As margins tighten this winter, don’t cut costs so radically that it makes the situation worse, says Tim Swenson, a business consultant with AgStar Financial Services based in Hudson, Wis.
“Have a long-term vision for your business, build and preserve working capital and continue to evaluate your operation,” he says.
Carefully develop budgets for the coming year, monitor them moving forward, compare them to benchmarks and conduct sensitivity analysis. “We do have an opportunity to get through this. It’s not all doom and gloom,” Swenson says.
Feed typically makes up the largest share of dairy budgets. Critically review all discretionary ingredients. “You want a profit maximizing ration where you get the most return for the dollars invested,” Swenson says. “Least cost rations tend to be least milk rations.”
“Forage quality needs to be a priority,” he says. “And manage bunkers to decrease shrink.”
Examples: Peel back bunker covers every other day rather than weekly to reduce air exposure. And knock down just enough feed for each day’s need, rather than several days’ worth of feed to save a few minutes of labor.
Also take full stock of feed inventories. If you have an ample supply of well-fermented corn silage, for example, does it make sense in 2016 to plant less BMR corn?
If you have a poor growing year, you can still harvest conventional hybrids for silage. But if you have a good year and ample inventory, you might be able to harvest excess corn for grain sales. Even at $3 or $4/bu, that could create a way to re-capture feed growing costs.
Consider fine tuning feed refusals. “If you were running 4% refusals, can you take that back to 3%, 2%, even 1 ½%? That takes very intensive management, such as pushing up feed every 40 minutes and evening feed out over the length of the bunk,” he says. But if you want to save costs, it might be worth doing.
You also need understand why, and when, cows are leaving your herd. A good target is to have less than 8% involuntary culls during early lactation.
If you have more than that, closely examine why. It might take some investment in better facilities, but it will be worth it in the long run.
“Also cull cows at maximum flesh. It rips many dairy farmers a part to sell a pregnant cow, but you need to be disciplined when you make cull cow choices,” he says.
Re-examine your foot-trimming schedule. Does every cow need to be trimmed twice a year? Don’t skimp on foot care for those that need it, but some might not.
On pharmaceutical inventories, monitor and manage ‘closer to use’ versus purchasing for a deal.
Conversely, don’t cut back on vaccinations because you haven’t had a problem recently. “Short-term gains here can lead to long-term problems,” says Swenson.
“We’re also in a period of time where we need to be careful on capital replacement, but not shut it down completely,” he says.
So carefully look at term principal and interest payments, debt structure, working capital, cash flow and repayment capacity. If you anticipate shortfalls, meet with your lender sooner rather than later. “Take steps now to adjust financing,” he says.
