Feed prices are going up. Milk prices are not keeping pace. Profit margins are shrinking. Lenders are getting anxious. The trap is set for poor decision-making that easily occurs when a farm’s priorities are not clearly defined. Decision-making is improved when the business objectives of the farm are clearly defined, and the focus is placed on those priorities that most impact lifestyle and farm profitability goals. 

Many farms only have understood goals or even none at all. Developing and recording goals and management priorities takes the emotion out of tough decisions when times are challenging and the ability to think clearly becomes more difficult. Also, having these priorities recorded means they are available for reference. 

In difficult times, common distractions may be cost saving deals or declining rates on operating loans. Using these tools may not be harmful themselves, and may actually be necessary to the farming operation. But, their use should be evaluated in the context of how they help achieve farm goals to avoid being “caught” in the trap of making an ill-advised decision. 

My colleague, Andy Overbay, uses the example below to illustrate this point. You have $55,000 available to buy a single vehicle for your farm. You have room to store one vehicle and the vehicle cannot be resold or traded. A local dealer has a new pick-up for $52,000. You can remember when $25,000 was outrageous for a pickup! While shopping around, you come across a new 2013 Corvette Convertible 427 for $49,000. This car has not been released yet, but I can assure you—that is a DEAL (list price on this car is $91,320)! You buy it and bring it home. The next morning, you have cattle out that need to be hauled home, but you cannot hitch your gooseneck to your new car. You have a great bargain, but you have lost sight of your business priorities and jeopardized the operation.

A common trap when margins are getting squeezed is improper cost control strategies. A simple goal of focusing on what pays the bills is a great starting point when evaluating cost-cutting opportunities. Here are a few low risk, high reward cost control tips that are aligned with the goal stated above: 

• Review non-income producing units such as forage system, manure handling, replacement and dry cow enterprises for cost savings that will not hinder immediate and future profitability. 
• Do not automatically make cuts to the lactating cow diet without evaluating potential negative effects to productivity or income. A good nutritionist can assist. Switching an ingredient that is fed at 5 lb./head a day for a $50/ton savings saves 12.50/cow a day or $375/month on a 100 head herd. The loss of 1 lb. of milk/cow makes this a bad decision. 
• Practice comparative pricing the same commodity or supplement where savings can be realized with little or no dietary changes for the lactating herd. Ensure that these commodities are of equal nutritional value by requiring guaranteed minimums on major nutrients and dry matter content. 
• Use timely forage tests to determine supplementation needs accurately. 
• Determine culling and dry-off breakeven points to determine when cows should be culled or dried off. Feed pricey ingredients to the animals most able to turn that into current profit. Note: Culling and dry-off decisions should also consider body condition score, cow health, and reproductive status. 
• Maintain udder and herd health to prevent dumping milk from treated cows who are still consuming the lactating cow diet. 
• Keep up the preventative maintenance of the milking system to avoid system failures. 

The above list is not comprehensive, but gives a guide for avoiding pitfalls of reactionary dairy management when feed prices soar and dairy margins shrink. Review herd performance benchmarks and look for indicators that barriers exist for cows to perform at their potential. Improvements in herd health, reproduction, and cow comfort lead to greater efficiency in converting feed to milk. 

Linking daily decisions to the goals and strategies of the farm business results in greater consistency in management, and avoids the trap of rash decision-making.

This Issue:

• Dairy Pipeline, October 2012

Other resources in:

• Dairy Cattle

Other resources by:

• Kevin Spurlin

Other resources from:

• Virginia Cooperative Extension Unit Office