“Cutting Cost Isn’t Just What We Do On The Spending Side”

Ag News / Agent Article
Richard Smith, Saratoga County                                                                                                                  February 2007

An interesting talk at this year’s Dairy Days held at SUNY Cobleskill was directed at this very topic.  Presented by Dave Balbian, Area Dairy Specialist, it was very well done and worth a comment, since many of you were unable to attend.

With grain prices up, energy prices up, and milk prices down it is not a pretty picture on the farm financial statements.

     When we make decisions to cut cost we should integrate a few simple things in our thinking.  First, the cost of feed is more than just the cost of purchased inputs whether we buy commodities or purchase a blended feed.  The total cost of cropping and harvesting is also a large portion of our feed costs.  As is the equipment we own and the costs to operate this equipment.  So then what is a farmer to do?

     Dave’s summary thoughts were more directed at farmers not cutting cost to the point of harming the income side.  He mentioned a business rule of thumb published in the Journal of Finance, 1998, “Investments that increase revenues improve profits at 6X the rate of investments that reduce expenses.” 

     To the farmer it is a reminder to utilize their facility to capacity.  Keep those milking stalls full after all we made the investment to build them we can’t profit by not using them.  Scrutinize the inputs, commodities, and the additives, if they work at improving milk production and especially help improve components, then don’t cut that input because you may save a dollar but loose two on the income side.  Same thing when placing that seed corn order for silage corn.  Cutting back on highly digestible corn varieties because of cost may turn to bite you on the production side.  Give yourself lead-time when considering a harvest start date.  Plan to be half done when quality is at your target.  Equipment that is tuned up and field ready works more efficiently too. Segregate forages by quality and use the best for the milk cows.  When the storage extends into summer months consider treating that feed to prevent excessive heating in storage.

     When the grain price is high and the milk price is low, feed a balanced ration, hopefully one that contains high quality forages.  The end result of the quality or lack of quality of our forage we produce and feed our cows has a huge impact on the cow’s ability to produce milk. 

     For most of us milk income is our principal income. Making expenditure reducing measures isn’t the only strategy; wiser spending and better management of forage production will serve you better in the long run.