Capture dairy’s opportunities

FROM dairyeditor’s BLOG • Mar. 23, 2009

Survival mode

There are several things that are occurring that are being done to generate short-term cash flow that jeopardize long-term success.

Reality is that many producers are in survival mode, and rational actions and clear thinking are probably not taking place. The recent tragedies in California speak heavily to this.

I do not work with producers directly, but I am fairly well-networked in the industry professional arena and what I hear going on is very scary. All of what I have heard is survival-focused, and I can’t say I agree with anything I have heard. On the other hand, I don’t own a dairy that is losing $2-3 per cow per day and seeing equity vanish rapidly.

The obvious things like delaying capital expenditures, cutting herd health programs, etc. have been implemented in the last half of ’08.

Again, they are bad business decisions, but when survival is at stake almost anything goes including:

• Selling growing heifers to purchase springers.

• Cutting feed ingredients that have a known benefit and a known detriment if eliminated.

• Keeping low-producing cows for the sake of the banker and trying to get every pound of milk volume.

• Purchasing low-priced and risky feedstuffs to save on the feed line of credit, if still available.

Rick Rodriguez
Balchem Corp

 

Hard look at health, not production

Two years ago before milk prices went way up, we made some drastic changes on our farm. Our cull rate was sky high, death rate in both cows and calves was not far behind, our feed bill was outrageous, and our milk check couldn’t cover everything. We decided it was time to make some real changes or we were done.

We changed our way of thinking from pushing for production like the industry wants us to, to looking at the health of our animals and crops. We turned to a nutritionist that works with organic growers, even though we are not organic, and started to work on getting the health of our animals there. We have cut our feed bill, our vet bill, our cull rate and our death rate greatly.

We also looked at the crop side of things also. We have totally cut out all commercial fertilizers and put in a natural enzyme product that works naturally with nature to detoxify our soils and still our yields and nutritional levels are as high or even higher than what they were with commercial fertilizer, at a fraction of the cost. The cows will let you know which feeds they like better.

Jodi Knutson
Dairy producer
Clear Lake, South Dakota

 

Things you can’t live without

When I have talked with producers, the biggest discussion has been on what they are not going to cut. Those things have included:

Corn – A very astute producer told me that when you get 2 pounds of milk for each pound of dry matter over maintenance, it does not make sense to short the cow. Even at $10 milk, that is $0.20 of income. At $4.50 a bushel corn you still will get ~$0.10 return on investment.

Labor force – Those with a good stable work force do not want to lose them.

Reproductive and health programs – This may be my bias coming through in the conversation.

Milk quality issues – Teat dip, bedding, etc., to take advantage of premiums.

Producers that are in the midst of expansion are acting as the contractor and doing as much work as they can.

Some have worked with nutritionists to include minerals and vitamins at NRC levels rather than higher amounts. Similarly, feed additives (yeast, probiotics, organic zinc, choline, niacin, etc.) are being scrutinized more.

Dr. Barry Steevens and I have visited several farms that decided to cut feed costs by removing corn. This has done nothing but decrease production in these herds, and cows have lost too much condition to breed back timely.

I was at a meeting recently and an economist gave advice on locking in prices. He said you cannot do this from fear but from careful analysis of your operation, knowing what price you can make money and meet your goals. After locking in the price based on careful analysis, don’t fret when the price goes down.

Scott E. Poock, DVM
University of Missouri

 

Farm expense is biggest risk to viability

The ag sector is seeing financial and business collapses, rising unemployment, home foreclosures and government deficits. As lay-offs continue in rural communities with manufacturing jobs, people are all wondering exactly what is the “ripple-down” effect? Farmers and managers, who have enjoyed high farm net worth values and net farm income, are beginning to see economic conditions influence their business. With input prices for fertilizer and seed also on the increase, farmers are turning to the market wondering how many and exactly what crop to plant.

The future is extremely uncertain, and farmers/managers need to prepare by thinking in terms of contingencies – having plans for a number of situations that will only make them stronger when they survive. It is imperative to understand true costs of production. When profitable selling opportunities arise, they need to lock them in. They need to always be watching to price crop inputs – feed, fertilizer, livestock, etc. They are being required to shop around for inputs. Farm expenses are the biggest risk to farm viability in 2009.

Janice Schyvinck
Equity Cooperative
Director of Public Relations