Is This Sustainable?

This is likely a question many folks in the dairy industry are asking these days. In essence, how long can we make this work? Considering the lower milk prices, high feed prices these past 18 months, rising interest rates and our ridiculous rate of inflation, it really is a great question to ask. In fact, it’s an excellent question to be asked on every major decision.

Honestly, when I heard about sustainability in the past, my mind was immediately directed toward the environment and related issues. For example, if I heard about someone discharging material into a waterway, I knew that was not at all sustainable for others downstream.

However, it’s so much more today. If we add another 400-cow free stall barn at a cost of $700,000, that represents $1,750/cow of additional debt. Not a big deal. However, if I also need to go buy the 400 cows at $2,250 each, then we are adding $4,000 per cow of debt. That level can quickly become tenuous. Is that sustainable? Probably not, unless your pre-expansion operation was extremely low on debt.

What’s the solution? You just need to build a sound plan. Can you buy heifers ahead of time and feed them until they enter the milking herd? Can you build your herd numbers internally, using sexed semen on your existing herd? All of these decisions need to be considered several years ahead of the free stall construction.

We really need a plan on everything we do. You can start today by setting your objectives, determining your overall project cost, researching if you can finance it, and also figure out, as in our example above, how you can fill the barn with the 400 additional cows. Ultimately, however, you will need to project if it will cash flow.

To assist you with your financial analysis, I have recently introduced a system to allow you to measure your dairy operation’s cash flow results. I call it the Success Strategies Advantage^TM. It is designed to create a budget for your dairy operation, using numbers for your region of the country. You can run various “What If” scenarios within it in order to figure out what various repayment schemes will work for you (15-, 20- or 25-year amortization periods). For each scenario, it also will provide you with the following items:

• A Year-to-Date (YTD) Cash Flow Comparison of your operation compared to a budget that is based upon typical numbers for your region of the country.
• It will show you where you may be over or under budget.
• It will provide you with Break-Even Levels for Milk Price/cwt, Feed Expense & Production per cow per day, all useful information for reaching higher levels of profitability, as well as setting your price level coverage through the Dairy Revenue Protection (DRP) and Dairy Margin Coverage (DMC) programs.
• It will also equip you to better understand where you might be over budget and help you to talk with your Team (e.g., Nutritionist, Veterinarian, Financial Consultant & Others) about how to refine your numbers.

Check it out on our Home Page at www.success-strategies.com. Use it to build a sustainable plan and to streamline your operations. As I always say, “If you measure something, you can understand it. If you understand it, you will be better positioned to control it, and if you can control it, you can definitely improve it.

Let’s take your business to the Next Level!