Planning leads to profit

Expert: Profit equation shows how four factors affect everything on farm

By TIM HEARDEN
Capital Press

CHICO, Calif. -- As most dairy farmers these days don't have much -- if any -- margin to work with, the best way to survive is through intensive planning and introspection, according to one management expert.

Farmers should go through a formal decision-making process before making changes in their operation, preparing budgets, considering more than one option, discussing the decision with others and examining whether past decisions worked.

So advises Jason Karszes, a management extension specialist for Cornell University in Ithaca, N.Y.

"One of the key questions we ask dairymen is how fast they recognize they've made a mistake," said Karszes, who spends most of his time on grass-fed dairy farms in New York and elsewhere. "More and more successful farms are spending ample time on (reviewing past decisions) ... It might not be a mistake, it just might not be producing what we wanted it to."

Karszes was one of the featured presenters at the two-day Western Regional Grazing Conference March 17-18 at California State University-Chico's Agricultural Training and Research Center.

The seminar featured a trade show and a variety of speakers and topics, such as mineral nutrition and herd health and grazing behavior and weed management.

About 120 people attended the conference, whose sponsors included the University of California Cooperative Extension and the CSU-Chico Agriculture Research Initiative.

In a presentation on key economic indicators of successful grass-based dairy operations, Karszes noted that most dairy operations are currently seeing little or no return on equity, which makes planning and decision-making crucial.

Being meticulous about keeping a budget is important even though unforeseen expenditures are inevitable, he said. Detailed budgets are a tool for planning, enable comparisons from month to month and year to year and foster communication with the non-farm spouse, he said.

While farmers usually make decisions "in crisis mode" or based on emotions such as worry over what the neighbors are doing, the best time for gut decisions are "at the end of the process, not at the beginning of the process," Karszes said.

The most successful farms make the best use of limited resources and make decisions that support the success of the business, Karszes said. And they must be willing to change, he said.

"I always like to ask people why they do what they do," he said. "This is the answer I get. 'We do it because it's what we do.'"

The most important thing for farmers to remember, Karszes said, is the profit equation -- profit equals volume times price minus cost divided by investment.

"Every decision we make impacts part of this equation," he said. "We have to do something in these four areas."

Components that can improve the outcome of this equation include labor efficiency, cost control and striking the right balance in terms of capital investment. "It can be too low," he said.

Farmers who diversify should make sure all the crops they're growing are worth the money and effort, he said.

"A hobby is something you intentionally do to lose money," he said. "That comes into play on the farm in use of acreage."