Farming in the future
Published in Dairy Star August 22, 2009
What will your dairy farm look like in the year 2020? Will it be similar to today? How many cows will it take to make a living? Will it be more valuable for you to raise or buy feed? What are milk prices and input costs going to be? Although these questions are all debatable and amendable, it is important to think about these questions when making business decisions. There are no “perfect” decisions; however, some decisions are better for your desired lifestyle and profitability than others. Whatever you believe is your future, here are some principles that will increase the likelihood of your dairy business success.
- Dairy producers will need to generate more income to maintain the same standard of living, and because of increasing health care costs and other inflation. Figure 1 shows the yearly net farm income for Minnesota dairy producers enrolled in the farm management program. The average income per cow over the past 10 years is $550 and there does not seem to be a trend that the market will allow more over time. However, there are several options to increase income including: honing production skills and decreasing debt to become among the best in net income per cow, generate income from breeding stock sales, increase off farm income, or increase the number of cows.
- Good business management skills will be essential. Kennesaw College business professors Astrachan and Kolenko surveyed 600 family owned businesses and discovered those businesses that used management teams, had frequent family meetings, and developed a plan for the future had higher family member personal income and the businesses survived for more generations. I would encourage everyone involved in the business to write short- and long-term personal and business goals, share them with each other, then develop a new list of goals for the business, taking into account everyone’s goals. This is not an easy process. Often family members have conflicting views of which direction the business should be going. But if this is communicated, family members can begin to better understand each other. Setting goals will make the process of decision making easier. Share your goals with your management team. Ask the team for constructive input on the practicality and feasibility of your goals. Ask your management team to help develop an action plan to achieve your goals. Most dairy advisors I know really enjoy helping their clientele succeed.
- To make better business decisions, good production and financial record keeping systems are essential. Most tax records are not adequate because they are on a cash basis and a good accounting system needs to be an accrual system. As a bare minimum, you need to track whole farm profitability. It is even better if profit and loss is tracked for each enterprise, helping determine which enterprises are the most profitable on the farm. It also helps focus capital investment where it provides the greatest return.
- Calculate cost of production on a regular basis. With the current volatile prices, an annual business analysis is not adequate. Most businesses should do at least a quarterly or monthly analysis of how the business is doing. This will allow you to make more rapid business decisions ensuring the likelihood of business success. As you develop cash flows, make sure to conduct a “stress test”. What happens if milk stays low for 6 months longer than you anticipate or interest rates rise? The increased volatility will require the business to be more nimble and adaptable to change. This can be difficult for a capital intensive business like farming.
Minnesota DHI offers a variety of computerized production software options. These are great for providing information to help in herd management decisions. Another advantage is that your farm advisors can download the information and monitor your herd’s performance. Another more recent internet based tool to monitor herd performance is Milk Lab. This uses statistical process control to determine if SCC and components are increasing or decreasing. Visit with your milk plant representative about availability and pricing.
With computers now being the norm on farms, it is becoming easier to keep good records. Many computers come with financial management software. These can sometimes be customized to do an adequate job for a small business. There are also several software packages designed specifically for farming. The Farm Business Management programs offered by the technical colleges do an excellent job of business analysis and interpretation. There are also many independent consultants that offer very good record keeping and analysis programs.
Following these steps will not guarantee business success. However, working with a good management team and family members to set goals for your business, and developing a good record keeping system will greatly increase the likelihood of profitability and satisfaction of your business.