The ability to generate cash flow will be a key factor in determining which dairy farms survive the current market downturn, says North Carolina State University ag economist Geoff Benson. "Now is the time to assess the profit potential of your business for the short and long term and identify areas where you can stretch cash flow,” he says. Among his suggestions:
Draw on financial reserves.
Six months ago, not many people were predicting a milk price drop this severe. Even so, shrewd business managers recognized the good times would only last for so long and used the period to build up reserves for a potential downturn. Those producers will be in the best position to ride out the current downcycle.
On the flip side, producers lacking cash reserves may have to assess whether continuing in the business is in their long-term best interest. "Take a hard look and make your decision early, before equity erodes,” Benson says.
Reschedule debt payments.
If there's a silver lining to the dark cloud hanging over the economy, it's that interest rates have softened considerably. Working with a lender to restructure repayment schedules can not only result in lower monthly payments, but possibly less interest paid. In turn, smaller payments will free up some money that can be put to work elsewhere in your operation.
"If you have a solid balance sheet and a good working relationship with a lender, you may find it possible to extend your credit line or even add a new line,” Benson says. If you do opt to borrow, do so with the idea that you'll make repaying the loan a priority when better financial times return.
"Managing through Turbulent Times”
-webinar featuring Geoff Benson and the University of Kentucky's Jack McAllister