Focus on the Fundamentals – Financial

Gary Sipiorski, Citizens State Bank of Loyal

Armfelt, Caddy, Weisman

When the milk price drops and stays down as long as it has, emotional decisions are a dairy producer’s first reaction. A better approach may be to Stop, Think, Talk and Calculate the Impact. It is too easy to Fire, Ready, then Aim. Here are a few Dos and Don’ts of which dairy producers should be reminded. Remember, cows are not economists. They react to comfort and care. If you were doing things right with the cows before, you should keep doing those things now.

Do:

1. “Cash Flow” is and always will be King. Think about the impact that each decision will have on the Gross Income. An often asked question: “Why does production go up nation wide when the price of milk drops?” Dairy producers that can, are adding cows or work to achieve higher production to recapture lost Gross Income. The bottom line is to generate cash!

2. Now is the time to really “know your monthly cash expenses”. Sit down with key employees and go through each expense category. In times like these, sit down at the first of the month and write down those anticipated expenses on a pad of paper next to the anticipated income. At the end of the month, review those expected numbers against the real numbers. How did you do? If you missed the acceptable outcome, redo the numbers for next month and discuss what management changes need to be made to make the projected monthly numbers match. It is best to go through this exercise monthly. If you wait for year-end, you may not be there to see the outcome. Computers are fine, but everyone seems to take more responsibility in times like this when you have the pencil in hand.

3. Review key and major expense areas. Feed bills are always at the top of expense categories. Make sure each ingredient is pulling its weight with the cow. Review other major input areas. Resist major changes in those areas that worked before the milk price dropped, like feed protein and POSILAC®. Make sure you are using high quality feed that has the potential to make milk. 4. Talk to your money source people before they want to talk with you. Lenders hate to be surprised. You take the lead to share your balance sheets, cash flows and thought process.5. Talk with time proven advisors that you have come to trust. This list may include your veterinarian, nutritionist, crop specialist, extension personnel and others. They still have good advice to share.

6. Surround yourself with producers that build you up, rather than pull you down! Many of your peers have been through times like these. Talk with those that have positive outlooks and suggestions.

Don’t:

1. Don’t change the things you know are right for the cows. (See “Focus on the Fundamentals - Cow Management”).

2. Don’t buy assets that have a long payback such as land, machinery and pickup trucks.

3. Don’t stop talking to the right people that have been through this before and have been successful.

Source: Monsanto
Authors: Armfelt, Caddy, Weisman