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Dealing with the downturn

PD Editor Karen Lee Published on 30 June 2010

At the Four-State Dairy Nutrition and Management Conference in Dubuque, Iowa in June, a four-member panel related what they did or recommended to be done throughout the last 18 months of low milk prices.

The lender
Gary Sipiorski, dairy development manager for Vita Plus Corporation in Madison, Wisconsin, said lenders are worried about cattle values, land values and regulators.

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“If you think a milk inspector is bad, you should see bank regulators. They come in by the dozens and go through everything on the books,” he said.

According to Sipiorski, rules you cannot break include: 2:1 liquidity, no more than 20 percent of the milk check to pay principal and interest, 85 percent expense rate, $3,000 to $5,000 debt per cow, more than 30 percent equity, three-year asset turnover rate, and an 8 percent return on assets.

The right things you can do, he said, are to talk with your lenders and suppliers, keep accurate balance sheets and cash flow statements, understand your equity position, know your cost of producing a hundredweight of milk, take advantage of money from the Farm Service Agency, and keep your partners and family informed of the business’ financial standing.

The consultant
In working with dairies, Jim Barmore, a consultant with GPS Dairy Consulting in Calmar, Iowa, refocused and prioritized the following items for the cows: parlor efficiency, maximize number of milking cows while maintaining comfort, barn design and expansion where applicable, greater than 20 percent pregnancy rate on an annual basis, trade up with attractive cull cow values, and obtain 90 to 100 pounds of milk production per cow year-round.

The ration should have quality forage with a known cost of production. Know feed inventory on at least a quarterly basis, if not monthly. Reduce shrink from forages. Use feed management software, keep ration changes to a minimum and handle mold and mycotoxin challenges that arise, he said.

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Barmore also focused on financials with his clients. A margin management focus is needed versus looking at milk price alone. He suggested holding quarterly planning meetings with business partners to assess capital needs. Evaluate heifer-raising costs per hundredweight to establish metrics and performance goals. Look at labor efficiency, organize workloads and overall labor costs.

“We’re gonna get through this, but we’re obviously going to have to change some of the things we’ve been doing,” Barmore said.

The veterinarian
Ed Kreykes, a veterinarian with Dairy Health Services in Sanborn, Iowa, cautioned not to try to save a dollar at the expense of a good health program.

Herd health should be maintained with the use of quality vaccines. He suggested taking a step back and reviewing the vaccination protocol to see if some products may be available in a combined dose that can help save money; but also be wary of “cheap” combination products.

Decreasing treatment costs is important, but be sure to look at the big picture, as it could cost you more in the long run. Reviewing records and checking for recurrence rates of diseases could indicate that proper treatment is not given at the first incidence.

“Cull cows sooner,” he said. Know the cow and her history by looking at her records. Get rid of the chronic cows that cost you money in treating mastitis, pneumonia, lameness and reproduction.

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Reproduction programs are often targeted to reduce input costs. Trim the waste, but don’t drop these programs, he said. Even in the worst-case scenario, pregnant cows bring more money at a sale than open cows. Not getting cows pregnant in time will cost you more money later. Cull problem breeder cows ASAP.

Prevention rather than treatment can be cost-effective. Focus on doing things right with cow comfort, fresh cows and calves.

“If the banks say there’s no more money available, take your vet or nutritionist to them to convey the importance of these programs,” Kreykes said.

The producer
Doug Scheider, who dairies in Freeport, Illinois, forewarned his lender of the challenging year ahead. He met with his lender quarterly and provided monthly financial data. When he wanted to do a major capitol project – revamping the freestalls for sand bedding instead of biosolids – he discussed it all with his lender and received approval.

“Knowing what I know now [about how long the low prices are lasting], I probably wouldn’t have done the project,” Scheider said. “But then again, we also wouldn’t have the benefits [from sand] that we have now.”

For nutrition, his goals were to reduce costs without negative consequences. He reduced feed refusals from 5 percent to 3 percent. The 5 percent refusals were being fed to free martin heifers and steers at the dairy. Now the 3 percent refusals from the low group are fed to those animals. He also maximized the use of byproduct feeds, contracted for commodities and sourced what he could locally.

Scheider was sure to maintain the herd’s scheduled health checks and kept the basic vaccination program in place. However, he did take time to evaluate the program to be sure all vaccines given were necessary. He stopped routine testing individual animals for mycoplasma and Johne’s. The dairy has not had a positive mycoplasma cow in more than five years so he said he felt fairly comfortable with that decision. The herd’s Johne’s incidence is very, very low, he said, and he continues with individual tests on questionable cows.

Converting to sand bedding was and is still a struggle, he said, but positive results have been seen. Previous somatic cell count scores were in the high 200,000s and mainly 300,000s; now for the last two months they have been at 159,000.

Cows have stayed on the reproductive synch program. Cuts were made in semen purchases. Scheider said the farm uses proven sire semen on just 1 percent of the herd and young sires on the rest. He stopped the use of sexed semen. It worked with his old culling system and when he could sell the heifers for more than what it costs him to raise them. Now he’s culling any sick or problem heifer calves before he pays $2 a day to grow them.

When it comes to equipment on the farm, Scheider said, “Forget new; in fact, forget everything.” This wasn’t too big of a change, as he added he bought his last new pickup truck in 1979 and has been buying used ever since. To compensate, he continues to keep up on maintenance and is hiring more fieldwork custom-done.

In the fields, he cheated fertilizer wherever possible, used a loan to take advantage of early season discounts and avoided long-term commercial storage for all grain for sale.

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Last August, he held a special meeting with his employees. He could see it was going to continue to be a bad year and wanted to prevent any conflicting messages they may have received. His employees were aware of the low prices, but yet on the outside it didn’t appear to be affecting the farm’s owners, as Scheider and his wife suddenly acquired a vacation home and new car. He said he felt it was necessary to share with the employees that each item was purchased with unique financing scenarios that did not involve anything with the farm’s cash flow. The dairy has remained at full staff, in part to provide extra help for the sand project. To adjust, raises were granted on a limited basis and no additional summer help was hired.

Lastly, Scheider maintained a life away from the farm. He was blessed with the arrival of his first grandchild at the same time the prices turned. Watching her has been something to focus on other than milking cows. He also does cross-country skiing and cycling competitively. “Both of them you can’t do and think about farm stuff at the same time,” he said. PD

Karen Lee
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