Drivers Ed for Dairy Producers

Introduction

Dairy farming is a tough line of work in more than one way. This occupation is hard in the sense that it demands long hours and back-breaking work, but it is also difficult due to financial difficulties. Because milk is a perishable commodity, farmers are forced to take the price they can get for their product, good or bad. In their article, “Managing financial information: Keep your eyes on the road,” Sam Miller and Brad Guse compare operating a dairy farm to driving a vehicle down the road. In this blog, I will discuss the main points of the article and why they are relevant to today’s dairy producers.

Looking ahead

Miller and Guse discuss how farmers have two options: to keep their eyes scanning the road ahead of them or to spend their time looking in the rear-view mirror. To me, this means farmers need to try to figure out what they can do to make their operation viable in the ever-changing dairy economy. Producers can’t look to things that they have done well in the past and expect those things to propel them forward. Miller and Guse say, “We’ve found when it comes to farm financial management, too many operators are paying too much attention to what’s already behind them, when they should be looking at the road ahead.” I think farmers need to look to the future by continually reassessing their operations, in order to take every opportunity to create quality products in an efficient and economical way.

Short vs long term

When assessing the viability of a dairy operation, the driver (dairy producer) needs to watch for both near and distant obstacles. There are two main categories that Miller and Guse suggest looking into. They list both short term information (milk sales, working capital, and short-term borrowing capacity) and long-term information (earned net worth and growth in earnings from equity). I think both sets of information are valuable to a dairy business. Short-term information can show the farmer things that should be changed or dealt with rapidly, or perhaps factors that may alter their profits for a short period of time. Long-term elements show a producer where their business has done well, or not done well, in the past and gives them ideas regarding where their business needs to move in the future.

Maintaining the engine of the operation

Just as a car needs the engine to function properly to reach its destination, an effective dairy farm needs its engine maintained and kept in tune to reach its goals. Miller and Guse give a list of helpful questions that dairies need to ask themselves about their operation. The questions mostly revolve around financial decisions. I agree that farmers need to be involved in the financial workings of their operations now more than ever before. Miller and Guse state, “Farm financial management is not why you got into this business. In a tighter margin environment, however, you need to keep your focus on what’s ahead of your operation for

it to be sustainable.” I remember that 2014 was the best year farmers on the East Coast had ever seen. As long as farmers took good care of their cows and produced a quality product, milk prices were high enough then that bankruptcy wasn’t really a threat. Now the price of milk has dropped significantly, forcing producers to be at the top of their game, both financially and from a quality standpoint.

Conclusion

Operating a successful dairy farm is more difficult now than ever. The price of milk is lower due to efficient dairies in the Midwest finding economic ways to ship their milk east. Dairies on the East Coast with all their inefficiencies are finding it more and more difficult to compete. The article by Miller and Guse is a great tool for farmers to use to assess the viability and efficiency of their business in the ever-changing dairy market.