The author and her husband, Duane, own and operate a 550-cow dairy in Cochranville, Pa.
When we turn the calendar from December to January, it feels like we are starting a new chapter with blank pages because we really do not know what this year will bring.
We hear of and read about hints of what is to come. More times than not, there is an economist at our farm meetings, and it is not uncommon for us to hear insights on what the year will bring.
They talk about projections and analyze the milk price based on this or that happening and what that might trigger. They talk about feed costs based on the weather across the globe. They discuss inputs and why feed, fertilizer, and fuel costs are going up again. They tell us about the impacts of geopolitical problems, and they talk about inflation. All of that is thrown into a pot of economic probability soup that is intended to guide us as we make decisions for the upcoming months.
Our son is in the military, and one thing that we have learned over the years of his service is that nothing is for sure. They hold the right to shift from their original decision at any time. The economic projections we hear this time of year are in that same thread as the military’s reputation for changing plans.
A few years back, I had the opportunity to sit down one-on-one with a dairy economist to pick his brain. He gave his opinion about milk futures, feed costs, and what to expect in the upcoming year. He threw a few scenarios on the computer screen and we discussed the “what ifs.”
I left that meeting feeling overly confident about the future of our milk and feed price. The economist was bullish on price, and I started to prepare myself that we may have locked in our milk too low and might take a hit for that later in the year.
A few short months later, our economy hit a huge road block and our trade with China was yanked. It was a disruption that very few, if anyone, saw coming at the level and impact that it had on our industry. Our farm’s annual budget was way off and the year played out much differently than any of us anticipated.
For some, the projections are like a mathematical equation, and there is a lot of time and energy put into the prediction. For others, projecting is an educated guess.
Someone once told us he could project the sex of the calf by waving a quarter over the cow. Depending on how the quarter turned, he could determine the calf’s gender. I put zero faith in that projection, even though I knew he had a 50% chance of being right.
I also know that it is not good stewardship to look at the upcoming months without thoughtfulness, diligence, and intentional planning. The economists who take time to inform us are part of that planning.
Preparing for the new year means something different for each farmer, and we all have our own methods of securing the future.
Duane and I always find it helpful to look at our year-end numbers and double check our line items, compare this past year to the years prior, and ask ourselves questions.
- What happened on the farm that made that line item higher than the year before?
- What impacted that increase? Or maybe, if we are fortunate enough, what impacted that reduction in costs?
- Did we really need to spend money there, or should we have focused on another area?
It is equally as important that we look forward and consider how we can prepare for the upcoming months.
- What are the prices projected to be this year?
- Are replacement numbers keeping pace with the milking herd?
- Have we forward contracted milk and/or feed with a profitable margin?
- Do we need to replace any equipment or can we get by another year?
- Are there available grants to help us with projects?
If Duane and I have a clear understanding of our actual numbers, we are more prepared to start the new year. Of course, all of these questions are totally dependent on the bottom line of the checkbook, and that is the point that brings us back to center.
There have been years that equipment needs to be replaced but we do not have the means to do so, even though we know in the long run it might mean more cost later. This year, for example, our digester engine is at the age that it needs to be overhauled. That major work needs to be budgeted into our first quarter, and thankfully, we have time to budget the work to be done and plan accordingly. Farm equipment and animals do not always give a fair warning, and preparation time is short.
Sometimes our farms are thrown curveballs rather than the anticipated strike, but looking closely at projections helps us write the best chapter possible for this year. It also keeps the economic soup simmering.