with low feed prices – sometimes it's easy to get distracted. After all, things are going well, so why sweat the details.
Yes, dairy producers should congratulate themselves on their success, but it's also no time to relax their good business management practices. Even in good times there are strategies to keep your business on the continued path of success.
This year has definitely been good for dairy producers. The 1998 Basic Formula Price (BFP) through September has averaged $13.36 per hundredweight. That's $1.31 more than the $12.05 BFP average for 1997. Milk prices have reached record highs; the cost for feed is at reasonable prices, and milk production levels remain strong.
Get the best rate
This year the bankers are all "knocking on your doors" wanting your business. Competition for your business has forced financial institutions to become more creative and aggressive in their loan structures and pricing.
For example, some banks have started offering revolving lines of credit or single operating loans that cover both the cattle and the feed side of the business. More and more banks are pricing loans at a small percentage above the prime rate. In addition, many banks have started offering a variety of rate options that allow dairy producers to select a fixed rate for portions of their borrowing needs for specific time periods. And, for those who have excellent financial records and demonstrated management ability, some institutions require less frequent reporting during the life of the loan.
Interest rates are the lowest in years. My suggestion is to take advantage of these options currently being offered. Ask your bankers what programs or lending options they have available to earn your business. It is definitely a buyer's market, and the dairy producer is clearly the buyer who's sitting in the driver's seat.
Don't let up, try new things
Good business practices are the key to success for any organization in both good times and bad. And, when good times prevail, it becomes the perfect time to try new business practices, techniques or new technology.
Sometimes changes do not deliver immediate financial results. But, during profitable times, you can afford a longer adjustment period to see if the results are worth the added cost.
Timing is everything. If you've been needing to institute better accounting practices, now is the time. If you've been planning to release some of your management duties to a family member, now is the time. If you need to spend dollars for estate planning, if you want to take advantage of risk management, and if you want to try a new procedure or spend a few dollars in facilities, now is the time to give it a try.
When times are good, most of us have a tendency not to watch things as closely as we would when times are lean. Decide now not to let up during the good times. Make sure profits get reinvested wisely and that debts continue to be paid down. Reducing debt should always be a priority.
Anthony DeRose is a senior vice president of Wells Fargo Bank in Tulare, Calif.