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Not Too Early to Plan for 2020 for your Dairy Operation

Jim Moriarty
Home > Education & Events > August 2019 > Not Too Early to Plan for 2020 for your Dairy Operation

We often think of business planning or budgeting as a once a year project. While we do want to set a baseline budget or plan for each year, the reality is that planning for our dairy operations is an ongoing aspect of farm management. With the challenges of the planting and growing season this year, along with the current opportunity provided by higher milk prices, it’s not too early to start planning for next year. Forage and feed needs are critical decisions that will be made over the next couple months that will have a big impact on 2020.

We can also be evaluating cash flow demands and capital replacement priorities as we look ahead.
Determining and obtaining feed for our dairy operations for the next 12 to 15 months will be more challenging than normal this year. With winter kill on alfalfa, delayed and prevent planting, and periods of heavy rain during haying, this year’s crop yields and quality will be more variable than usual. Commodity prices are bouncing over a wide range with each crop report. It’s important to identify how much forage and grain you’ll need for the next year for your targeted cow and heifer numbers and then make your best assessment on yields and quality of your own raised feeds. You can then determine where there are gaps you need to fill. There may be opportunities to buy high moisture corn or silage from neighboring grain farmers this fall and you’ll want to be prepared for those opportunities as they arise.  Planning would include what price you are willing to pay, your harvest window, ability to store and separate feed of different quality and cash needed to buy feed.

From a farm operation standpoint, now may also be a good time to evaluate cash flow and payment priorities. Milk prices are at a much higher point than in recent years which should enable positive cash flow from our dairy enterprise. Cash flow available after meeting operating expenses and debt payments each month should first be allocated to obtaining sufficient feed inventories and then paying down any accumulated account payables. Next priority would paying down operating lines to rebuild funding availability and working capital for the future.  The next priority may then be capital investments. After several low margin years, we likely have deferred replacement needs on equipment and facilities that will need to be addressed. This aspect of cash flow planning takes more careful analysis.

Capital replacement and purchases
Capital replacement and purchases require further planning as these items are typically higher cost and we usually don’t have the cash or borrowing availability to do everything at once. Replacing or updating those items that are essential to the efficient daily operation of our dairy should take highest priority, including feeding and milking equipment and cow comfort items such as curtains, stalls, and ventilation. As labor availability continues to be a challenging, investments that enhance productivity, efficiency and working environment for employees would be a strong consideration.   Longer term investments such as new buildings, parlor upgrades, land purchases, and large crop equipment items will often need to be part of a three to five year plan to scale in purchases with your financial position and equity growth. The longer term plan frequently requires balancing and trade-offs to prioritize those investments that provide the highest return and impact to your profitability.
Pre-plan now
Planning is an important and ongoing part of managing our farm. While it may seem like a task to put off to the end of the year, pre-planning now can set the stage for the coming year.  Evaluating feed needs and gaps should help you prepare for opportunities to buy additional feed inventory that may be available this fall at a timing and price that fits your cash flow.  Ensuring that we have sufficient feed inventory and enough high quality feeds this fall are keys to herd performance and profitability for the next year.  Taking time to evaluate cash flow now can help to better allocate available cash flow to paying down account payables and operating lines. Proper planning can help prioritize capital purchases to their highest need and hopefully avoid impulse purchases that are not as important to the overall operation.  The bottom line is that while there is a lot of 2019 still left, it is not too early to plan for a successful 2020.
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