Finding the Money in Your Dairy

10/19/2013 7:00 AM

Snider Shares Keys to Dairy Viability

Charlene M. Shupp Espenshade

Special Sections Editor

SUMMERDALE, Pa. — When it comes to farm profitability, dairy farm consultant Gary Snider sums it up simply: you can lead or be left behind.

“I can be on the leading edge or the bleeding edge of technology,” he said. “Here’s the pure economic truth for the commodity market. The low cost producer wins the day.”

Snider spoke at the recent Center for Dairy Excellence Dairy Financial and Risk Management Conference at Central Penn College.

Snider works with Farm Credit East’s dairy benchmark program, evaluating New York state and Pennsylvania dairy farm profitability.

While much has been made about the tight margins of dairy production, Snider said there is money to be made in dairy. He has consulted farm families who are making a living from milking cows and enjoying the business. These farmers are good dairy managers and are always looking to improve the farm business.

Referencing Virginia Tech’s agricultural economist David Kohl, Snider said only about 40 percent of U.S. agricultural businesses are viable in the long-run. The same is true for dairy farms.

How do farm families keep from becoming financial roadkill? Snider said farmers have to identify their competitive advantage and capitalize on it.

“Folks who make money do it by having the lowest cost of production in this competitive commodity market,” he said.

Speaking to the group of more than 100 agricultural consultants, he shared what he believes are the keys to a successful dairy business.

“If I am in the dairy business, I better sell a lot of milk,” he said. The Farm Credit dairy benchmark farm data shows that the top 20 percent of his herds produced more than 26,000 pounds of milk per cow.

For the Northeast, milk production is more than just producing milk volume. It’s about milk components. Top farms generated more fat and protein per cow, averaging more than $400 per cow per year compared to the bottom 20 percent. These farms also earned more milk check premiums.

Efficiency is also important.

“We have to do more with less in this commodity business,” he said. Farmers need to continue to improve pounds of milk per worker and crop acres per cow. They also have to retain a strong gross margin.

Looking back at the benchmarking results, he said the top herds needed to retain fewer heifers.

Farms also need to run at capacity, Snider reminded the group. There is a set of fixed costs at each farm. The more milk and/or cows that fixed costs can be spread across will improve profits. However, he was quick to point out that barns need to be full but not overcrowded. Overcrowding costs production, Snider said.

The top 20 percent of herds also found success by growing thier business. Statistically, they had a higher internal herd growth. These herds had a milk component production increase of 7 percent over last year. His least profitable herds only improved by 4 percent.

“We need continuous, consistent, yet manageable growth now in business,” he said. Cost inflation is a reality, as everything has increased in price from dairy supplies to cost of living and taxes.

Farmers need to practice cost control. They should take advantage of purchasing discounts when they can and not pay a carrying charge with a vender. Instead, they should know how to utilize operating lines of credit to take advantage of early pay discounts.

Snider touched on the idea of niche marketing, calling it a tough market because farmers need to stay ahead of the curve or run the risk their niche market could turn into a commodity market.

For those who pursue a niche, he said farmers have to be “talented and skilled to move into that market. You have reinvent yourself because it always has someone waiting to eat your lunch,” he said.

If the product proves successful, others will enter the market, which will increase supply and eventually cause the product to evolve into commodity pricing. An example would be the rapid growth of the Greek yogurt industry from a niche enterprise into a national dairy phenomenon. And the number of companies in Greek yogurt production has grown rapidly.

Just because a dairy might be a low-scoring dairy today does not mean it’s a lost cause.

One farm in Snider’s benchmarking program was in the bottom 20 percent three years ago. However, they made management changes and now are one of the survey’s best producing herds.

To sum up success, Snider says simply, “I have to be better than average to be viable in the long run.”

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