Recently, I was lecturing about the Dairy Margin Coverage (DMC) program in my dairy enterprise management class when a student asked how farmers can obtain their own feed costs in a simple and fast way. My answer was that getting such information is like going to the gym for a workout. Here’s what I mean.
Step one: Just do it!
The first and most relevant step for working out is deciding you have to do it. No matter what the routine might be, going to the gym despite the rain or the cold temperature is paramount to building a good habit.
Similarly, dairy farmers must convince themselves they have to do some cost analysis work on a frequent basis. That could be every week, every other week, or maybe once a month. Whatever works best might vary . . . but just do it!
Step two: Find the right workout routine
Once in the gym, a workout routine is performed, either alone or with the guidance of a coach or a personal trainer. In the same way, farmers can work on their finances independently or with the help of a consultant, an extension educator, or another expert.
At the beginning, the routine might seem boring, irrelevant, and frustrating. This might tempt farmers to quit and go back to cropping or working with cows. Hopefully, though, this frustration will not win out. Perseverance is the key to a successful workout.
My monthly routine
For those who need a starting routine, I’ll share a simple financial plan with you.
At the end of each month, grab milk checks, production records, and receipts from any culled cows and heifers. With this information, you will have most of your monthly revenue and shipped milk to evaluate revenue in terms of dollars per month or dollars per hundredweight (cwt.).
Then, gather all the receipts from purchased feeds, semen, parlor supplies, veterinary expenses (services and supplies), utilities, bedding, personnel (salaries and wages), office supplies, and any other expenses. Put all of this information together with your revenue to determine your monthly income and expenses in dollars per month, percentage of the revenue, and dollars per cwt. You can even do it by expenses, such as feed costs in dollars per month, dollars per cwt., or percentage of the revenue. These financial indicators might vary substantially from one month to the next. However, after a few months you will quickly start seeing, in a simple way, your annual (rolling) financial indicators.
The reward
After performing this routine on a monthly basis, you will find that keeping your finances up to date is rewarding and useful. This good habit will allow you to evaluate where you stand and what needs to be changed immediately. It will also allow you to determine how these changes can and should be implemented.
Finally, this good practice will help you set new goals. Like going to the gym, if you succeed making this routine a regular habit, you will likely succeed in managing the financial risk of your dairy.
