Advertisement

Are you reacting to the current downturn or proactively managing for the next one?

Greg Squires for Progressive Dairyman Published on 04 May 2018

Without a doubt, you’ve read a half-dozen or more articles in the past several months about managing your dairy operation during periods of low margins. I initially thought this would be another of those articles; however, I’ve changed my mind and decided to offer a different message.

This isn’t your father’s dairy industry. (Remember that old Oldsmobile slogan?) It’s changing today. It’s been changing for more than 70 years, and it’s going to continue to change. Dairy farming, like the rest of its agricultural cousins (and for that matter, most other mature industries in our free-market economy), continues to consolidate. It’s no secret there are fewer than 40,000 licensed milk producers remaining in the U.S. What may come as a surprise, however, is there were over 3.6 million dairy operations in 1950.

advertisement

advertisement

As millions of dairy businesses exited, the remaining players have collectively become more efficient and resilient to down markets. Much longer periods of marginal profitability and deeper profit troughs are required to reduce the national herd and adjust milk supply.

As I reflected on the most commonly recommended “tough times” strategies, I realized every element on my list was something any farm should employ every single day of its life. For example, “take advantage of marginal production opportunities” would be among the first considerations for a farm struggling to make the checkbook work.

In reality, though, this dynamic is critical to every farm in any market. Top performers are always seeking and taking advantage of marginal milk opportunities. The same goes for taking care of fresh cows, optimizing reproductive management and ensuring the appropriateness of all management protocols; we should be taking these steps continually.

Anyone who knows or has worked with me is aware of how strongly I advocate strategic business planning combined with annual operating and capital expenditure (CapEx) budgeting. I am continually reminded that too many dairy farm families (of every size and locale) do not purposefully plan or manage their futures. Here are some typical comments I hear that reinforce my observation:

  • “We really haven’t changed much around here for at least the last 10 years.”

  • “I had no idea our cost of production was that high.”

  • “The only thing we know is that the checkbook hasn’t been working very well for the past four or five years.”

  • “I guess we’ve just kind of been taking whatever comes for too long.”

  • “It’s kind of interesting to hear you talk about setting expectations of the people we work with.”

  • “Why are you asking me how I define ‘success’?”

  • “I’ve never thought about whether my adviser was proactive or reactive.”

Proactive or reactive?

Let’s reflect for a minute on the last statement. If asked to label your management style as proactive or reactive, how would you answer? Clearly, I find a proactive style of management is among the most common traits in today’s most “successful” dairy operations.

advertisement

Here are several proactive management tools I encourage you to consider as potential improvements to your business management, especially during these tough times:

  • Enlist the proactive support of your advisers. Every farm has a group of advisers with whom managers consult for various insights and recommendations. Sadly, these advisers too often are described by owners as being reactive rather than proactive; a particular adviser is good at answering questions but not offering unsolicited observations and suggestions for improvement.

    Be purposeful in letting every one of your advisers know you expect them to be continually seeking gaps in your business model and making recommendations on how to improve profitability. Host a group meeting of all advisers and invite each of them to come to the meeting with three suggestions for improved profitability in your operation. Also, make sure every seat on your board of advisers is filled with the best-quality talent you can afford.

  • Develop your plan. Don’t be one of those farms that finds itself saying, “We really haven’t changed much around here for at least the last 10 years.” I realize not everyone wants to be a 10,000-cow dairy (thankfully). But, presumably, you have a strong desire to thrive in the dairy industry over the next 20 to 30 years. You owe it to yourself to have a vision and develop a plan that will position you to thrive, not just survive.

  • Possess an attitude of excellence. While this is one of the least quantifiable qualities on this short list, it certainly is one of the more pervasive. What I’m describing is a never-ending attitude of doing the right things and doing things right.

    I once had a customer who, when working through a SWOT analysis, replied one of the strengths of their business was: “We sweat excellence.” He offered the comment, not as a boast or an arrogant jibe, but simply trying to state they treated all of their chosen processes and protocols as being important. If something was important to them, they tried to do it right every time, all the time.

  • Aggressively manage costs. When compared to its ability to determine milk price, a dairy operation has much greater influence on its costs of production; many successful dairy operators manage costs very closely. There are two common standards of measuring costs in a dairy operation: cost per hundredweight of milk produced and cost per cow per year.

    Obviously cost per hundredweight can be influenced by both raw costs as well as the volume of milk produced. Encourage your teams to be looking for places where protocols (and related costs) can be constrained without reducing productivity. Remember, it’s efficiency and cost of production that drives profitability, not productivity in and of itself.

  • Manage cash intensely and communicate with suppliers. Cash management has become nearly as critical to a farm’s success as long-term profitability. Obviously, a business has to be profitable to generate cash, but these are two distinctly different management dynamics.

    Project what your cash needs are expected to be for the coming 12 to 18 months. If there is a projected shortfall, talk with your lender and key suppliers regarding restructuring loans, resting principal payments and adjusting your lines of credit and payment terms. Be critical of capital projects with paybacks that extend beyond your available cash window.

I certainly don’t intend this list to be either inclusive or exclusive. I realize there are additional attributes to be associated with proactively managed and highly successful operations – and certainly believe a dairy that may not possess one or more of these characteristics can still be successful. Of course, we all must be mindful of our own unique idea of what defines “success.”

As a business owner, it is your right and prerogative (if not obligation) to determine what success means to you and your fellow owners. Of one thing I am certain: It is in the rarest of circumstances that success is realized purely by accident. Pablo Picasso said: “Our goals can only be reached through a vehicle of a plan, in which we must fervently believe and upon which we must vigorously act. There is no other route to success.”

Are you ready to plan and then vigorously act?  end mark

Greg Squires
  • Greg Squires

  • Dairy Enterprise Services
  • Email Greg Squires

Before commenting on our articles, please note our Terms for Commenting.

LATEST BLOG

LATEST NEWS