| 
Extension Responds: Drought
Profitable Practices for “Tough Times”
By: Tom Kriegl, Farm Financial Analyst
University of Wisconsin-Extension , October 15, 2003
When times are tough -- when commodity prices are low, when there is drought or a shortage of feed, for example –farmers often ask: “What are the most profitable practices under these conditions?” The answer usually disappoints those who ask it because practices that maximize profitability when “times are good” are the same practices that help maximize profits (or in many cases minimize losses) when “times are tough.”
I think this surprises people because, when times are good, one can achieve a satisfactory profit without using all of the profit maximizing practices. When times are good and profit margins are generous, people may become complacent and adopt practices that seem convenient or appealing even though the practices reduce profitability. When these practices become routine, it is easy to think of these less profitable practices as essential.
It's also important to recognize that the components of a practice that contributes to profitability can change.
For example, feeding the least cost-balanced ration (compared with feeding an unbalanced ration and without regard to cost) is a practice that helps maximize profits or minimize losses under all conditions except one -- when revenue fails to equal or exceed variable cost. However, the components of the least cost-balanced ration can vary radically as prices of the ingredients and the product change.
We must also recognize that tools that maximize profit can be underused. For example, feed testing, milk testing, soil testing, and record keeping and analysis are all tools that can help maximize profits. Yet, some managers pay for these tools but ignore the information these tools provide. Misusing or not using such tools will actually detract from profitability.
In summary, the practices and tools that contribute to profitability are similar in both good economic times and bad. However, the way managers implement these practices and tools may change. To maximize profitability, managers must pay attention to details and make adjustments to these practices to fit their circumstances.
|
