By Andrew Suddes
We don’t have to tell you that farm profits are under attack like never before, and a sharp rise in input prices is going to have a negative effect on cash flows.
Does this signal that some of the fundamental economics around milk production are changing? That depends on your view of how long term the price spikes might be, or how responsive milk prices will be to this.
Either way, in the face of inflationary shocks, it is the most resilient businesses that will not only survive but potentially thrive. There is no point shying away from the problem at hand and hoping that it will disappear.
Instead, you need to be responding with a clear strategy and it is likely that you are going to have to make some important changes to your farm business. This is particularly true if recent cost increases have sent the total cost of producing milk in excess of the milk price.
Think about your finances
Take the time to talk to your lender (if required) to arrange adequate facilities to be in place when the time comes. It will also pay to have a strong idea of how much you will need and when you will need it.
Banks are likely to be inundated with requests for extensions of overdrafts, so it is sensible to plan early and ask as soon as you are aware that this is something that you may need to do.
Optimising production against costs is always a good idea too. If taking feed costs out will result in holding your margins, then it is likely that you can reduce overhead costs on the back of this. It is worth checking this against current feed costs.
This all goes back to getting a complete picture of your farm finances. How do you expect to survive if you don’t know how well your business is performing, or isn’t? Track your operating expenses, as well as crop and milk production. That’ll help to provide you with the insight you need to accelerate the decision-making process, and to strengthen your business for future robustness and adaptability.
Review your enterprise
Perhaps more radical change is required, and adjusting the system or size of enterprise should be considered? This could be a good time to review your business strategy and look at how making changes could affect productivity and margins. There could be unexpected benefits to doing this by unearthing potential in the herd.
The challenges we face in the coming months are, if not unprecedented, certainly very unusual. Responses will be different across different businesses, but I think the key message is to look at these changes head on.
Some of the cost increases we see are likely to stay with us for a while, so your business needs to adjust to this. Businesses that operate at a high volume and relatively low margin are vulnerable to this sudden adjustment and the solution may well be to reduce output to increase margin. To achieve this though, you need to think about your strategy going forward and which costs can be managed down.
Think carefully about how to hold the ship steady in the coming months and be prepared to be radical to get the results you need. Don’t be afraid; now is the time to push the boundaries and improve your farm business for the longer term.
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