Dairy producers realize that good times don’t last forever. The near-record milk price in 2022 was much appreciated but needed for more time than it delivered. Last year’s rude awakening to low milk prices was a harsh change, but now that the calendar has flipped to 2024, milk prices don’t seem to be improving.
Independent financial consultant, Gary Sipiorski, says this will be a very interesting year for dairy producers to navigate.
“As much volatility as we have seen in the last few years, we could expect even more,” he says.
“Every dairy farm, no matter where it is located, is affected by not only weather, the domestic economy, but also world events. Think of the ongoing wars, and weather in South America regarding corn and soybeans. The list goes on and on. Every dairy farm feels all of these issues and any of these events affects the checkbook.”
Sipiorski says he might sound like a broken record, but underscores the importance of conducting monthly cash flow projections.
Uncertainty aside, Sipiorski says just look at what the income and expenses were in the last three years.
“Then look at what the future dairy and feed markets are telling us,” he states. “It will be wrong by the end of the year, however no need to second guess everything. Give it your best shot and then make a plan for the year.”
Understandably, there will be some months of cash flow shortages, which Sipiorski says highlights the need for early lender meetings to line up a line of credit to fill in for the shortages.
5 Balance Sheet Tips
Curtis Gerrits, senior animal ag lending specialist for dairy with Compeer Financial, reminds producers now is the time to update regular balance sheets. Although he recommends producers to do them more than once a year. He provides the following tips when it comes to balance sheets for dairy farms.
- Update balance sheets quarterly. This ensures consistent tracking of your balance sheet movement, including with both assets and liabilities. It helps establish trends in overall business performance.
- Accuracy Matters. Take the time to accurately record your dairy business assets. Make sure quantities and values are up to date. Asset values frequently change, and a purposeful approach improves your understanding of balance sheet position and trends.
- Consistent Measurement. Maintain consistency in preparing balance sheets, especially with feed and cattle. Use a uniform measuring and reporting method for documenting quantities and values. A consistent approach provides a reliable basis for comparison across each established balance sheet.
- Account for Everything. Ensure that all assets and liabilities are accounted for. This not only results in an accurate balance sheet but also provides a truthful representation of the net worth of your dairy business.
- Specific Descriptions. Be specific with your descriptions in balance sheet schedules. Whether it’s for your lender, tax accountant, or management team, detailed descriptions assist in verifying the values of both assets and liabilities.
While producers are hoping good times circle again, until then, keeping a close eye on your financials will help you weather the financial storm.
