Surviving low milk prices
ORANGE CITY – “Honestly, it is a very tight time financially,” said an unidentified dairy producer who wished to remain anonymous.
“I am getting very good milk production, 25,000 pound average, but it isn’t enough to pay the cost of production,” he added.
Forty dairy producers, financial advisors and industry associates attended a meeting on April 23. A planning partnership between Iowa State Bank, Iowa State University and Vita Plus brought this encouraging, informative meeting to Orange City.
Clark Pennings, assistant vice president at the Orange City branch of Iowa State Bank, said that while the last couple years have seen a lot of growth and optimism in the diary industry, the optimism disappeared during the last third of 2008.
The worst has been February and March 2009.
“Now with the cost of production greater than the return,” Pennings said. “Dairy producers have seen their gains in equity increasingly erode.”
The April 23 speaker was Gary Sipiorski, now a dairy development manager for Vita Plus, and a bank director, who currently serves as an appointee on the Agricultural Advisory Committee for the Federal Reserve Bank of Chicago.
Sipiorski first painted a gloomy picture, explaining how the financial world has collapsed and what has been done to reverse the damage.
On a more positive side, Sipiorski said people have to eat. “The American farmer produces the most nutritious food,” he said, “but folks don’t always make the best choices. The average American consumes 21 gallons of milk, but 55 gallons of pop.
“In the US, just 10 percent of average gross income is spent on food. It’s 25 percent in Europe, 50 percent in India and 95 percent in Russia.”
The dairy industry is undergoing change, but Sipiorski believes it will remain in the Midwest. “Overall the Midwest has the best weather,” he said. “The Southeast too hot. In the Northeast there is continued pressure on land values. Many Amish and Mennonite families are leaving Pennsylvania (and) relocating in Wisconsin. In the extreme West water is an issue.”
In addition to comfortable weather, Sipiorki said that on average rainfall measures 34 inches annually in the Midwest. “We have the infrastructure with milk plants, veterinarians who know dairy and lower feed costs,” he said. “Transportation costs will rise again as oil prices will not stay down.”
All indications are that it will take three to five years to work through this financial crisis. It isn’t possible to shut agriculture production off, so producers need to be very good at what they are doing. That means know the cost of production.
“In 1980 the expense rate was 50 percent,” Sipiorski said, “meaning half that milk check was yours. That has been reduced to 15 percent until 2009 where none of it is yours.”
Lenders, he contionued, “want you to succeed, doing whatever it takes to make it work, but sometimes lenders run out of stops,” Sipiorski said. “Talk with your lender, don’t give him any surprises.
“When you go to the lender, be prepared. You have to know what drives them.” Be realistic and bring your logic was the advice Sipiroski offered.
Don’t despair, suicide is not the answer, Sipiorski told his listeners. He closed with a quote from Chuck Swindoll, an evangelical Christian pastor and author, whose ministry is headquartered in Plano, Texas:
“The longer I live, the more I realize the impact of attitude on life. I am convinced that life is 10 percent what happens to me and 90 percent of how I react to it. Attitude is more important than facts. It is more important than the past, the education, the money, than circumstances, than failure, than successes, than what other people think or say or do. It will make or break a company. The remarkable thing is we have a choice everyday regarding the attitude we will embrace for that day.”
Contact Renae Vander Schaaf by e-mail at email@example.com.
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