It used to be if you took care of your cows and your crops, then you were successful. But with dairy being affected by the global market, “Today you have to know the numbers,” said Gary Sipiorski, Dairy Development Manager at Vita Plus Corporation. He encourages diaries to stay ahead of the game by managing their money, balancing their budget, and managing risk. But you also have to be ready for how the “news of the day” can affect your prices. Economic turmoil in Asia, oil prices in the Middle East, or exchange rates in Europe can cripple a dairy farm’s efforts.
Sipiorski broke down the financial goals into eight basic rules for staying profitable and relevant year over year. Keep them in mind:
- Aim for a ratio of 2:1 liquidity
- Use no more than 20% of a milk check to pay principal and interest on loans
- Keep an 85% expense rate
- Have no more than $3,000 to $5,000 of debt per cow
- Keep more than 30% equity in the business
- Have a three-year asset turnover rate
- Maintain at least an 8% return on assets
- Know your cost of production
And the last element, which isn’t on this list but is still important, is cow comfort. “When we forget about the cows, we get ourselves into trouble every time,” he said.
If, somehow, things do get away from you as a dairy farmer, there are a few things you can do, such as working with lenders to increase a line of credit, redo a term loan, or negotiate interest-only payments on loans. It’s crucial, however, to not let short-term solutions affect long-term income.
Images courtesy of Flickr
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