This article first appeared on LancasterFarming.com as part of our series, “Farm Credit Corner” which will print the second Saturday of each month. Be sure to look for it in your print copy!
Written by: Andrew Stutzman, Farm Credit loan officer
The last couple of years haven’t been easy for dairy farmers. Low milk prices and uncertain markets have made it difficult to make ends meet. Profits have been low and many farmers are even showing losses. What can one offer as advice or inspiration to dairy farmers at a time like this? Thinking about this prompted me to look back to 2009, a year when low milk prices and high feed costs created an even more difficult situation than we are experiencing today.
Farm Credit publishes an informative newsletter for Amish farmers called “Plain Dirt Financing.” I dug through some issues from 2009 to see what advice we offered dairy farmers back then, and if that advice is relevant today. It is! Here is a summary of a selection of articles that were helpful then and are again today, almost 10 years later.
Article One: “Lessons Learned from the Great Depression”
If your grandparents lived through the Great Depression, you might remember them telling some stories about how they managed during a time that was much more difficult than the present time. During difficult times, it’s helpful to see frugality as a virtue, be cautious with credit, nurture your limited resources (including the soil!), and reuse – not to waste. It is also helpful to nurture positive relationships with family and friends, enjoy the simple pleasures, and always be thankful for what you have. Gratitude and remembering what is truly important can go a long way when facing a difficult time.
Article Two: “How Much Does it Cost?”
In this article from 2009, we gave instructions for how to calculate your cost of production in terms of cost per hundredweight (cwt) of milk produced. Knowing your cost per hundredweight gives you valuable information that you can use to make strategic management decisions. It also normalizes your expenses so that you can compare them to industry benchmarks as you evaluate your operation. At a time like this, efficiency is more important than ever, and knowing your cost of production is crucial to streamlining your operation.
Article Three: “A Focus on Income – Keep That Barn Full”
Keep your stalls full with milking cows for as much of the year as possible. Each dairy operation has both fixed and variable costs. Fixed costs stay the same whether your stalls are full, half-full, or empty. They include items like your rent or mortgage interest and real estate taxes. Variable costs increase for every extra cow you add – things like feed, vet costs, and supplies. If you have any empty stalls, you have an opportunity to increase your milk income by filling them up with extra cows. Only your variable costs will increase, while your fixed costs remain the same. These extra cows will be the most profitable on your farm!
Article Four: “Talking With Your Creditors During Times of Stress”
Talking with your creditor when things are not going well can cause some anxiety, but speaking as a lender who specializes in agriculture, we understand and empathize more than you think. As you prepare to meet with your lender, assemble good farm records and show them that there is a plan in place for the future. You want to be able to show that your operation is viable long term. Include information that strengthens your credit worthiness, such as back-up sources of income, collateral, and potential co-signers. You may be tempted to procrastinate contacting your creditor about a difficult situation, but good lenders will love you for your open, honest communication, and will be glad to work with you towards a solution.
Article Five: “This Too Shall Pass”
This article encouraged readers to take a step back and look over the milk price history from the previous 15 years. History shows other cycles of low milk prices, and none of them continued forever. While we probably can’t expect a huge increase, most dairy industry experts are projecting some increase to the milk price over the next couple years. Take some encouragement from the past and remember that “this too shall pass.”
If you would like to read any of the articles mentioned above, or discuss ways Farm Credit can help you set your operation up for success, please call 888.339.3334 or visit mafc.com. We’ve been helping farmers weather the ups and downs of agriculture for over 100 years, and we’ll continue to help until the cows come home.