Control What You Can
Oct 05, 2009
By Jim Dickrell
In turbulent times, worrying about things you can’t control is just wasted effort. Not only does it do no good, it distracts you from focusing on doing things that can improve your situation both now and for the future.
Tim Swenson, a dairy business consultant with Lookout Ridge Consulting, offered these tips at one of the final World Dairy Expo educational seminars Saturday.
• Income over feed cost (IOFC). “Understand what goes into your dairy’s income over feed cost number because it is what is left over to pay all your other expenses,” he says. Make forage production and quality a priority, because it can make a huge difference on your cash expenses and milk production.
Also manage your feed inventories carefully. Do everything you can to minimize shrink. “Now is also not the time to build inventories to have enough feed for two years. You have too many other things you can do with that cash,” Swenson says.
Critically review all discretionary ingredients in your rations. “Don’t rip every additive out of rations, but look at each one and ask why it is there,” he says. “You need to look at profit maximizing rations, not least cost. Least-cost rations can reduce milk and IOFC can actually go down.”
• Manage your replacement rate. Identify areas where cows are being “wrecked” on your dairy. “Especially focus on the first 60 days in milk, because you have all the expense of getting cows to freshen but have no opportunity to recover those costs if you lose them so early in lactation,” says Swenson.
At the same time, re-think when you’re culling cows. The old rule of thumb was to cull when milk production dropped to 30 or 35 lb. But with higher feed costs, the breakeven in many herds has risen to 45 lb. If the cow is pregnant, consider early dry off.
“Also treat heifer raising costs as an investment in your future,” says Swanson, “and make sure you’re having that discussion with your banker. He might want you to sell 12 heifers to create $12,000 in immediate cash. But then you’ll have 12 empty stalls next spring that you’ll have to fill.”
• Manage labor efficiency. “Don’t expect $8 or $10 per hour employees to manage your herd because you usually get what you pay for,” he says. “At the same time, don’t expect your herd manager to also scrape alleys in his ‘spare time.’ You need to leverage the talents of your current employees.”
Employee turnover also drains labor efficiency. One dairy Swanson works with had decided it would pay no more than $8 per hour for milking labor, but it was constantly having to hire new milkers. It actually cost them more to train new milkers because they needed an extra worker in the pit to do the constant training.
• Structure debt properly. “Make sure term debt is amortized over the useful life of the asset,” says Swanson. “If you put a forage chopper on a 20-year note, it can put you in real pickle when it wears out in five years.”
Also consider deferring principal (interest only) when cash flow is tight. But Swanson offers this warning as well: Most lenders are not extending the term of these notes. So when you go back to paying principal, the payments per month will go up to get the loan paid off in time.
Swanson concludes: “There is no silver bullet out there to fix all of this. Make decisions that fit your dairy and your situation. The choices you make now will impact your business for years to come.”
Jim Dickrell is editor of Dairy Today, you can reach him at firstname.lastname@example.org.