Dairy farm transformation highlighted at Penn State Ag Progress Days
By DOROTHY NOBLE
ROCK SPRINGS, Pa. (Dept. 22, 2015) — During Ag Progress Days, the Center for Dairy Excellence and the Penn State Extension Dairy Team discussed dairy farm business transformation.
Tim Kurtz, who owns Kurtland Farms in southern Berks County, shared his insight on his three-year expansion. Extension educator Tim Beck in turn explained the financial analysis factors for assessing the probability of success for expansion.
Kurtz installed 4 Lely A4 robots in a free stall barn in 2013. He milks 200 cows, and his expansion was designed to allow the next generation to transition into the business.
Kurtz credited the Penn State Extension Dairy Team for guidance in his extensive plans, which included performance evaluation and financial management.
Asking hard questions initially pinpointed important considerations that would impact many areas of the business.
These questions included evaluating the long-term viability of dairying in the community, assessing whether the next generation had sufficient interest, forecasting the long-term profitability of the current facilities, assessing any bottlenecks or limiting factors, determining if there was enough land and evaluating any other options.
Kurtz recommended using a team of dairy professionals. He advised anyone considering expanding to build strong relationships within the community. Visiting other farms, keeping an open mind, learning about environmental compliance, and pursuing grants all should play a significant role in a feasibility study.
Building teamwork was important. Kurtz said the key challenges should be identified, the right people should be involved, and the planner needs to stay focused but still look for windows of opportunity.
Building for the future, Kurtz explained, includes embracing technology, being a good neighbor, practicing environmental stewardship, and having a passion for the dairy industry.
His profit team, transformation team, and a PENNVEST grant, plus good timing in retrospect were key components for success.
Summing the lessons learned, Kurtz said good relationships go a long way.
In the beginning stages of an expansion plan, Kurtz advised starting with an environmental consultant rather than a contractor. Along the process, he said one should expect the unexpected, celebrate the successes and keep life in perspective.
“Stay positive,” Kurtz counseled, and follow the P’s—persistence, patience and perseverance.
Tim Beck, an extension educator in dairy business management, followed Kurtz’s presentation, focusing on financial ratios and risk assessment.
Beck urged ‘owning’ one’s plan, which he described as making certain that your plan reflects your goals and values.
Kurtz, Beck noted, knew his costs. Beck advised including information such as mission statements, goals, farm alternatives and a human resources plan plus a financial analysis complete with spreadsheets and break-even costs .
Using financial ratios, Beck illustrated how to determine the current debt to asset ratios in order to assess solvency.
Profitability must be protected, and the loan payments per cow considered.
Robotic systems demand unique considerations, Beck said. Hired labor should be lower per cow, but loan payments may be higher. The manager in effect is trading capital investment for the cost of hired labor.
The debt per cow in robotic systems would be high compared with historical standards, Beck explained. He advised looking at milk sales per cow to evaluate the adequacy of the revenue to debt service ratio. This analysis should be balanced against labor cost.
Beck pointed out that risk assessment must also consider the milk/feed prices, the milk margin and environmental costs.
Moreover, cash flow cannot be ignored.