Knee jerk reactions are the worst reactions of all. They don’t include any forethought and most of the time put the person doing the reacting in a position that is worse than where they started.
When milk prices are low, it’s easy to make knee jerk reactions. Most of the time that involves taking a hatchet to expenses in the hopes of improving margins. Albeit there is always belt tightening that should happen to improve efficiencies, attacking costs can be one of those reactions you might regret.
Too often, cutting expenses willy nilly will result in cutting something that helps support production, and that hurts the one thing that you need when prices are low—cash flow.
There is no better time to validate the phrase “cash is king” than in the low price doldrums we are in now. Simply put, cash pays bills. And no matter how low the milk price, the more milk you ship, the more money will appear in your milk check and the more cash in your bank account. Taking out any products or cutting services that have a negative impact on production will mean less money in the bank to pay bills.
Actually, now is the time to pay attention to the micromanagement of your dairy rather than big picture thinking. Pay attention to the details, like making sure predip and postdip procedures are followed in the parlor. Should you change your dry treatment program to save money but maintain milk quality? Are you controlling feed costs without impacting production? Are you using all the tools available to get cows pregnant in a timely manner? Are your cows generally healthy? Can you get more components into your milk)?
Beyond the things you can do on your dairy to maximize cash flow, there are also things to consider that could supply a safety net to your operation should things really go south. While the Dairy Margin Protection Program (MPP) has not lived up to its original billing, given recent changes and today’s economic climate there might be reason to revisit the program. Economists say the reduced premiums, monthly calculations and weak milk futures prices in 2018 will combine to offer some risk management for smaller producers that will make taking another look at MPP a good idea.
The old adage, “You need to spend money to make money,” is usually good to follow, but it’s hard to do when you are faced with depressed revenues. That doesn’t mean spending money like you just won the lottery on expenses that don’t pay a return. That sort of mentality, especially in this market, is a good way to go out of business. But spending money on the things that help maintain production will keep the cash flowing in, even if the flow is more like a babbling brook than a mighty river.
Note: This story ran in the March 2018 magazine issue of Dairy Herd Management.