Source: Dr. Dave Kohl, Professor Emeritus, Virginia Tech University
The agriculture industry is in an elongated and disruptive economic downturn. While many segments of the industry are experiencing low margins, the dairy industry is the "poster child" for financial stress. However, over the past few months some dairy producers have quietly stated that they were making money and not all of these profitable producers have huge operations. One recent seminar attendee asked what other farmers were doing to stay in the black, particularly in the dairy industry.
These dairy farms, ranging from 90 to 400 cows, were first and foremost very knowledgeable about their numbers. They frequently monitored production, income and expense figures. A keen sense of financial awareness is a common attribute amongst profitable producers across all sectors of agriculture.
Some of the dairies are diversified with different sources of income. For example, one used his manure to reduce fertilizer costs for his corn silage and sells the extra corn as a cash crop. This strategy, followed by soil testing and monitoring, reduced fertilizer costs by up to 25 percent and also improved the quality of forage for livestock production and overall soil health.
Another dairy placed stock in conducting an inventory of every asset on the farm, including human assets. This led to the reduction of human labor, including family members, that were not performing to expectations. As he stated, implementing job descriptions was an eye-opening experience and improved accountability for all employees, including family members.
Still another dairy farmer gave up some rented ground after an advisory team conducted an economic analysis on each farm. Eliminating the high cost of farming properties that were distant to the core operation or "farming the road" was a key strategy to improving profitability.
Another profitable producer reduced family living expenses by signing up with a Christian-based medical insurance. A $20,000 annual reduction in expenses was a real benefit to cash flow and bottom line results.
As one producer stated, "We are in an economic cycle where a line-by-line analysis is not an option, but a requirement." Another dairy farmer stated that sweating the small stuff and making incremental changes was the game plan in managing reduced expectations.
These examples are applicable to farms of all enterprises and all sizes. While the mega economic forces make it challenging, focus on the critical fundamentals to be sustainable during a tough economic cycle.