By: Sarah Worobey, Loan Officer, Mount Joy, PA
In today’s dairy market, there are a lot of questions about what can be done to increase cash flow, or how best to move forward with new technology without breaking the bank.
After seeing many dairy farmers this year go through multiple family transitions, introduce new milk marketing strategies, and crunch numbers to get a better understanding on cost of production, the likelihood of new upgrades doesn’t always seem to pencil out. This is especially difficult to understand given the uncertainty of where milk prices will end up later in 2019.
Before making any decisions regarding new improvements for your dairy operation, here are a few items to consider:
Prepare Three Years of Past Financials
It is important to review your farm financials from the past three years. This information will help your accountant and lender to evaluate where your business has been, and what potential it has moving forward.
This is also a good way to see where production costs are changing – especially those that have increased. This will allow you to start making projections based on a current production scale, but also identify what will be needed to help cash flow for an upgrade or renovation.
Keep in mind, long-term upgrades such as better cow comfort, more efficient milking systems, or decreasing labor costs typically will likely not show a return on investment within the first year.
Start a Conversation with Your Milk Market
It is a good idea to talk with your current milk market who handles your contract. Do they need more milk? Do they have suggestions of where they see the future milk market? Are they seeing any new or future requirements for facility upgrades? These conversations will help you start planning for the future, without doing too many upgrades at once and restricting cash flow more than it may already be.
Build Your Resources
Keeping up to date on industry resources is key to staying informed on where the newest markets are deriving and what milk markets are looking for. Seek out opportunities to network with new equipment dealers, nutritionists, herd health specialists, and financial resources for dairy farms. This is the time of year to sit down with your resources and make a plan of action that best suits your future plans to stay successful in a variable market place.
Upgrading equipment and renovating barns are necessary for all operations, but timing is everything. As a producer, it is important to remember equipment and facility upgrades should help your operation cash flow more smoothly or generate more income by improving efficiency. These decisions need to be given a lot of thought, and determining the best fit should be discussed with your family and network of resources.
If you’re ready to discuss next steps, our family at Farm Credit is here to help. Give us a call today at 888.339.3334, or visit mafc.com to learn more.