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May 2013 Archive for Fiscal Fitness

RSS By: Dairy Today: Fiscal Fitness, Dairy Today

Financial management experts, lenders and accountants share ways for dairy producers to improve money and credit management. Look for help on budgets, taxes, loans, financial performance and even bankruptcy.

Precision Dairy Farming – Is It for You? (Part 1)

May 24, 2013

From robotic milking to precision feed management, these new technologies promise great benefits. How will you determine if they justify their cost?

Steele Greg (2)By Greg Steele, AgStar Financial Services

It has now been several years since Global Positioning Systems were introduced to U.S. crop farms. Now it’s a common management tool for many tasks associated with planting, monitoring and harvesting crops. There is no question that this type of technology has optimized management in many areas by improvement in matching fertility need to soil type, enhanced water and soil protection, better economics, and improved decision- making--just to name a few.

Precision ag: not just for grain producers

So, what do these new technologies have to do with the dairy industry? Quite a bit. If you made it to World Ag Expo, World Dairy Expo or any of the many state and regional dairy industry trade events, you likely noticed the introduction of tools and concepts that improve management, replace labor and enhance milk production. These technologies can be grouped into four categories:

1. Robotic milking
2. Feed management
3. Automated calf feeding
4. Herd management sensors

Robotic milkers: This precision technology continues to gain acceptance in the dairy industry. Several companies have released their version of the robotic milkers, which were designed specifically to replace the manual task routinely done by humans to milk cows two, three or even four times a day. The benefits of robotic milkers may include:

• Reduced labor costs
• Decreased need for employee management
• Consistent preparation and milking procedures
• Improved production, milk quality and udder health

Automated calf feeders: Feeding dairy calves manually is a two-or three-times-a-day task. The development of automated calf feeders has brought many benefits, specifically:

• Increased labor efficiency
• Improved immune system development
• Environment conducive to social interaction and welfare
• Maximized growth potential, which can positively influence future milk production

Key considerations when implementing automated calf feedings systems are building layout and machine type. Good planning to design a coordinated system is a requirement.

Herd management sensors: Wouldn’t it be great to be able to monitor cow welfare 24 hours a day, seven days a week? New sensor technology, which works in a variety of environments — from freestall barns to loose housing to pasture — makes this a reality and can help dairy producers:

• Increase reproductive performance
• Detect sick cows one to two days earlier
• Eliminate manual data entry

Precision feed management: Given the rapid rise in feed and grain prices, precision feed management has become very important over the past several years. Technology has gone beyond the common truck scale and computerized software designed to monitor feed costs per ingredient and adjust for shrink and moisture. State-of-the-art feed management devices can measure out various feed ingredients to prescribed levels of accuracy. The benefits of precision feed systems may include:

• Increased feed efficiency
• The ability to match nutrients fed to individual cow needs
• Feeding requirements based on dry matter intake, body weight changes and milk yield
• Inventory management

All of these technologies tout improved economic performance. Most of them provide significant statistics and data points that can improve management intervention and decisions. Precision technology does indeed hold great promise for the industry; however, what will be the cost to adopt these technologies?

Your lender will want to understand the cost benefit analysis of the investment. He or she will also need to know how it meets the investment test of improving efficiency, reducing costs and increasing production. How does a dairyman determine if these are wise investments that will provide the returns that justify the cost?

Preparing a partial budget can help. This decision-making framework compares the costs and benefits of alternatives being evaluated by a dairy business. It will focus only on the changes in income and expenses that would result from implementing a specific system such as a calf feeding system. Then further determination can be made for how the precision technology investment impacts the overall profit and loss statement for the dairy business.

Next in this series on precision farm technologies, Steele will examine how to use a partial budget as a decision tool and how it may benefit your dairy operation.

Greg Steele is vice president, dairy industry, for AgStar Financial Services. He can be reached
at greg.steele@agstar.com.

Where to Now? 5 Questions to Ask Yourself

May 10, 2013

Take the steps that will enable your dairy operation to strengthen and evolve into a stronger financial position.

p7 Fiscally Fit Mark BradyBy Mark A. Brady, CPA, CVA, Partner
Cooper Norman Certified Public Accountants

The past few years have dramatically changed how numerous industries operate, especially the dairy industry. In the dairy industry, we have seen many articles and posts about the need to be "Fiscally Fit" in various publications and media settings. Much of the discussion was in regard to the need to change with the changing times. For most dairy operations, it became a necessity for survival.

We are now beginning to see numerous posts and articles that discuss items of generally more positive tones. We need to remember that no one can see the future. As our dairy operations and the economy change, we will need to look for and take steps that enable our business operations to strengthen and evolve into stronger financial positions. That will allow them to withstand future downturns that we know are inevitable and extremely unpredictable.

If we were able to put together the management team spoken about in the previous posts and have survived to now, there is a good chance we are headed in the right management direction. We must keep in mind that whether the economy has begun to change for the positive or not, the things discussed earlier while in the down market are still extremely vital. The continuation of those management-type decisions while in upward swinging markets can allow a business to get out in front of the curve and move to the forefront of the industry.

Remember, the real key is to have a management team that has the future success and continuity of the business at heart. They should be looking ahead to identify ways to accomplish things like:

1. Which creditors should be caught up first?
2. How can we improve our lending relationship?
3. How we can rebuild the equity lost by the current owners?
4. How can we put funds away for older, less active owners?
5. Is it time to begin ownership transition to the next generation since values are depressed from the down economy?

Every business operation must review his or her current position (financial and market) and begin asking, answering and preparing to implement plans to successfully complete the items needed to improve, propel and enable their success into the future. The business might even need to reshape the structure of the company, its management and/or its employee workforce.

The list above is in no way all-inclusive and is not what every business needs to accomplish. As indicated, the responsibility of the management team is to identify the needs of your business operations and put into motion the plans to accomplish the desired results.

As accountants, we cannot agree more with some of the most recent posts discussing the importance of having up-to-date bookkeeping and record-keeping systems and a set of personal benchmarking criteria. It is basically impossible for a management team to implement management strategies, let alone set goals, when it cannot identify the position the operations are currently in. Appropriate accounting records, ratios, budgets and projections all assist management in making timely, realistic, achievable plans.

Since, the last few years have been so tight dairy operations have generally operating on an extremely tight, crisis mode. It becomes vital to each operation and owner to be sure that they are planning for the future of longer than just one day. The last few years have been extremely brutal on the dairy industry and not many members of other industries would be able to survive the way many of you in the dairy industry have been able too. If the current economy is truly improved for the dairy industry at all, and we have positioned our operations appropriately, the potential successes are sure to come.

Based in Idaho, Mark A. Brady is a partner with the firm of Cooper Norman Certified Public Accountants. Brady is a Certified Public Accountant (CPA) and a Certified Valuation Analyst (CVA). He grew up on a Montana dairy. Contact him at 208-733-6581 or mbrady@coopernorman.com.

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