LEWISTON, Minn. – Approximately 50 dairy producers gathered in Lewiston Jan. 21 to learn about financial management.
Gary Sipiorski, dairy development manager for Vita Plus and a former bank president, spoke about factors that led up to the tough financial market for today's dairy producers and discussed steps they should take now.
He summed up his advice with what he called the "four-legged milk stool."
The first priority is cow comfort. Show Sipiorski a farm focusing on cow comfort, and he'll show you a farmer with high production. The second priority is forage quality. Grow the best feed you can and buy what you can't grow well. Third, know your numbers. Make your balance sheet, track your cash flow and plan ahead for future expenses. Fourth, if you're going to milk more cows than your family can handle, you better learn to work with employees.
"If you don't and can't work with hired help, don't get the cows," he said.
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Now is the time for producers to think about what works for their farm so they can prepare for the future. The first step is to determine the farm's cost of production per hundredweight to know exactly which milk prices will bring profits. If a milk plant allows a producer to fix the milk price at $2 to $3 above their cost, it's worth consideration, Sipiorski said.
Producers are entering a critical time of year when they should visit their banker, he said. Producers should go, prepared with a balance sheet, 2009's income and expenses, a projection of 2010 costs and a plan for the future.
"Don't wait," he said. "Don't surprise your banker."
Look for ways to control expenses. Work with a nutritionist to consider protein substitutes that could lower cost. Make sure the farm's labor force is efficient and select only the top third of heifers for sexed semen.
If you owe money to lenders or suppliers, keep communicating with them and make payments. Make sure your balance sheet is accurate and take the time to teach your children about finances, he told the producers.
The Farm Service Agency has a direct loan program with a $300,000 limit per producer of all ages to help pay for operating expenses or to purchase farm land. FSA can also guarantee a loan for a producer worth up to $1.12 million for a wide variety of farm purposes. Usually, loans are guaranteed at 90 percent, which means if the producer can't pay back the loan, the agency will pay 90 percent of it to the lender.
When the farm gets to a break-even point, focus on building back equity. Thirty percent equity is important for lender confidence, he said.
It's also important to continually seek good information at meetings and spend time with other producers who have a positive attitude.
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The dairy industry didn't cause the economic problems the country is feeling today, he said, but they are being impacted. People anticipate economic recovery, but that clashes with the fact that one in 10 people don't have a job.
It's important for dairy producers to consider the $11.6 trillion in actual money or guarantees the U.S. Treasury and Federal Reserve have committed to the economy. The speed at which those supports are pulled out of the marketplace could trigger inflation. With the possibility of inflation comes the potential of rising interest rates. Sipiorski doesn't think the interest rate will change yet, but said if inflation starts to take off, ratcheting up rates is the only control.
The dairy industry last year saw losses from approximately $6 per hundredweight of milk in California to about $4 per cwt in the Midwest. Volatile prices in the dairy industry remain.
"It's been a disastrous year and you need to talk about it," said Sipiorski.
The nation has just more than 9 million dairy cows. He said the herd will need to contract to a little less than 9 million to match consumer demand. This will happen between losses in California herds and other farmers who will go out of business.
University of Minnesota Extension organized the event.
