Wednesday, November 18, 2009

Eternal Optimist or Pessimist

Every problem was at one point a wee disturbance. What a ride life is, the lowest price for cows since 1999 http://usda.mannlib.cornell.edu/usda/current/AgriPric/AgriPric-10-30-2009.pdf page 11. Did you notice I did not say the lowest milk price? While we all get the negative view from the media or from others talking, our best option I to accentuate the positive http://www.youtube.com/watch?v=Z45EB4TiYz4 . We are in a renewed era of people thinking before they pull out the credit card or checkbook. That is just for personal spending. Business still has to think (always should have) does this investment pencil. We at Springing Acres did not think $2000 cows penciled based on our experience of 30+ years in the dairy business. That is why almost all customers had to put money down during this last high cattle price period.
Enough looking back. Today the economics are in the dairyman’s favor. It is all in the presentation what happens from here on your farm. Below is the first year of a lease Plan 1 from Springing Acres for 40 cows. Look to the bottom for imputed milk price, cull rate feed expense ect. This example raises the heifers sells the bulls as calves and replaces the cows culled.

20.25 % gross to lease target <18%


41.97 % gross to feed Target <50%

39.45 % ROI Cows Target > 36%



A
B
1
Income
Year 1
2
Milk
116853
3
Cull cow\ bull calves
5940
4
Springing Heifer Sales
0
5
Total Income
122793
6
7
Expenses
8
Feed
51539
9
Heifer raising costs
4738
10
Interest Bank
0
11
Lease payment
24869
12
Other variable expenses
11090
13
Total Exp
92236
14
15
Income-Expenses
30557
16
Fam Living
0
17
Cattle purchase
13200
18
Total Dispur
105436
19
20
Debt
Financ

21
And Repaymt
22
Bank Pmt
0
23
Total Pmts
0
24
25
Net
Cash Income

17357
26
Borrow Bank
44000
27
Bank Debt
0
28
Heifers owned yr 1
18.05
29
Heifers owned yr 2
36.10
30
Heifers owned yr 3
44.65
31
32
fill lines 26b-46b not red
33
# cows
40.00
34
#cows in milk
35.20
35
# cows dry
4.80
36
Milk price net
14.00
37
# milk/cow
65.00
38
$/cow purch
1100.00
39
cull rate%
30.00
40
cows culled/pur/mo
1.00
41
cull price/cow
400.00
42
heifer calves born /mo
1.58
43
bull calves sold/mo
1.58
44
$ bull calves sold
60.00
45
feed cost/cow milking
3.70
46
Feed cost/cow dry
2.30
47
lease rate/$1000
47.10
48
loan payment/$1000
0.00
49
loan %
9.00
50
other expenses/day/cow
0.76



This Worksheet has been a thorn in our side for the last 8 months or so. Not now when 2 of the 3 ratios are in line we are ready to go. Are your barns full? I will let you ruminate on this article for today. Feel free to comment.

Thursday, October 15, 2009

Milk Pricing Strategies or Profit

While this maybe a touchy subject, It is what is on my mind for several weeks so here it goes.

First question:Do you buy insurance?
Silly question right! Most dairy farmers insure their car, house, health, machinery and cattle. So how much would you pay to insure a profit?

Second question: Do we price milk or lock in a profit?
Whenever we have discussions most people want to lock milk price or feed price but not both. Both is the logical answer. Feed is the largest expense on most dairy farms and milk is the largest income source.Can the government do it for you Santa Claus to come early this year Dairy Herd Management Magazine - Industry News. While this may sound good they are not going to make up for the last 8-12 months of negative income.

How do we lock a profit for income over feed cost?
While not complete, using the major costs and income is a start towards Insuring Profitability.
1.One way to do is direct contracts with both you Coop or milk buyer and with your feed supplier.
2. Another way is to do it on the futures market (Hedging only no speculating Please) Lock everything you can at about the same time IE Corn , Soybean Meal, Milk Class III, and Dry Milk. Lot’s of fun hey! I am too small , how do I get margin money? Puts and calls.
3. Livestock Gross Margin LGM a relatively new program. Lock in 11 month’s production and feed cost at one time. Similar to crop insurance done by USDA Risk management service sold by independent agents.
Talk with your financer today to Insure Profitability Today. They should know what it is worth.
If we get comments on this post I will follow up with more details.
On the lighter side The Dairyman's Blog: A Friday morning farm update#links