Photo Credit: Sharon Drummond via Compfight
Under the current market condition, many dairy farmers are finding themselves with more cash on hand. Now their dilemma is finding the best way to spend it. With all of the options that come to mind, stocking up on inventories is one of them, especially with the tax implications of some other purchases. (http://www.claconnect.com/Agribusiness/Farmers-Postponing-Equipment-Purchases-Until-Congress-Increases-Section-179-Tax-Deductions.aspx#.VD6SVVdMyZQ)
Replenishing and adding inventory is a good investment, but it is hard to keep track all of the farm inventories when times are slow and nearly impossible with the hustle of fall crop work. Before the big box store boom and self-reliance, salesmen stopped by every few months with nuts, bolts, screws and farm supplies or you could just order from one of the local companies. You could do a quick look through, replenish your stocks, and have them drop you a bill. Some farms are working on the supply and demand system, when something is gone; there is a demand to get it quickly. All of the little pieces that make up a modern day operation add up to a lot of money. It costs even more than just the price of the item when you are taken away from another critical farm function to deal with the shortage of any item no matter how small. It can bring everything to a screeching halt.
Mismanagement of supplies tends to happen in good and in bad times. Improper inventory control may be more costly than not having supplies at all. Everyone wants to squeeze their salesperson for every dollar and then lose those savings by keeping a bag of seed, fertilizer or some other product around too long. We have all seen the cabinet that hasn’t been opened in two years or the jug in the corner collecting dust. While it may not seem like a lot to wash a little down the drain, or spill some along the way, it may cost you over the course of a year. Take a few minutes to talk with your sales people and your staff about your inventories and discuss how they are managing regularly replenished items. Is the number you have on hand reasonable per your usage? Buying extra because you have cash on hand may seem like a good idea but, will it really be a benefit? Will all these extra supplies just lead to misuse?
Farms that use the Dairy Farm Business Summary are often surprised at how much they spend on supplies or miscellaneous items. Take the time to track your inventories and you may be able to save some real money. Work with your accountant and farm staff to decide what the farm really needs.
Feel free to contact me with your farm business questions.
Kirk Shoen kjs264@cornell.edu or (518) 272-4210.
