Live Off Depreciation Sunnyside shuts down capital spending

March 4, 2009 06:00 PM
 
Equal partners (left to right) Greg, Neil and Jack Rejman try to run Sunnyside Farms as lean in good years as in bad.

With a short-term break-even milk price of $15/cwt. running below variable costs for 2009, Neil, Greg and Jack Rejman still think they can hack an ugly period of six to 12 months—partly because the last 18 have been so good.

"We try to run as lean in the good years as in the bad,” Neil says, "so I don't think there's too much softness in our on-farm practices that we have to correct for.”

The Rejmans operate Sunnyside Farms, Inc., near Scipio Center, N.Y., milking 3,200 cows and growing 95% of needed forage, as well as about four months of necessary corn meal inventory. Continued high grain prices have thwarted their attempts
to reduce input costs.

Except for a tripling of the herd about 15 years ago, growth has been in small increments at this progressive dairy. The Rejmans have never forward contracted milk, and have locked in grain prices only rarely—more as a convenience than as a strategy.
What concerns brothers Neil and Greg and their father, Jack, more than the precipitous drop in milk price is the soured world economy as a whole and the risks associated with it.

The family understands the cyclical nature of milk prices, but notes with caution the coupling of these two events. "The old order of supply and demand might not be as reactive as it once was,” Neil observes.

"As long as banks are still in business, I think we'll be okay,” he adds. Sunnyside does business with Farm Credit Services of Western New York.

Recent investments in a manure digester, some updated machinery and debt repayment have made good use of borrowed capital as well as profits from 2007 and 2008. The Rejmans hope these improvements will lower their costs in 2009.

Still, an extended period of ultralow income beyond 12 months might prompt them to consider altered strategies such as changing from 3X to 2X or cutting grain portions.

"We just want to be sure not to overreact and cut corners so severely that we hurt production long-term,” Neil says.

"The reality is, you can't alter the direction of the ship—our cost structure doesn't change just because times are hard.”

In the meantime, Sunnyside is battening down the hatches with the following action list:
  • Eliminate capital spending unless absolutely necessary. "That's until we're not scared anymore,” Neil says.
  • Lock in an interest rate on half the company's debt (at a premium) to protect against severe inflation.
  • Consider eliminating the use and increased cost of sexed semen.

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