Through any adversity comes learning. Without learning through adversity, we would never adapt and continue on with our lives and business.
The past few months have been a PhD-level course in managing through adversity. Low milk prices, rising labor costs, increased interest rates and even weather disasters have affected our ability to maintain a profitable dairy operation.
So what have we learned? What are we going to do to be better positioned to weather the next economic downturn?
- You don’t have to be big to be profitable (but it really helps). Larger dairies have the luxury of spreading costs over a wide range of assets. They are also flexible enough to shift resources to maximize cash flow opportunities, even in low milk price periods.
But small dairies can be profitable, too. If one of the following occurs:
- The farm is paid off
- There is significant offfarm income
- They have a tie to consumers, either through selling a product, offering tours, or some other outreach that helps drive income.
- You have superior genetics and are able to market those genetics off the farm.
If your dairy is under 200 cows and doesn’t have any of these things, you are probably about to be out of business. If you’re still alive, you should strongly consider accomplishing one of the tasks above to be able to weather the next downturn.
For an explanation of this evolution, read this story featuring Curt Covington, executive vice president of Farmer Mac.
- Dairies that survive keep cash flowing. Too many times the knee jerk reaction when prices fall is to reduce expenses at all cost. When that happens willy-nilly, production usually falls and cash flow turns from a river to a trickle.
Never cut an expense that cuts production more than the cost of the expense. That seems pretty logical, but desperate times should not call for that desperate of a measure.
Because when prices are low, cash flow is king. Cash is what pays bills, and paying bills leads to survival.
Mike Hutjens, Illinois dairy extension specialist, shares five things not to do from a nutrition standpoint.
- There are alternatives to dairy farming. While one farmer suicide story is too many, this spring was overload. Too many producers saw only one way out of the financial mess, more than I can remember in my 25-plus years in the dairy industry.
Remember that even in your darkest hour, dairy farming still is just a business. It’s not your life. I know dozens of ex-farmers who had to sell the cows or face financial ruin only to realize that, yes, there is life after cows. Dairy farming might be a way of life for some, but there are other ways of life out there. You need to stop and count your blessings.
If you or someone you know needs help to prevent a suicide from happening, see these resources.
What have you learned from low milk prices? Send me a note at [email protected].