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:
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.
Virginia Cooperative Extension materials are available for public use, re-print, or citation without further permission, provided the use includes credit to the author and to Virginia Cooperative Extension, Virginia Tech, and Virginia State University.
Issued in furtherance of Cooperative Extension work, Virginia Polytechnic Institute and State University, Virginia State University, and the U.S. Department of Agriculture cooperating. Alan L. Grant, Dean, College of Agriculture and Life Sciences; Edwin J. Jones, Director, Virginia Cooperative Extension, Virginia Tech, Blacksburg; Jewel E. Hairston, Administrator, 1890 Extension Program, Virginia State, Petersburg.
September 28, 2012