The secret to surviving low milk prices is no secret
There are no secrets or magic bullets to survive low milk prices, says Robert Parsons, an Extension ag economist with the University of Vermont. "I can't give you any secrets because there are no secrets. It's all about management," he says.
Parsons spoke at an Education Seminar at World Dairy Expo in Madison, Wis., this week.
"Better is better before bigger is better," Parsons says. While farms need to grow an average of 30% every five years to remain cost competitive, growth is also the number one reason for business failure. So getting costs and debt under control first are keys to survival.
The 2015/2016 downturn in milk prices is one of the strangest of the down price cycles since 2000, Parsons says. While milk prices are low, so are feed, fuel and fertilizer prices.
"We're seeing a scale adjustment in Vermont," he says. Small farms in particular are struggling. "If you're a small farm and don't have a spouse working off the farm and qualifying for benefits such as health insurance, you're in trouble," says Parson.
Mid-size and large herds are managing through the tighter margins, leveraging cost control, economies of scale and higher production.
How are they doing it?
• Plan for down turns in times of good cash flow, and keep cash and liquidity in hand.
• Rigidly control costs.
• Maximize revenue.
• Communicate with lenders.
• Work with suppliers.
In the end, it's not about doing one big thing right, but doing 100 small things right every day, says Parsons.
"The future starts tomorrow," he says. "Plan today for tomorrow's downturn. Don't allow you farm business options disappear because of inaction today."
Watch the seminar below:
