Managing Through an Economic Storm
CASH FLOW STRATEGIES
PRODUCER ROUNDTABLE
Managing through an economic storm
Cash flow concerns know no boundaries. Dairy producers from Idaho, Mississippi and New York share management ideas on how to do more than survive.
by DairyBusiness Communications staff
Peak Performance: All signs point to higher feed costs and a continuation of relatively low milk prices. What management steps are you taking to weather this challenging economic period?
Ideal Dairy: We were proactive with our banker and met with him about what we could do to get us through this tight period. We laid out a plan and discussed options if this is a long-term downturn and how we could restructure. I try to stay ahead of the curve so I know what my options are.
We also did budgeting projections for what we have to do to cash flow through this year. We curtailed any capital improvements and we’re living off depreciation – we didn’t have a choice.
We’re down one worker, and I decided to cut one worker, who we usually let go in the winter, three or four months ahead of time. We’ll rely on part-time labor as needed.
We’re fortunate to have enough feed carry-over that I can sell some excess feed. We bought a large square baler to market large bales and that’s been a big plus. But I won’t sell any corn silage this year until I see what I have.
VanEss: We had implemented quite a few programs prior to this drop in milk prices, and we’re thankful we did. It has forced us to be a little more focused. We sat down and talked about where we could cut costs. We’re convinced we can’t cut back on things that would hurt milk production. It takes forever to get that back. When this price rebounds, we have to be in the position to capitalize on it. That’s our philosophy. Don’t act on emotion.
We contracted our hay and some of our corn so we knew what our costs would be. We cut out one employee.
We worked a lot on heat abatement this year, and put a lot of shade and fans in the fresh cow and close-up pens, and fans, misters and soakers in the holding pen. Heat abatement pays for itself. The radiant heat load is hard on cows.
We switched to night feeding in summer. That helped intakes. We feed once a day. We keep it pushed up all day long.
Heritage: First, we’re intensifying the management of various areas in the operation. We’re controlling, to the greatest degree possible, the many details in every management scheme that we employ. There is no room for the mistakes of poor execution by the management and labor team. This means effective planning and good communication with our employees to ensure excellent follow-through. Additionally, we are investigating creating new milk marketing opportunities for our dairy.
PP: Challenging economic times force us to put everything we do on a dairy under a microscope. Are there any areas that are getting your special attention?
Ideal Dairy: The big ticket items: labor and feed. I’ve locked in our feed until January and will probably lock in the rest soon. We’re always looking at benchmarks and if any are out of line, I go back to look at those. When your competitors are doing it for less, there must be a reason.
Crop costs is one: I changed my fertility program due to prices and am much more conservative now. And our hauling costs are out of bounds, but I haven’t looked into what I can do about that yet.
VanEss: We really put a lot of attention on our fresh cow management. We can manage almost our whole dairy from the 40-50 cows in that fresh pen. We take temperatures of the cows every day for the first 10 days after freshening. You can fine-tune the close-up cow ration so much quicker when you’re out there taking temperatures. We’ve spent a lot of time teaching our employees about cow health. We’re able to pick up on things right away.
The other area is our ration, not only what’s in it, but how it is delivered. We do weighbacks every day on all pens; we keep charts on intakes; we do daily dry matter samples on our forages to make sure our intakes are accurate.
Heritage: We are evaluating expenses in all areas. We believe most of our expenditures represent good management decisions. However, feed costs are always an area of special scrutiny. We are working hard at making sure we are getting the best possible price on every ingredient we use. This is done by regularly seeking bids on feed (and other) products we use.
PP: Any changes planned to your reproductive program? If so, what?
Ideal Dairy: We’ve changed drug protocols and use less of some drugs such as oxytocin and Lutalyse, but haven’t cancelled our synchronization program altogether. I’ve seen nothing detrimental from that.
Denise has changed the breeding program. We only use proven sires on the first two services, then we go to young sires to cut breeding costs.
VanEss: All first-service cows are on the full Pre-Synch/Ovsynch protocol, and after that many are on a Re-Synch program. We have a voluntary waiting period of about 58 days, and our days in milk to first service averages about 63 days. We’re pretty aggressive. During these tighter times, we’re looking at costs associated with these programs. But we’re afraid to go away from them to save costs. Open cows are costly.
We did go to less expensive bulls, which is about the only area where we’ve cut costs.
Heritage: We have had excellent results with reproduction using Pre- Synch, Ovsynch and frequently palpating for pregnancy, along with intensive heat detection using heat expectancy reports every day during breeding season. We will continue to dedicate the man hours necessary to succeed in this important aspect of the dairy.
PP: Will the current economic situation have any impact on your nearterm capital expenditures, such as postponing an expansion or buying equipment?
Ideal Dairy: Usually we have a capital budget. We spent all that we intended to this year in the spring, but we’re looking ahead to next year. We did have to add on a bunker silo this fall because we have so much feed carry-over from last year.
VanEss: We did postpone an expansion, but it was related more toward a business situation, not an economic situation. Looking back, maybe it was good thing. We’ve put all equipment purchases on hold, and we’ll sit tight.
Our freestall facilities and lockups aren’t overcrowded, but our parlor throughput limits us. We were at 3X milking, but with extra cows and low cull rates, we’re down to 2.2X milking per day, and it’s starting to hurt production. On 3X, we consistently had daily peaks of 104 lbs. of milk; we’re now at 86-87 lbs. Our SCC had been about 140,000; it climbed to 180,000 to 190,000. We’re convinced that milking 2.2X doesn’t help that.
We want to get back to 3X. One thing we’re talking about is milking the fresh cows 3X and leaving the rest of the herd at 2X, so we can keep our peaks. We think we could get another 10 cows through the parlor a day.
Heritage: Yes. We have been planning to expand our freestall housing, but have been unable to proceed in these market conditions. Current financial commitments to debt repayment are the first priority. Additional debt could jeopardize cash flow.
PP: Is the current economic situation forcing you to look at changes to specific enterprises within your dairy?
Ideal Dairy: No. Our calves are contracted out from birth to 100 days and we’re not stopping that – it’s a good situation. We’re so pleased with the results from the calf grower, and it would be tough to re-establish it here.
VanEss: Our baby calves are raised by a custom grower, come back at 4 months, and then go to another grower at 1 year to about four weeks prefresh. It would have to get pretty tough for us to raise our baby calves again. We do not have the room here for them, and it takes so much manpower focused on them. We don’t ever want to do the baby calves again.
Heritage: We have no plans to restructure any of our main enterprises, but we have had to operate them with “no frills.”
PP: What kind of cropping year did you have, and how is your forage inventory, based on quantity and quality?
Ideal Dairy: We had very good hay and haylage. Third cutting is down but a large second cutting compensated for that. We’re in the middle of corn. It was obviously a record year last year; this is an average to less-than-average year. But our feed inventory is OK – we have 200 to 240 days of feed left over from 2001.
VanEss: We buy all our feed. We have 90% of our hay in storage already, and the quality (175-213 RFV) is good. We have about 10,000 tons of corn silage in the pit, and will add another 1,500 tons. We usually feed about 17 lbs. of dry hay, 40 lbs. of corn silage and 31 lbs. of concentrate and 1.5 lbs. oat hay as a fiber source, depending on hay quality. We add water to the TMR to keep it at 52% moisture. We’ve been as high as 18 lbs. of water per cow and as low as 8-10 lbs. When we deviate from 52%, you’ll notice intake fluctuations and sorting.
Heritage: Corn silage (350 acres) and ryegrass baleage (100 acres) are the forages grown locally for us by the dairy’s previous owners (Jimmy and Wayne Steward). Inventory is adequate (6,000 tons of silage and 300 tons of baleage) and quality is very good for our region of the country.
PP: What kind of feeding changes will you make? Did you lock in any feed purchase prices?
Ideal Dairy: I locked in half of my corn and some of my beans quite a while ago.
VanEss: We locked in our corn and soy, and we’ll lock in our cottonseed.
We reviewed rations, but there wasn’t really a lot of opportunity within our ration to cheapen it up. We felt that if we cut out too much on our feed costs, we would sacrifice on milk.
This year we tried feeding some green chop during the summer heat. We were happy with it; it maintained intakes, but it was harder to control the ration. Moisture levels varied from day to day. We have the FeedWatch program on our feed truck to help.
Heritage: We will evaluate rations frequently to make needed adjustments for price and performance. We’ll make sure we know our ingredients’ nutrient values (including moisture). We’ll monitor dry matter intake, cud chewing, rumen pH, particle size, etc. In short, we’ll try to avoid any inefficiencies in our feeding system. We regularly use byproducts, including wet brewers grain, distillers grains, cottonseed hulls and cottonseed. Our corn, soybean meal and distillers grains are locked in for six months.
PP: When it comes to marketing your milk, do you use forward contracting, hedging, options or other marketing tools? How’s that going, and explain?
Ideal Dairy: I have done forward contracting in the past but haven’t been very successful. I think there’s not enough volume traded, and the economists can’t even strategically guess what the price of milk will be. With the feed situation, I don’t see how anyone can establish their cost of production to lock in prices. I don’t have confidence in the volatility of the commodity market and I don’t feel confident in hedging with feed costs what they are.
VanEss: We tried it a little bit in the past, and we can still laugh about it, but we need to do a lot more educating ourselves in that area. I think it’s something dairy producers are going to be forced to do. We have to change our mindset a little bit. To be profitable year-in-and-year-out is better than being very profitable one year and losing money the next.
Heritage: No. There is no mechanism for doing this with our milk processor.
PP: If there’s such a thing as a “sacred cow” on your dairy, such as a technology, system or program you wouldn’t change no matter what the economic situation, what would it be?
Ideal Dairy: Cow comfort. We never compromise on that expense, such as sand for bedding. When it comes to fans, lights, bedding – cows drive those decisions.
Other than that, second would be the quality of proven sires. It’s a fundamental principle that we feel is important to our business from a merchandising standpoint and for herd longevity.
VanEss: We’d never, ever change our fresh cow program. We were culling a lot of cows at low days in milk. Cows would come fresh and weren’t performing at 60-70 days in milk. We also culled a lot of cows late in the lactation because they weren’t getting bred. Attention in the fresh pen improved reproduction. We haven’t had a uterus prob lem in two months. We only had three DAs last year and production has soared. Cull rates and death rates are down. We’re keeping cows around longer.
And we’d never feed without FeedWatch on the truck.
Heritage: The financial success of the dairy is the “sacred cow” and most any of our systems would be subject to adaptation in order to achieve economic performance. We do believe that cow comfort and happiness, the use of proven, emerging technologies, attention to details, and high-quality cattle are the keys to our success.
PP: Financial stress can add personal stress. What are you doing to keep family and labor healthy and happy?
Ideal Dairy: In our weekly staff meetings in May and June, we put the cards on the table about what the company would take on the chin. We discussed line items that the employees had an impact on, like equipment repair, and compared them to last year. They are fully aware of the financial complications and difficulties.
Denise and I have been coming up with a plan. We’ve made projections and what we have to do to make it work and to at least make ends meet. That’s important.
VanEss: We keep our employees informed about what’s going on. When Lisa and I come out after paying bills and are stressed, it helps a lot for the employees to know what’s going on. We work through it together. We’re out there every day interacting with employees and take opportunities to stop and talk.
Heritage: For ourselves and our families, we try to, “Be anxious for nothing, but in everything by prayer and supplication with thanksgiving let your request be made known to God (Philippians 4:6).” We try to insulate our labor from any direct effects of the dairy markets to ensure good performance. We have continued to provide competitive salaries, health insurance, paid vacation and a profitsharing plan to our full-time employees. We are very thankful for the dedicated employees we have.
Source: Midwest Dairy Business