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0309 PD: Keep positive and focused in this year’s down market

Bill Earley Published on 06 February 2009

As we look at the current economic environment, both in the dairy industry and nationwide, it can be easy to become pessimistic and downtrodden. However, now is a critical time for dairy producers to seek and obtain professional and objective consultation.

How can dairy producers best position their business in tough economic times?
• Take time to reflect on what you are doing right and, as importantly, be objective about what you can and should do better. Producers need to use this time to re-evaluate their operation. Evaluate key areas that can save costs without compromising production, health and profitability. Understand the return on investment of key technologies that are being used and the full consequences if these technologies are discontinued. Evaluate areas of known profit leaks and develop specific plans to correct them. Often it is hitting several singles and not necessarily a home run in this regard, but every little bit helps.

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• Get employees involved in decisions as they have a lot at stake as well. Empower employees to be a part of the solution; begin with communication. Empower employees to provide ideas on reducing costs and/or improving efficiency in their area of responsibility (milking, feeding, people or cow management). Ensure employees understand that cost reduction and efficiency are the focus. Provide a sense of urgency, and ensure employees realize the importance in helping meet the stated objectives because these employees will implement the strategies. Employees should be reassured of their importance in meeting goals and should feel a sense of ownership in making the required changes.

• Understand and use available records to make impactful management decisions. While there is no shortage of information, the best managers know how to use the most important information available and implement management practices with the most positive influence on their business.

• Financing will be harder to obtain. As financial institutions become more restrictive in their lending practices, producers have to be more astute in developing sound business plans that demonstrate to the lender they are a viable risk under prosperous and more difficult market conditions. Producers need to be proactive with their lenders. Producers need to understand their critical financial numbers and the factors that impact those numbers. This will enable them to discuss with lenders their plans to help their operation weather the storm. This will go a long way in building lenders’ confidence in their abilities.

• Now more than ever it is critical that dairy producers work closely with their external management team (nutritionist, veterinarian, reproductive specialist, agronomist, milk/grain merchandising advisers, commodity broker and financial experts), being objective and proactive with each on how to remove profit leaks. Be an efficient and profitable operation with a planned course of action to meet this objective.

• Work closely with a nutritionist to ensure the best cost ration for all phases of the operation is being utilized and closely monitor any changes made. Work with a veterinarian on herd health practices, providing maximum preventative care at the least possible cost. Work with an agronomist to develop crop plan strategies that are sustainable for the operation.

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• Where financially feasible to do so, producers need to take advantage of pre-pay, forward contracting, cash discounts, volume discounts and bulk discount opportunities that can add up to significant dollars in their pocket.

• To reduce significant profit losses, evaluate how incoming ingredients are handled to minimize shrink and feed wastage.

• Work with input suppliers on cost projections and protect price when feasible. Consult with a milk marketing expert on how to protect the worth of output as well.

• Focus on the parameters that will enhance the value of milk. Whether producers’ payments and premiums are based upon milk quality, milk components and/or volume, it is essential to discuss with their advisers how these areas can be maximized to provide as much profit potential going off the farm as possible.

• Communicate and do benchmarking with other positive-minded, business-focused producers, learning how they are managing through financially-stressful times. Don’t get caught up with negative-minded producers or advisers because they will negatively impact your attitude. Dairy producers need to surround themselves with positive, successful producers that are forward thinking and advisers that provide positive motivation and solutions to do the right things right.

As consultants to the dairy industry our organization has a responsibility; a responsibility to provide leadership and professional consultation to help dairy producers sustain profitability and viability in good and uncertain times. Today more than ever, we will work diligently to provide dairy producers with the resources and direction they need to help them succeed.

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We set the tone, we must lead by example, providing the focus, recommendations, solutions and determination that will assist in helping dairy producers maintain profitability in what truly is a turbulent time. PD

Bill Earley
Dairy Business Manager for ADM Alliance Nutrition, Inc.

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