During the 2016 Vita Plus Dairy Summit, two dairies shared their strategies for managing through the tough times of milk price lows.
Tubergen tightens ration costs
Dairyman Todd Tubergen from Ionia, Michigan, joined his parents and two siblings in ownership of their 950-cow operation in 2013. In just a few years, he has already experienced some of the best and worst of times in milk price history.
During the “strong economic times” in 2014, the dairy invested in cow comfort and efficiency, while focusing on paying down debt and restructuring or combining separate loans into bigger revolving loans for crops and cattle. “That helped get our profit-and-loss in a better position, a more competitive level with other dairies,” Tubergen said.
These decisions helped prepare the dairy for the challenges of the next two years, but Tubergen continued to scrutinize the financials by using benchmarks and zeroing in on his cost of production. “2015 wasn’t so bad because we had money to pay bills, but then we realized how much money we left on the table,” he said.
He looked closely at feed costs and successfully lowered the cost per pound of dry matter (DM) from 12 cents down to 10 cents by better utilizing on-farm forages, contracting commodities and evaluating how feed changes would effect production and income-over-feed cost (IOFC) based on spreadsheet projections. He also looked at ways to save costs on expensive ration ingredients by looking for different products or reducing the amount while maintaining cow health, components and production.
Other ways Tubergen has learned to save money are by contracting milk, maximizing parlor throughput, selling extra replacement heifers and cows, and trading commodities with neighbors, such as manure in exchange for straw.
Hodorffs grow progressively
Linda and Doug Hodorff recall the wise words of Doug’s father: “If you’re not growing your business by the rate of inflation, you are going backwards.” With that in mind, “progressive growth” has been their mantra, as they grew their operation from milking in two tiestall barns in the late 1980s to now running two dairies in different states. Second Look Holsteins, near the Hodorffs’ home in Fond du Lac, Wisconsin, is home to 1,080 cows, and they milk an additional 950 cows at Broken Bow LLC in Nebraska.
Having survived several up-and-down milk price cycles over the years, the Hodorffs have honed in on the value of budgeting and financial planning. Knowing their cost of production has been key. Remembering the challenges of 2009 – the same year they grew the Nebraska dairy – Doug said, “We made it through that time because we were in a good equity position.”
When milk prices were $2 to $4 under the cost of production, they sought employees’ ideas to save costs. When setting budgets in the fall, Doug asked each group on the dairies to find a way to cut 3 percent out of their budgets. Big things and little things, like switching to a lower cost electrolyte or laundry detergent, added up. “That helped us through that time,” he added. “In the end, we saved more than 3 percent. We were still losing money, but not as much.”
The employees’ input to cost savings turned out to benefit the workers themselves. “We didn’t cut employee wages, but it was probably the first time we talked to the entire team,” Linda said. Though emotional stress was high, the Hodorffs maintained their focus on the basics of success: cow comfort, management and nutrition. “We kept registering and using A.I.,” she explained. “We needed to keep doing things in the short term so we could do them in the long term.”
2009 also prompted them to make milk marketing a regular part of their business. Linda conceded that it can be stressful, but she sees the benefits. “You can’t make money in milk marketing, but a lot of us love the cash flow,” she said.
Another financial tool the Hodorffs use is enterprise accounting, which helps them get a better handle on exact costs associated with the dairy and cropping entities. Finances for the two dairies are kept separate.
Linda added, “Key advice we received early on was to make sure our equity position caught up with us and our management ability. ... We learned our cow numbers would grow faster than our management ability, so we tried to grow step-by-step.”
To keep pace with growing responsibilities, the Hodorffs place high value on continuing education through peer groups and courses like those offered through TEPAP (Texas A&M University’s The Executive Program for Agricultural Producers) and PDPW (Professional Dairy Producers). They also consult with experts on tax planning and business structuring.
As these dairy producers close the books on 2016, it is clear that careful financial planning pays off and the number every producer should know is their cost of production.
- Progressive Dairyman
- Email Peggy Coffeen
PHOTO 1: Todd Tubergen is a partner in his family's 950-cow dairy in Ionia, Michigan.
PHOTO 2: Doug and Linda Hodorff have grown their operation from milking in two tiestall barns in the late 1980s to now running two dairies in different states. Photos courtesy of Vita Plus.