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Maintain all your dairy’s margins

Phil Durst Published on 18 July 2014

The milking unit fall-off test measures the change in vacuum that occurs in a milking system to simulate what happens when a unit falls off a cow. It is an indication of the adequacy of the effective vacuum reserve or the margin capacity of the system.

The change in vacuum when one unit in 12 is sucking air should be less than 0.6 inches of mercury. If it fails, then a unit falling off will cause a drop in the vacuum that affects the rest of the units, allowing them to squawk or even fall off. Vacuum margin is essential.

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What if we applied that same principle to areas of dairy management? Some producers seem to ask, “How close can we get before we get burnt?” Yet having watched or experienced some of those “close calls,” I am now convinced that one of the essential functions of management is to maintain margins.

Margin is that extra that is normally not needed but occasionally is essential. Margin is the cushion that enables us to survive shocks. Margin is necessary in many areas that dairy producers manage.

Financial margin is important. We shouldn’t spend our last dollar. We shouldn’t put everything we have into repaying debt. Margin is the cushion we should carry that protects us from unexpected costs or downturns in income.

The low milk-to-feed price ratio of 2009 taught every dairy producer about the need for financial margin, yet people sometimes forget about that need during better financial times. A very positive milk-to-feed price ratio now is an opportunity to create margin by saving some money. One recommendation is that a month’s income be saved, even if it will create taxable income for the farm.

Margin is needed in far more areas than just financial:

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  • Margin in manure storage – the minimum storage space to maintain (During a wet spring that delays manure hauling, that margin will be welcome.)
  • Margin in feed – storing more than one year’s amount of forages to prepare for unexpected crop failure
  • Margin in basic equipment – so that everyday functions can be performed even when one piece of equipment breaks down
  • Margin in transition cow housing – the capacity you need to handle peak numbers of calving cows and not experience poor performance in early lactation cows
  • Margin in labor – having enough employees hired to continue work even if two or more employees are lost simultaneously
  • Margin in personal time and energy – the capacity you need to be able to respond to emergencies without losing control

Some may justify their lack of margin by thinking that as long as everything goes according to plan, as long as nothing breaks, as long as no employee gets sick or quits, as long as . . . But the reality of farming is that those things happen and often when we least expect it.

Some may argue that maintaining margin is a poor use of resources because margin is unused most of the time. Yet the risks of not maintaining margin make the cost of margin relatively inexpensive compared to the high cost of going beyond our means.

Exceeding capacity may induce a cascade of negative events. For example, consider the cascade that occurs if there is insufficient vacuum capacity to handle one unit falling off a cow. All units may fall off. While that will not threaten a business, the potential cascades that may occur with labor, finances and personal capacity can be enough to create high costs.

Margin does not have to be owned. Margin needs to be available. In some cases, that means a line of credit may provide financial margin. Equipment that is available to borrow or lease may provide margin. But in other cases, margin must be under your control.

Maintaining margin is risk management. Evaluate the risks your business faces and plan for margin in each area. Maintaining margin is an essential function of management because good managers anticipate potential problems and prepare for them in advance so that negative events do not threaten the business.

Take time to evaluate the capacity you have for negative events and plan margin to carry you through those times. PD

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phil durst

Phil Durst
Sr. Extension Dairy Educator
Michigan State University Extension

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