Area dairy producers picked up some financial tips during a regional meeting hosted by the Indiana Dairy Producers last Thursday in Plymouth. The meeting featured Gary Sipiorski, who is an advisor on dairy policy with the Federal Reserve Bank of Chicago. He also is a dairy finance expert with Vita Plus Corp.
With 100 producers in attendance, Sipiorski shared the characteristics that are common to the top one-third of dairy producers nationwide. Like a four-legged stool, these practices, if followed, help producers survive difficult times.
According to Sipiorski, the four-legged stool includes cow comfort, feed quality, financial understanding of your operation, and employee training. He said herd size isn't important. Rather, it's about making the farm profitable in such a way that it fits your lifestyle and desired income level.
Regarding animal care, top-third producers have a daily focus on cow comfort. They have calf losses of less than 1 percent and freshen heifers at 22 to 24 months. They also have a transition program for cows 30 days before and after calving, and they make sure the bedding and air quality are right.
Top-third producers also have for a 21-day breeding rate at 25 percent and have Somatic Cell Count at 100,000 or less.
Sipiorski said it's important to reduce stress, especially during a cow's transition period before and after she gives birth.
"I financed a 600-cow herd for a family at one time as a banker," he said. "They were losing 60 percent of their cows as they freshened. They don't milk cows anymore. You can't do that. Oddly enough, somebody else took that dairy over, and they are saving (the transition cows). It's all about management, right?"
He said sand is the best type of bedding. Although sand is difficult to separate from the manure, he said "every time we walk away from the cow and forget about her comfort, we get ourselves in trouble."
After cow comfort, the second leg of the stool is feed quality. Sipiorski said top-third producers grow or buy high quality feed. Producers should be meeting now with their crop advisor to decide what should be planted this spring. Then, harvest at peak energy and protein.
"Do what you can to get the best quality that you can," he said. "This is key. This is the foundation of your feeding program."
He said it is important to inoculate, pack and cover silage as quickly as possible. Monitor shrink and limit waste. Also, producers should have three to six months feed on hand.
As a financial expert, Sipiorski urged producers to "know their numbers" and to educate themselves on risk management. He said they should complete a budget at least three months before year-end. Based on that information, they will be in a better position to meet with their accountants, consultants and lenders regarding a possible line of credit.
"These guys and gals are your bridge in years like this," he said.
Milk prices tend to follow a three-year cycle, he said, with many up-and-down price movements.
"You have to monitor your cash flow on a monthly basis, or at least a quarterly basis," he said. "How did it look compared to what we thought was going to happen? That's an important decision," he said.
One way to manage risk is to sell milk on the futures market.
"I have dairies that are out 13 months with milk prices right now," he said. "And all they are looking at is a $2 or $3 margin, if they can get it. And they missed, and left, $4 and $5 on the table for 2014. But today they are getting $21 for milk. Is that a bad decision? It really takes the ups and downs out of it."
He added, however, that producers should understand the risk management tools and "not turn your checkbook over to a broker in Chicago."
Finally, there's the people aspect. Top-third producers train their employees and tell them not just "how" and "what" but also "why."
"Because then it's not just a mechanical procedure," he said. "Then it's something done with thought."
Top-third producers hire people who share their values. They also have written job descriptions for all employees, even family members who work on the farm. They pay fair wages and offer advancement opportunities.
Sipiorski said producers should start early in training the next generation. When your children reach high school, open a checking account in their name and show them how to reconcile a checking account. Make sure they understand how to use a credit card because if you don't, when they get in college someone else will.
The financial expert pointed out that U.S. farm debt is now the highest relative to income since the 1980s farm crisis. Among his suggestions, Sipiorski said producers should keep liquidity at a 2 to 1 ratio of assets to liabilities. They should spend 20 percent of every milk check to pay the principal and interest on loans. Another important goal is to have at least 30 percent equity in your farming operation.