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June 28, 2019

8 Tips For Managing A Bigger Milk Check

 |  By: Mike Opperman

The forecast for milk prices through the end of the year is positive, for once, which is good news to dairy producers who have suffered through the milk price doldrums for the better part of five years. But a little bigger milk check brings decisions on what to do with the extra cash. 

Here are eight ways to get your business right again and help you prepare for when prices eventually turn south.

  1. Pay off past due account balances. “The first thing producers need to do is restore liquidity and pay down accounts payable,” says Sam Miller, managing director of agricultural banking with BMO Harris. “Start with any outstanding bills that are carrying account balances.”
  2. Restore credit lines. “Pay down any bank lines of credit or short term debt that has been borrowed to subsidize operating losses,” says Kurt Petik, senior relationship manager with Rabo AgriFinance. “You will need these credit lines open when prices fall again.”
  3. Pay bills ahead. If past due balances aren’t much of an issue, take advantage of having a little extra cash to pay down bills before they are due, Miller says. Do this especially if there is a discount for paying within a certain time period, he says.
  4. Fix what needs to be fixed. Often when cash flow is suffering, machinery repairs get pushed off or patched up just so you can get by. Take the time now to have repairs done the right way when cash is available.
  5. Build cash balances. “Have a cushion for future volatility,” Miller says.
  6. Be patient. When there is a little extra cash in the account it becomes tempting to purchase that new piece of equipment you’ve had your eye on. Be careful, Petik says. “Before you reinvest in capital, ask yourself if it is necessary and if it will lower your cost of production,” he says. “If it doesn’t, don’t make the investment.”
  7. Build back management. That change you made to the ration to take out feed additives or cut feed costs may have dropped production. Maybe you stopped genomic testing to save money. With the extra cash it’s time to reconsider those changes. Work with your nutritionist to create a plan to add those ingredients back in over time to restore production and improve feed efficiency, and consider making other changes to drive progress.
  8. Manage price risk on both sides of the ledger. “Use a portion of the increased revenue to secure feed inventory and manage both the price of that feed and the price of milk, says Mike North, president of Commodity Risk Management. “We all understand how quickly things can change. Don’t get caught flat footed by adverse price movement. Use some of this increased revenue to build certainty and predictability into your business future.”

Above all, take some time to smell the roses. The milk price downturn has had a devastating impact on the balance sheets of a lot of dairies, but it’s also affected the mental health of many dairy farmers. Take time to enjoy the relief, however small it might be. Celebrate with your family. Do something for your employees to show your appreciation for their extra work during this difficult time. Enjoy the better days while they last.