How to be better prepared for an uncharted future in dairying
As things seem to be improving on the dairy price outlook, now is the time to take a look at management strategies to weather the next downturn. That will be much easier to say than to do. Cash flows will still be tight with inputs also on the rise. Every situation is unique but all have some similarities. One similarity at this point seems to be all who are still in business have an ability to manage in times of adversity.
So, how do we prepare for an uncharted future? There are only so many things that an individual can do in managing the dairy business. The real challenge is to analyze all of the areas of the business that can be controlled, develop a list, and formulate a management control plan.
Let's look at a few possibilities. Finances are an area that you can control to a point. A well managed dairy will have a balance sheet that places debts of all areas (short term, intermediate term, and long term) into a plan that keeps all debt payments in a manageable range. This range will vary with production efficiencies. If you have not looked at your balance sheet lately, there is no time like the present to get it out, study it, and make sure you understand the complete picture. Have someone you consider knowledgeable in the business look at it as well. It never hurts to have another set of eyes scrutinize it. Ask questions if you do not understand any item of the balance sheet. Untapped ideas from someone else do not do you any good. Do a monthly reality check of planned expenses vs. actual. When I was in farm business classes, it was called a 'monitoring worksheet'. If you do this on a monthly basis, it is far easier to anticipate any needs or changes that may be necessary. Put this on your calendar for every month on the same day so you get in the habit of doing this. Waiting until the year is over can be dangerous as it may be too late to take some steps to avoid problems or troublesome issues.
A broad area that deserves attention is associated input costs. Scrutinize and ask questions about each line item. Is this expense in line with benchmarks for a dairy my size? Why or why not? Most of the time doing what you always do gets you only what you always have gotten. Is that enough? Magic bullets are usually hard to come by. Unscrutinized though, it is safe to say, "Nothing ventured, nothing gained."
FIN BIN is an accessible database that consists of a compilation of farm records. Using your computer, the data can be broken down by cow numbers, by enterprise, or by a number of other categories. It can give you a set of benchmarks with which you can compare to your own. Even though every farm has a different situation, this can be very beneficial. As you look at the FIN BIN data, you will see a breakdown of input costs. You can look at information on farms that are similar to yours. There is a menu in the program you can select from to tailor the data to your needs and wants for comparison. When one or another of the numbers stick out, you then need to ask why. Maybe you know why, but it also begs the question, "If I can reduce the expense in this area, will it increase my net returns?" FIN BIN can be accessed through the Center for Farm Financial Management website at www.cffm.umn.edu.
As I write on these issues, I think of people I know who will be first in line to work the plan. I also think of some who will probably say, "What's he on anyway?" My task as an educator is to motivate you to do this! Whether you are a large, small or medium dairy farm manager, take time to rethink your business. Find ways to enhance your margin of returns. In so doing you will be more prepared should (or when) prices fall again! For the people that know me, I am usually more optimistic. In the face of where the dairy industry has been and with milk prices and input costs being hard to predict, scrutinizing your financial records on a regular basis is good proactive medicine. Be prepared!
Dairying is a way of life for many farm families. Enjoy it as such. BUT, it is of utmost importance in today's financial environment to manage it like a business! You and your family will benefit in the long run to prepare for the challenges before they are here.