By Virginia A. Ishler
Production perspective:
The COVID-19 pandemic has altered “normalcy” for everyone locally, nationally, and globally. No industry has gone untouched. People are finding ways to adapt and that means navigating uncharted territory. The dairy industry is not immune to the outward effects, which has been demonstrated by milk dumping and projected low milk prices going into 2021. Anxiety rises when the controllable items seem out of reach. Developing a financial plan to examine possible scenarios to the short-term and long-term possibilities of this pandemic may help alleviate some of the apprehension.
Milk income is the driver to maintaining profitability and a positive cash flow. When producers are dumping milk and not getting fully reimbursed for its worth that will undermine the best cash flow plan. A mid-year assessment to examine expenses and possible revenue loss is recommended. Typically, the focus is how to improve milk income, however with the pandemic and moving into the summer months, revenue will be compromised. The focus should be on the big expense items: feed cost, labor, and debt. Feed expenses are the major area that make a significant dent in the cash flow plan. Labor and debt are not easily manipulated. Any changes to feeding and cow management should include the consultant’s input along with the financial implications.
Utilizing pasture and optimizing yields for small grain silage and first cutting hay-crop are short-term strategies to reduce feed costs. A lot of producers have had to purchase forages for the youngstock and dry cows the last few years. This has a negative impact on a farm’s breakeven cost of production. Even if quality is slightly compromised to achieve higher yields, this can substantially limit or reduce the need for purchased forage. Moving the lactating herd to a higher forage-based ration along with lower corn and soybean meal prices could lower feed costs significantly. Monitoring income over feed cost is still valid because the feed cost must be in line with the herd’s production. The Extension dairy team’s work consistently shows that the bottleneck to maintaining a competitive cost of production is correlated to the cost of producing home-raised feeds. Examining cropping strategies during the summer to provide additional forage inventory could help reduce total feed costs.
Due to the disruptions in meat processing, selling cull cows is not a viable option currently. Utilizing pasture with minimal supplementation can provide a least cost approach to keep animals until the market rebounds. Right size the lactating herd by removing animals that are late lactation and not pregnant, chronic mastitis cows or ones with high somatic cell counts, and genetically inferior animals. These cows could be ideal candidates for grazing. This strategy keeps the home-raised feeds for the animals that will benefit the most.
Depending on how quickly the dairy industry rebounds, herds lose volume and components during the summer months, which equates to milk income being compromised even further. Examine previous history on when the herd starts dropping in fat and protein. Keeping components elevated during the summer can improve the milk price/cwt paid. Cow comfort, heat abatement, and other facility-related management practices may need to be adjusted. Nutrition alone is usually not enough to compensate for reduced performance during the summer.
Producers that are good cow managers do not necessarily have fancy rations. Now is the time to have a blunt conversation on the extras in the grain mixes for heifers and dry cows as well as the lactating cows. Going back to the basics and keeping rations simple is another strategy to lower feed costs. Feeding cows good quality forage and providing ample energy are the two critical elements of maintaining animal performance. The challenge is to control milk production without jeopardizing reproduction and body condition. Every farm will be different regarding the specifics related to carbohydrate and protein balance depending on the forages and grains available. Monitoring herd performance from the bulk tank will be useful to determine potential milk income for the month and into the future
Long-term considerations are the performance lag that occurs after cows come off severe heat stress. If the summer turns out to be extreme in heat and humidity, then lower production could be prolonged when the industry is positioned to gear up again. Keeping corn silage inventory in check so there is ample carry over in the fall before new corn silage is fed will avoid the serious drops in production that historically occur.
There have been many recommendations on how to handle the current scenario of dumping milk. The dairy enterprise relies on milk income and based on what is known currently, the projections for revenue will not be adequate to cash flow many farm operations. The critical steps are checking the financial numbers now and working with the correct advisors to evaluate strategies to reduce costs wisely and plan for realistic impacts on milk income.
Source : psu.edu