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Decision to continue or quit farming not easy

scenic farmstead
FIGURE OUT FUTURE: Take the time now to plan for your future — this will include completing a financial statement and family living budget.
Agrivision: When you still have equity in the farm, at least there are options. Don’t miss a second question about transitioning to robotic milkers.

My wife and I live about 30 miles southwest of Madison, Wis. We milk 110 cows, own 250 acres and rent 50 acres, and we owe $300,000 on our farm. We are in our early 50s and have been farming for 30 years. We are treading water with low milk prices and have been for three years. We can pay our bills but just barely.

Our cows average 23,500 pounds of milk on twice-a-day milking. We grow all our feed except protein supplement for the cows and calf crunch for the calves. We were selling 10 fresh heifers per year for extra money, but we quit doing that a year ago due to low heifer prices. Since then, we started breeding our low producers to AI Angus bulls. We are able to sell our Angus-Simmental crossbred calves for $250 to $350 each when they are a week old. Holstein bull calves bring a lot less. Our youngest son, who is 22 and still lives at home, helps us with chores on weekends and after work with the crops during the growing season.

We don’t take vacations, and we only go out to eat at a fast-food restaurant once or twice a month. Our pickup truck is 15 years old and our car is 11 years old. We’re wondering if we would be better off selling our cows, machinery and the farm, and trying to find jobs in town. My wife points out we have nothing saved for our retirement. None of our four children wants to farm, and they all have full-time jobs off the farm. We could try and hang on until milk prices are better, but who knows when that will be? We have some decisions to make. Please advise.

Hodorff: Having been in the dairy business for 30 years, you have been through many ups and downs. When to sell the cows and machinery takes some thoughtful decisions. Now is a downturn in the ag economy. Now wouldn’t be a good time to sell. Your options are to continue dairying and start to plan your financial needs long term. You can’t change the price of milk, so try to change some of the things you can change: milk production, family draws, price points of what you purchase. The first thing to figure out is your cost of production. Once you figure that out, you can see where you can improve your bottom line. Figuring out your cost of production is the key to your future.

Miller: This is a common question now as dairy margins have been tight for the past several years and the prospects for 2018 are dimmer than they were in 2017. Take the time now to plan for your future; this will include completing a financial statement and family living budget. When this is done, meet with a tax professional to assess your tax situation for each class of assets — feed, livestock, equipment and real estate. If you were to sell your assets, you could easily pay off the debt and taxes. The question is, how much would be left for retirement? If you were to take jobs off the farm, your skills should be in great demand given the work ethic of dairy farmers plus the low unemployment rate in the area. This should provide for your current living needs.

You may be able to sell the livestock and equipment and retire all or most of the debt, and still have the farm to rent out the land or to feed out some steers to continue to use the buildings. This would also provide some income for living costs or to pay the mortgage and property taxes. This is not an easy decision to make, but there are options available to you should you decide to sell the cows and start a new chapter of life. Good luck with your decision.

Wantoch: You have provided quite a bit of information in your question. The one piece that sticks out in my mind is your wife’s point that you have nothing saved for your retirement. I would have to disagree with her. I would encourage you and your wife to sit down and review your balance sheet. The balance sheet is a snapshot in time of your farm’s financial position. List all the assets you own, such as crop inventory, livestock, machinery, vehicles, land and buildings. You can list either their cost value (what you paid for them) or their market value (what you might be able to sell these assets for). By having values for both methods, it is possible to calculate a good estimate of the “deferred tax liabilities” that would be owed when you sell these assets. Then jot down your liabilities or the obligations owed to others. This would include anyone whom you might owe money to and any outstanding loans.

Finally, you can calculate your net worth by subtracting the liabilities from the assets. The final value is your equity in your farm business. While a balance sheet does not show you whether you are making money or losing it, equity can be used to generate future retirement income and could determine your farm’s long-term viability. Completing or updating your balance sheet is a great first step to assist you in working with a team of professionals to determine your retirement needs.

Time to go robotic?
My son and I milk 150 cows. We have too much work for the two of us to do, but we have problems finding someone who can work six or seven hours a day, six days a week. We farm 275 acres and owe less than $50,000 on a tractor we bought in 2015. I’m wondering what your thoughts are about robotic milkers. Our neighbor put two of them in, but I don’t know how much they cost or if they are a good idea or not. What do you think?

Hodorff: Robotic milkers are here to help fill a need of replacing some labor. Robotic milking fills a need, but be careful not to think they replace all labor needed for milking. I think it reorganizes labor where you need someone to manage the robots 24/7. The cost of robotic milkers can be attained from companies that supply them. If you make the commitment to robots, you are looking at a long-term investment. Look at your financial position, and that will help you make a good financial decision.

Miller: Two of my co-workers, Craig Rogan and Brad Guse, recently wrote an article about this question. You can read their thoughts on our website. Their perspective is tjat robotic milkers cost about $200,000 and can milk 50 to 60 cows per unit. The return on this investment falls between seven and 10 years, depending on how many cows per unit and the increase in production and milk quality due to consistent milking procedures. The expectation is that they would save on labor and, while they do, the type of labor needed changes. Instead of milking labor, greater management is needed to maintain the units and follow up on cows that are not voluntarily coming to be milked.

Before making this investment, visit with a number of dairy farmers who have made this transition, including evaluating the different milking system suppliers. It may also be helpful to talk to an ag banker or Extension dairy agent about their perspectives on these systems. Good luck evaluating your options.

Wantoch: Labor shortage is a very real concern for dairy producers. Automated milking systems (AMS) may provide you and your son an opportunity to improve your labor situation. University of Minnesota Extension educator Jim Salfer reports: “Producers do not install AMS because it is the lowest-cost option for harvesting milk. Nearly all dairy producer surveys show that the main reasons for installing AMS are improved lifestyle and decreased labor, or the desire to milk more cows with only family labor.”

There are also several other factors to consider. Higher-skilled management is required, including knowledge and repair of the machine, computer data review, and feed management. The machine may need service at all times of the day, though the machine will never be late to work and doesn’t need time off for holidays. If you would like to compare the financial impact of AMS versus a parlor, the University of Minnesota has created an online tool for producers. Salfer also notes that because milking robots are a large investment, it is important to develop a realistic cash-flow and carefully think about how much capital you want to tie up in your milking system. I would encourage you to talk with your neighbor about their new AMS and tour other farms if you are interested

Agrivision panel: Doug Hodorff, Fond du Lac County dairy farmer; Sam Miller, managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, Dunn County Extension ag agent specializing in economic development. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email [email protected].

TAGS: Dairy
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