Sustaining dairy —
SIOUX FALLS, S.D. – “I’m making a profit, isn’t that what ‘sustainable’ means?” Jim Salfer and Jim Paulson, both from the University of Minnesota, selected that question as the subject of their session at last week’s I-29 Dairy Conference.
“A dairy system needs to be environmentally, socially and economically sustainable,” said Salfer. “For a dairy farm to be sustainable it must provide self fulfillment and life quality satisfaction for owners and families alike.”
Quality of life is driven in a large part by profit, he added. Making money ought to be a goal. Using the excuse that a farm is a great place to raise a family is not enough. Making money makes it a whole lot more fun.
Cost of production has skyrocketed. Normally milk prices peak about every 35 months, with producers alternately getting high prices and low prices.
Salfer also felt the rules have changed. Tighter credit rules translate into a different lending attitude. Immigrant labor reform could have a huge impact on larger dairy farms that hire immigrants, he noted.
The dairy industry has seen an increase in exports, a good thing, but it also has risks as it relies on currency, economies, and value of the dollar, all of which adds to the volatility of the market.
The majority of Midwest dairy farms are less than 100 cows with stall barns. They are owner, family-operated with little hired labor. Salfer suspects these dairies will not be replaced when the owner retires.
These dairies tend to be the most efficient with best return on dollars invested. But Salfar warns that they do not generate enough money for family living, retirement and capital replacement costs. “You gotta have enough volume to make a living.”
Every dairy is different, Salfar recommends six management practices to consider when looking for ways to remain sustainable.
- Maximize income over feed cost.
- Reduce costs that do not reduce milk production.
- Review earnings by assets.
- Maintain working capital.
- Avoid investments with delayed payoff.
- Avoid calamity.
“Whatever you do, you don’t want to reduce milk production.” said Salfer. “Price shop, watch for bargains, seasonal variations.” Volume discounts are good, but be careful about tying up cash. In today’s environment, cash is king.”
Cow health and a maintenance program is not an area to scrimp to save money. Basic risk management involving vaccines, good hygiene, feed quality and insurance are still necessary costs.
A better area to scrimp is to postpone upgrades and capital repairs, hire rather than owning equipment and check your need versus nice to have.
Work to maintain working capital. Culling non-productive cows if overstocked will provide quick cash and reduce feed costs. Perhaps there are alternative ways to rear young stock.
In times of tight finances, Thomas concluded, long term investments, even if profitable, may not be wise.
Contact Renae Vander Schaaf by e-mail at email@example.com.
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