The majority of U.S. milk production comes from dairy farms with 500 cows or more. However, that doesn’t mean those who milk fewer cows can’t find a way to be profitable, successful dairy farming businesses. But they do have to do things differently.
The risks
If you are in the 500-cows-and-under category, you know all too well the pressures that at times seem to work against you. Perhaps you would like to grow and add cows, but your hands are tied by the milk plant’s capacity or the environmental regulations in your region.
That makes it harder to take advantage of economies of scale and to have the bargaining and buying power of a dairy milking 1,000 cows just down the road. The same can be said for labor efficiency.
Another risk factor for dairies with fewer than 500 cows is the marketability of the facilities. A non-permitted site is a much harder sell than one that has the Department of Natural Resources (DNR) blessing and is ready to be populated.
The risks are real. But so are the opportunities.
I work with dairy farms across the country, of all sizes, and what I continue to see is that by sticking to a few basic guidelines, dairy farms with 500 cows or fewer can position themselves for success, ride the peaks and valleys and be sustainable businesses.
Making money at 500 cows isn’t as easy as at 5,000 cows, but it is possible.
Here are my five tips for dairies with fewer than 500 cows:
- Up your efficiency. Take a good look at labor, particularly in the milking parlor. Are milkers keeping the shifts moving along? Are cows flowing in and out smoothly? How much downtime does the parlor have?
- Get aggressive at reducing expenses. Have hard conversations as if your business depends on it – because it does. It can be easy to keep doing business with your buddy who brings you a hat and a nice Christmas present each year, but if they can’t compete on costs, it’s time to wear a new hat. Make a list of all expenses and scrutinize each line. Call your vendors and ask them for their best deal.
- Pay down debt. This may be a challenge when cash flows are tight; however, keeping open conversation with your lender and demonstrating payments being made not only helps to chip away at debt, but also demonstrates to your banker your commitment to a favorable financial position.
- Create a budget and stick to it. It doesn’t matter how many cows you milk. A good budget based on previous years’ cash flow statements can be your guide for disciplined decision-making when it comes to capital investments, switching vendors and uncovering cost-saving opportunities.
- Invest now in the help to put these tips into action. If there was one thing dairy farmers I work with say again and again, it’s that they wish they would have started working with me and my team sooner before they fell into labor inefficiencies and couldn’t pay their monthly bills. If you are there now or know you are heading that direction, don’t wait to ask for help. Get the second set of eyes to go through your operational efficiencies and your books.
There is always a way to make it work. These are the differences between those who want it and what they are willing to do to stay dairy farming for years to come.
