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Tighten your management

Planning

Chuck Schwartau, Extension Educator-Livestock

Published in Dairy Star June 27, 2009

Tight economic times in the dairy industry are not confined to the U.S. by any means. The U.S. consumes the vast majority of its production while the other major players in the world dairy trade (Australia and New Zealand jointly called Oceania) export the vast majority of their production. It varies a bit from year to year, but New Zealand typically exports well over 90% of its annual production so staying competitive it extremely important.

In 2008, the U.S had a dairy trade surplus of $500 million. From 2006 to 2008, the U.S. share of the world market increased in part because drought reduced the exportable production from Oceania by about 9%. The following table shows how important international trade is to those other countries compared to the US. Take special note of the bolded percentage items.

Production/Utilization
US
Oceania
 
( All Units in 1,000 Metric Tons)
Fluid Milk Production
85,947
24,253
Fluid Milk Consumption
29,544
2,587
% Consumed
34%
11%
Cheese Production
4,480
671
Cheese Consumption
4,543
241
% Consumed
101%
36%
Cheese Exports
122
513
% Cheese Exported
3%
76%
Butter Production
740
490
Butter Consumption
679
87
% Consumed
92%
18%
Butter Exports
78
420
% Butter Exported
11%
86%
Non-Fat Dry Milk Produced (NFD)
810
434
NFD Consumption
434
47
NFD Exported
400
377
% Non-fat Dry Milk Exported
49%
87%
Whole Milk Powder Produced (WMP)
19
795
WMP Consumption
18
29
WMP Exported
3
780
% Whole Milk Powder Exported
16%
98%

Notice that Oceania consumes only 11% of its fluid milk so huge tonnages and percentages of their production in the form of cheese, butter, non-fat dry milk and whole milk powder need to go into export markets as compared to the U.S. World market plunges in the past year have made a huge impact on the US and Oceania dairy economy. The fact that Oceania’s dairy industry is relatively low input compared to the US forces them to look at management options, not just input adjustments. When homegrown grass is a major part of their feeding system, they can’t look for a cheaper feed alternative as so many of our producers do. This is where we can learn some lessons from “down under.”

DairyNZ is the extension service for the dairy industry in New Zealand. Their recommendations for adjustments on dairy farms mirror points many advisors in the US are making to help dairy operators cope with current low prices: The Dairy NZ suggestions for tightening management are in bold print while my corresponding comments follow.

Identify where you are now and how you will manage your cash flow for the next 18 months.
Work out detailed cash flow projections for your farm and do a monthly actual to projected comparison. Where are there differences and why? While this takes time, it may save you from some disastrous surprises later.

Focus on what you can control – there are still a lot of things you can do.
Are you minimizing feed waste? Are your production, breeding and health records up to date and easily accessible to help you make decisions? Are there cows in the herd that are not paying their way? Are only a few cows contributing to a high bulk tank SCC preventing you from earning quality bonuses from the creamery? Cull them!

Spend very little time on things outside your control – e.g. milk price, weather.
If you can’t control it, don’t waste energy worrying about it!

Always do the basics well.
Harvest quality forages. Work with your nutritionist to optimize rations. Keep your cows comfortable. Do a good job of milking to maintain udder health. Be sure to get cows bred in a timely fashion. Don’t neglect your replacements.

Have a game plan, communicate it with staff and your advisory team (banker, accountant, farm consultant, suppliers etc), implement it, continuously monitor results and make necessary changes.
Do you have a business plan that guides your decisions? Spend time on essential management tasks. Communicate with everyone involved and pay attention to details. This is not the time to skimp on fees for that farm business management advisor or a good accountant who understands agriculture and can help analyze your records on a regular basis.

Before you write a check ask yourself do you really need it, will it give a return and can it wait?
This it not a time to purchase “toys” and “wants” for the farm or yourself. Separate the “wants” from the “needs”. Focus on the business for now. Doing that should enable you to have a few of the extras later.

Look after yourself and your team. Use the help and support around you.
It may be hard to think about doing things for yourself when the finances are tight, but consider even the small things that keep your spirits up. You need to keep yourself as sharp as possible, watching out for little things that could end up being quite costly in the end.

The dairy business will turn around, but if you are no longer in business, nor ready to take advantage of the turnaround, it will make no difference. For further management tips, check the University of Minnesota Extension Dairy webpage at www.extension.umn.edu/dairy.

Sources for this article include USDA Circular Series FD 1-08, Dairy: World Markets and Trade, and Dairy NZ Tight Management for Tight Times Roadshow: Farming Through the Credit Crunch.

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