Should he stay or leave the dairy?
Dad and I have had long, sometimes heated arguments over whether to stay in the dairy business. He doesn’t want to spend money for technology to keep up. I say you have to invest forward. He owns the farm (230 acres). We average 17,680 pounds on 143 cows with a 480,000 somatic cell count (SCC). What’s your counsel? Should I look for opportunities elsewhere?
Mike Evanish: I’m sure a number of production and herd-health improvements are possible. But making an exit decision also carries many risks. The current weak economy and 9% unemployment makes securing of a new position difficult, especially if your education or skill levels don’t meet what’s needed in your area.
Then there’s your dad. Is he old enough, and financially set enough, to retire? If not, will he be able to keep the farm without the cows? Would he be able to handle 143 cows alone?
You must answer some personal questions. Is farming what you want to do? Is it what you love? What do your spouse and family think? Are you making enough of a living to support your family?
If you decide to begin upgrading, what’ll it cost? Most farms can handle $3,000 to $5,000 of debt per cow. But if you’re already above that, modernization might not be possible.
Many times the older generation is just tired. Have you asked your dad about the possibility of you taking over? Perhaps he’s searching for a graceful way to back out. He might be ready for a buyout and for working as an employee.
Given all these issues, if you’re in Pennsylvania, I suggest you contact the Center for Dairy Excellence at the state ag department. Its Dairy Decision Consultants program can help with the cost of solving your dilemma. My staff and others stand ready to help.
Dale Johnson: You and your father need to be involved in an extensive personal and financial evaluation — with assistance of a financial professional, such as your banker, private financial consultant or an Extension agent/specialist. Include your spouses.
Any decision must come after you do the financial analysis. Is your farm financially strong enough to take on more debt?
A debt-to-asset ratio greater than 0.60 seriously calls into question your ability to borrow for capital improvements. A safe debt-to-asset ratio would be less than 0.40.
Next, do a three- to five-year analysis of your income, expenses and profit. Use these plus future expectations to estimate a long-term projection of your profit under different renovation or expansion scenarios.
Use a conservative milk-price estimate. If the farm passes muster through the balance sheet and projected profit analysis, then project cash flow out for three to five years to estimate loan needs.
My experience is that most dairy farms can’t financially justify a major renovation or expansion. If that’s your situation, you may want to start looking for opportunities elsewhere. Let your parents retire on the farm’s equity.
George Mueller: I’ll assume you’re fresh out of school. You very much enjoy cows, want to raise a good farm family and build a good dairy business.
That was my goal 53 years ago. There’s no better way of life. If you can make a living at it, give it your best.
I’d urge working on a progressive dairy farm in your area for several years to pick up good techniques and efficiencies to use. It’ll also show you that all the big mistakes aren’t made only on your home farm. But I agree that there’s room to improve.
Thirty years ago, I was the “dad” that was watching my costs. I had two young sons pushing hard for new machinery and improvements. They became impatient, and left to seek their fortune elsewhere.
After working for Agway for three years, our third, more patient son came back to the farm with the people and management skills our farm badly needed. I’d mellowed, and the farm has prospered ever since.
You must prove your ability to build capital. Putting money aside rather than buying the new pickup is essential.
If your family’s farm is in a good farming area, a partnership with your folks may be the best path. Keep your eyes open. Save money. Prove yourself by working hard, and an opportunity will come knocking on your door. Good luck and God bless.
Glenn Rogers: This isn’t a new situation. The next generation has energy and willingness to take risk, and brims with confidence. It meets up with the older generation that’s seen disasters of overspending, failures of new ideas, and how the brutal marketplace can tear dreams, finances — even families apart. Northeast Farm Credit and Cornell University and even the popular press print benchmarks. Herds in Dairy Herd Improvement Association records average nearly 2,000 pounds more milk per cow than non DHIA herds. It’’ll take time to raise your herd average. Gaining 1,000 pounds per cow per year would be phenomenal.
SCC should be well below 250,000. The lower the SCC, the higher the milk premium. I know of no case where the dividend doesn’t pay for the added cost of more sanitary milking practices.
It requires significant investments that must be paid for. Typically, a young person’s payback time horizon is 20 to 30 years. The older generation looks at a payback time horizon of one to five years — or even less.
I recommend that both parties write out their short- and long-term goals, then sit down and compare notes. It takes time and respect to understand each other.
Once that’s accomplished, you both might be surprised. Then, it’s time to laugh and work together. However, on occasion, it may be time to consider opportunities elsewhere. Counselors with ag expertise can often help you find intermediary steps that might help.
This article published in the March, 2011 edition of AMERICAN AGRICULTURIST.