Pennsylvania Dairy Task Force's Dairy Advocacy and Resource Team meetings came away from a series of October meetings with sound advice for dairy farmers. This round of DART sessions targeted strategies for reinvesting cash flow surpluses, says John Frey, executive director of the Center for Dairy Excellence.
On-farm profit margins in 2007 could be as high as $5 per hundredweight on some dairy operations, notes Frey. But, increased cash flow doesn't necessarily translate into increased long-term profitability, according to the five industry professionals who spoke at the meetings.
Most essential reinvestment options
The best places for investing those profits included:
- Cleaning up accounts payable;
- Ordering 2008 partial inventories now for tax deferment and cash discounts;
- Building cash reserves for future down cycles;
- Re-investing in the business and buying more cows if not at capacity;
- Establishing or building a retirement fund or IRA;
- Investing in operational bottleneck problems to increase profitability;
- Growing or upgrading the existing facility; and
- Providing employees with a bonus compensation plan.
"The best option for the producer depends on the specific operation," notes Penn State Dairy Alliance's Brad Hilty. "For example, a producer who has an operation with 600 freestalls and only 575 cows would use a different strategy than a producer nearing retirement who is milking 100 cows with no more room in the barn and no future generations interested in carrying on the business."
All five presenters recommended producers pay down accounts payable and position the business for the next down cycle in the dairy industry. "With the volatility of the market, that downturn will inevitably come, and a poor cash position will limit the producer's opportunities long-term," Hilty explains.
More details about the DART meetings can be found at www.centerfordairyexcellence.org. That includes PowerPoints presentations from the presentors. Click on the DART logo at the bottom of the home page or call Cerrita Reed, program coordinator, at 717-346-0849.
American Agriculturist 's Profit Planners panel addressed this topic in July. For details, see page 7 of July's issue. Or simply click on "Magazine Online" in the left hand column of this site. Scroll down to July's issue, and go to page 7.