Are You Adequately Covered?

As the cost of buildings on your operation continue to rise each year, you certainly wouldn’t think of not covering their replacement with adequate insurance. Yet, have you done the same thing with the primary source of revenue in your business?

For most dairymen, Milk Sales represent 85-90% of their total revenue streams. This would seem completely prudent, given the increased levels of volatility in the dairy markets… It’s been almost two years since the introduction of the Dairy Revenue Protection (DRP) Program, but are you using it?

If you study the program, it is a fairly straightforward method for placing a floor under the milk price you receive at your dairy. You can choose to protect your Class 3 price, your Class 4 price or you can use your components as the basis for protecting your milk price, assuming that fits your operation better. The key question here is – Have you looked into DRP yet? If not, please do so soon.

I believe you can go ahead up to five calendar quarters. Of course, since the price protection is based upon the use of “Put Options,” which place a floor under your prices received, the longer into the future you contract, the greater the cost of those Put Options will likely be. Their cost can also increase when markets are more volatile (such as this year…) and if you select higher price coverage levels (e.g. $18/cwt vs. $16/cwt.)

However, there is some good news on the cost front. Currently, the federal government is subsidizing the cost of the DRP options by about 40-45%, so if an option costs $0.60/cwt in the open market, your net cost through DRP will likely be about $0.36/cwt. So, how do they pay out?

At the end of each quarter, if the market prices have been higher than those you had set as a floor in the DRP program, these Put Options will expire unused, and, unfortunately, you will receive a bill for the cost of that quarter’s Puts. That’s the bad news. The good news is that since the market was stronger than the level you had set for coverage, you should have been receiving higher milk prices & thus be able to pay this premium. And, please remember that you can do less than all of your milk; I believe you can also set this up with multiple tiers of coverage, e.g. 25% of your milk one week and then another 25% the following week. The costs of the two 25% coverages may be different, but as long as you contract before the required deadline (around the 15th of the month before the next quarter begins), you’ll be covered for the level you select. You can also go into your DRP account every day, if you wish, to monitor your progress/potential payout levels.

Is this DRP program perfect? Probably not. I’m certain that if we study it long enough, we can likely find some characteristic we don’t like… However, it can put a “floor” under your overall milk price received, the premiums are government subsidized, you have numerous different input factors that you can use (e.g. Class 3, Class 4 or Components), and you don’t even pay the premiums until the month following the quarter for which you were covered. As a result, you can pay the “premiums” out of the DRP coverage you received or out of the higher milk prices you collected if your DRP coverage didn’t kick in.

Yes, you will be out the cost of the Put Options, but do you call your insurance agent at the end of the year if your house doesn’t burn down, despite having it insured? I didn’t think so…

Given the higher levels of volatility due to market conditions, unforeseen events such as COVID-19, or disdain for some variables in our trade agreements, don’t you owe it to yourself to be covered? Take action now! I wish you the best of success!

If I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

Throw Me to the Wolves…

I recently read a quote from the famous playwright & philosopher Seneca that stated:

“Throw me to the wolves, and I will return leading the pack.”

As we discussed in my last blog/article, our industry is currently at an “Inflection Point.” Essentially, that means that we are a point of major change, one that completely alters the way in which we must think and take action. As a result, we must take positive steps in order to avoid being “run over.”

Thirty years ago, a producer could survive (please note that I did not say “thrive…”) by doing a solid job of breeding and managing cows for maximum production. Feed costs were quite reasonable, and while a dairyman didn’t necessarily get rich, he could pay all of his bills and service the mortgage successfully.

Forty years ago, many people held the same jobs for their entire career. There was job security for life… Today, job descriptions are constantly changing, we see lower levels of company loyalty, and many change careers regularly, either out necessity or a desire to seek new opportunities.

Realize that many factors have changed, both within and outside of our industry. Thus, our best approach to succeed is to follow the advice of the Boy Scouts and simply, “Improvise, Adapt and Overcome!” We absolutely need to come to grips with reality and prepare for constant change.

What changes do you need to consider?

  1. On Labor Efficiency: Have you considered the positive benefits of Robotic Milkers, Robotic Feed Pushers or other forms of automation? Have you considered their cost vs. their effectiveness & efficiencies?
  2. Your Marketing Program: Do you have an effective Marketing Program for selling your milk at a price that provides you with a positive profit? Consider the Dairy Margin Coverage Program (DMC) or the Dairy Revenue Protection Program (DRP) for your business.
  3. On Reproductive Efficiency: Are you using the tools that are available to you to ensure that your Pregnancy Rate runs in the 25-30% level? Synchronization and Double Ova-Sync programs can help you maintain your Days-In-Milk (DIM) at a level that is consistently in the 160-165 Day range. That’s where the “money” is!
  4. Knowing Your Break-Even Levels: Do you really know your operation’s Break-Even levels for Milk Price, Feed Costs & Milk Production levels? If not, take steps today to grasp a better understanding of this information. It can guide you to greater profitability!

Returning to the Seneca quote above, we need to realize that we all get “thrown to the wolves” occasionally. That is almost a given in life today. The variable is how you deal with this process. Do you adjust your course or just give up out of frustration? Make the changes suggested above, and I believe you’ll thrive as you move forward. Our industry is changing very rapidly, so don’t delay. Take action now! I wish you the best of success!

If I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

 “Throw me to the wolves, and I will return leading the pack.”

                                                            Seneca, Playwright & Philosopher

Choose Wisely!

I recently was reading about a presentation by Damien McLoughlin, marketing professor at the University of Dublin, within which he explained that our industry (in fact, all industries) are currently at what he describes as a “Strategic Inflection Point.”

What other potential options have arisen over the past several years in the dairy industry? How about robotic milkers? What about robotic feed pushers? What about price insurance programs such as DMC or DRP? Have you adopted them yet?

This was most recently inflicted upon us by the COVID-19 outbreak, and he explained that at some point, all businesses will face an inflection point that significantly alters the way we think or act. Obviously, COVID-19 has caused this with the restrictions placed upon us for travel and the increased use of Zoom meetings and other online tools.

Mr. McLoughlin states, “After an inflection point, all bets are off; the industry changes. The forces that drive that change are rarely a surprise, and the change, which appeared to be so gradual, then suddenly comes into play. And the opportunities are there for those who are ready.”

He added, “We’re in a time of enormous challenge, but challenge always presents opportunities.”

What type of opportunities currently exist for you? Are there some in terms of expansion, increased efficiencies, or higher levels of price insurance? What strengths do you have going for you? Are you currently well prepared or do you need additional resources? What advantages do you have? Who else can you consult with on this challenge?

Have you developed your own strategy to succeed at a higher level? Our industry is changing very rapidly, so don’t delay. Take action now! Choose wisely…

If I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

 “When I was young, I always said I wanted to be someone. Now that I am older, I wish I’d been more specific.”

                                                            Gilda Radner, Former SNL Comedian

Hope is not a Strategy!

I recently was visiting with a prospective Client who made the statement, “Well, we’re hoping to get above 80 pounds per cow this year.”

That’s a fabulous goal, but not a very defined strategy. Now, just so you understand, this was an operation on its third generation, and they had never consistently been above 72-73 pounds per cow per day. As a result of our discussions that day, they did become Clients of mine, but only after I convinced them that they needed a more refined strategic plan.

We started with the following steps:

  1. Regularly scheduled Management Team Meetings – During these, we established this new goal of hitting 80 pounds per cow per day, focusing on cow comfort, fine tuning of their feed rations and getting their Days-In-Milk to be consistently in the 160 to 170-day range throughout the entire year. We also developed some plans for ways to holding this production level consistently by focusing on Close Up management and milking frequencies on fresh cows.
  2. Regularly scheduled Finance Team Meetings – Within these sessions, we directed our discussions to their Debt Structure, various Financial Challenges, and opportunities with programs such as DRP, PPP, EIDL, CFAP and EIEIO… Just kidding on that last one! All of these programs, except the last one, offered some serious benefits to producers if they were used in the right circumstances.
  3. Regular measurement of Actual Results vs. Projections – This is crucial on your financial numbers, as well as on your Management Results, such as DIM, Pounds per Cow, Herd Health and many other measures.
  4. Fine tuning our strategy, as needed. This is just like an airplane pilot. They have a travel plan, but they then adjust course throughout the flight, based upon changes in weather patterns and other items.

This type of strategic planning has worked very effectively for over 21 years for my own Clients. I will leave you with just one question: Have you developed your own strategy to succeed at a higher level? Our industry is changing very rapidly, so don’t delay. Take action now!

If I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

 “Wherever you are in life, you made an appointment to be there.”

                                                                                    Les Brown

Have you Given Up or Given Your All?

While I realize that the last few months have been difficult with the onset of the Corona-Virus and the severe decrease in milk prices, I hope that you are currently regaining focus and setting new objectives for your operation.

I know what you’re thinking… “Geez, we just got through the four & a half years of low prices, I was making some progress on my credit lines, and then BAM! The markets tanked again!” I don’t blame you for being disappointed by this downturn. It’s not your fault. However, it is your responsibility to take the steps necessary to move forward.

I recall one of the “turn-around” situations that I was consulting on during the 2015-2019 downturn. When I arrived, the Client had essentially given up all hope of recovering. That was the first item that needed to change. It was imperative that they believe that it was, at least, remotely possible to be more successful. Then, with that behind us, we set a strategy to help them achieve this goal.

Of course, this was not exactly easy with their banker trying to force them out of business. Now, at some point they may want to exit the industry, but no one should be forced to do this at the “bottom!” Thus, once I got the bank to back off and actually work with us, we developed a plan for greater success. After six months, the bankers actually started to believe that this producer could succeed, but they added, “Let’s see what the year end financial statement looks like…”

In the end, this is what happened. This dairy operation achieved a turnaround in excess of $1,100,000 versus the prior year. After the previously mentioned “change of thinking,” these were the steps we took to get their operation back “in the black” in terms of profitability:

  1. Set some challenging Objectives.
  2. Share these with your Bankers. Besides giving yourself some objectives to achieve, this does two other things. First, it keeps your Lenders informed, and it also let’s both of you know how you did vs. the goals.
  3. Measure your outcomes regularly. How else can you know with any degree of certainty how you are doing? Knowing this and then adjusting your course, as needed, is crucial to helping your business survive & thrive.
  4. Move the bar up! As you achieve better results, keep your Team informed and involved, and then keep setting higher objectives. These goals must be achievable but also challenging!

Regardless of what your position is today, you can, indeed, bounce back. I’ve seen so many scenarios like the one described above, where the participants had given up, but we still were able to succeed. I wish you the best of success in that endeavor, and if I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

 “All you can do is all you can do, and all you can do is enough.”

                                                                                    Les Brown

Maximizing Your Forward Progress!

In my last blog, I described the process introduced by Dan Sullivan, President & Founder of the Strategic Coach organization, in taking you to the “New Normal” for your businesses. Dan explained that as you move to your “New Normal,” you will be defining a better future for yourself.

I went on to say that once you define what, exactly, that new future includes, it is essential that you outline the steps to take you there. You may recall that I suggested you make the future outcome you desired specific, measurable and attainable, while providing you with a foundation upon which to build your bigger future.

With these points in mind, I hope that you set future objectives that are challenging and exciting. However, please don’t get frustrated if your progress is slightly slower than you want it to be. The key is to keep moving forward.

In uncertain times, we don’t always have 100% control over the outcome. However, that is no reason to not continue to push forward. I recall coming home from a Duke basketball game that my daughter Melanie and I had attended in North Carolina. While we thoroughly enjoyed that game, we were both anxious to get home. However, while we both had plans for the next day, the weather had different plans for us…

In spite of an ice storm, we were able to get as far as Washington, D.C., but after a five-hour delay, our pilots became “timed out” and couldn’t fly again until the next day. As it turned out, we were blessed with an overnight stay at a very nice hotel in the area, compliments of United Airlines. Additionally, we were treated to a nice breakfast the next morning. As I recall, I think we even received a free pound of Dunkin’ Donuts coffee out of the deal! We returned to Kansas City by noon the next day and barely missed anything.

Using this example, let’s say that one of your “New Normal” objectives is to return to profitability and achieve this on a consistent basis. This is an admirable goal, but I think it is safe to say that you may not have complete control over this outcome. The current state of our economy & the milk markets could slow your progress.

However, it is still important that you outline the steps you can take to move closer to this goal. Can you use DRP, contract more of your feeds or negotiate some of your costs? Speaking of costs, are there some items that you need to improve? Instead of maintaining a fleet of equipment and doing all your own farming, should you consider hiring a custom operator? Could you be that custom operator for other producers?

While your progress can be slowed down by factors beyond your control, the key is to consistently take action. Former Navy Seal Pat Dosett and Stanford University Neuroscientist Andrew Huberman state that “It isn’t about how much you do, but that you do something specific you are certain you can complete.” Forward progress here is key. They go on to say, “By taking action, you train your brain to repeatedly release dopamine, enhancing your energy levels and creating an outsized effect on your thinking, mood, and sense of what you can control.”

This perceived control will move you closer to your objectives! I wish you the best of success in that endeavor, and if I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

 “Planning is bringing the future into the present so that you can do something about it now.”

                                                                                    Alan Lakein

When We Return to “Normal” Again…

As I write this blog, there is still a great deal of uncertainty in our industry and, frankly, in the entire world economy. I’m sure that, as you read this, you, like me, are ready to get back to “normal.”

Will that actually happen? Maybe, but I’m not sure that any of us knows with any degree of certainty. With that in mind, please allow me to suggest a new way of thinking about this future challenge.

In a recent presentation by my Business Coach Dan Sullivan, President & Founder of the Strategic Coach organization, he asked listeners to answer this same question. Dan then explained, in his positive manner of challenging our thinking, that it was probably unlikely that we would return to the “old normal.”

In fact, he went on to ask, “Why would you want to return to the old normal?” Why not head directly to a “New Normal,” one that is superior to the old one? In essence, why not make your “New Normal” far better than your “Old Normal?”

To achieve that, he suggested that there are two questions that must be answered, and I have been challenging my Clients to start thinking about these:

  1. In the “New Normal,” what do you want to see happen? What items do you want to see changed from the old normal? What has to get better? What improvements do you want to see in your business? What are you fatigued with & thus needing to change?
  2. After you have identified what you want to see happen that is new, different & improved in your future “New Normal,” what steps do you need to take to ensure that you can achieve these new outcomes? As you outline these steps, please try to be specific, establish some deadlines (more on this in my next blog), determine how you can measure your progress, and specifically how you can build upon this objective as you move forward.

Once you have started this process, you will be well on your way to greater levels of success, because I believe that simply overcoming the inertia of our current situation is the key to a brighter future!

I wish you the best of success in that endeavor, and if I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

 “An intelligent plan is the first step to success. The man who plans knows where he is going, knows what progress he is making, and has a pretty good idea when he will arrive.”

                                                                                    Basil S. Walsh

This Can Still Be A Year for Winning!

As I write this blog, there is a great deal of uncertainty in our industry and, frankly, in the entire world economy. Our domestic milk markets are down 30% on price, and our export markets are being held back by a myriad of factors. However, despite all the gloom and doom in the current forecasts, we all need to realize that we can still make this into a winning year. Why would I suggest this? Please allow me to give you several reasons.

  1. It has just begun. While our markets have taken a downturn for now, it is far from over. I am encouraged that so many people across the entire globe are all pulling in the same direction. That, in itself, is a truly great achievement. It is unlikely that the entire world can be overcome, so I am confident that this many forces pulling together can result in a more positive outcome than what we are currently anticipating. As Yogi Berra once said, “It ain’t over ‘til it’s over!”
  2. If you maintain and even “fine tune” the basics in your operation, particularly in the areas of cow comfort, feeding, breeding and management techniques, you will undoubtedly be ahead of the game. This is not a time to take “shortcuts” in these areas. As we saw in 2009, people who took shortcuts paid for those over time though lower production, poor breeding results and numerous other areas. Do the best you can to “stay the course” on these essential basics!
  3. Manage your Revenue & Expenses as best as you can. None of us are miracle workers, but we can monitor these items more closely than normal. Doing so can pay huge dividends in both good times and tough ones.
  4. Focus on the items that you can control. Once again, this includes the productivity of your operation, the feeding and breeding results you are achieving, and the morale of your employees. They are your “Team,” so it is essential that you communicate with them even more than normal. They watch the news, and it is likely that they are worried, too. However, I am confident that they want you to succeed, so be an effective “Head Coach” for them.
  5. Remember, no game was ever lost in the first half. Ask the recent Super Bowl winning Kansas City Chiefs, who were down by as much as 24 points in their three post-season games that led them to their championship. Now, I know you’re probably saying, “Yes, but they had Patrick Mahomes and Andy Reid.” They most certainly did, and they are phenomenal in their respective roles, but if you’ve survived the prior downturns of the dairy industry, you’ve already proven yourself a winner. I believe you can do it again!

I wish you the best of success in that endeavor, and if I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

 “With every challenge you face, there is an opportunity hidden.”

                                                                                    Stephen Richards

Overcoming Adversity!

For the last five years, with the exception of the second half of 2019, the dairy industry has been a very difficult place to operate. Despite feed costs dropping considerably during this same time period, the decrease in this expense area pales in comparison to the precipitous drop we have seen in milk prices from 2015 to mid-2019 and now again in early 2020.

Believe me: I do understand how difficult it has been for all producers. We are in a very scary time, financially speaking. There is a great deal of uncertainty in both exports and in our domestic markets.

I recently re-read a great article by New York Times best selling author Brendon Burchard (visit www.brendon.com). Whenever I get worn down by events, I love to read some of his work or listen to one of his presentations. In this particular article, he discussed how we can deal with adversity when it strikes and outlined five major points:

  1. “Have confidence.” – He goes on to explain that this is a natural outgrowth of believing that you can overcome the difficulty you are facing. Becoming negative will do nothing but lead you into depression, so simply remember that you can, indeed, figure things out.
  2. “Keep perspective.” – Regardless of how difficult things may seem, it is quite likely someone in the past, probably even you, has faced the same problem. If others have overcome this, you can too. He also reminds us that each of us has survived hardship before, and we can do it again.
  3. “Schedule Action.” – A far superior course to waiting to see what happens would be to make certain that you schedule specific actions to deal with your problem. Set action steps you can take each and every day to handle this. Do not, under any circumstances, delay action. Avoiding actions will only make things worse. This is an ideal time to “step up” your action levels on cow comfort, breeding, feeding and overall financial management. Do not “cut corners” in these areas. It will hurt you down the road.
  4. “Ask for help.” – Believe me. In nearly every one of the financial turnarounds with which I have been involved, I only wish the Client had come to me for assistance sooner. It amazes me how many times during the past 21 years of consulting I have found myself saying, “Man, I wish they had gotten me involved six months ago…” As my business coach Dan Sullivan says, “The challenges & obstacles you face are actually the raw material for reaching your goals.” With this in mind, don’t give up. Get the help you need and develop your success plan!
  5. “Honor the struggle.” – Brendon explains that this represents a crucial element to having success in life. Sometimes we have to face adversity because we simply cannot control everything. Just accept that, control what you can, and guard your attitude.

I hope you find Brendon’s thoughts and my application of them to our industry helpful.

“How to Solve Problems!”

Solving problems is a large part of what I do with Clients. My goal is to get them to think things through and be better prepared for that day when a new challenge, whatever it is, may arise.

My business coach Dan Sullivan of the Strategic Coach organization stated that: “The challenges and obstacles you face are actually the raw material for reaching your goals.” That is why this process of recognizing these obstacles for what they really are is so crucial to your results!

So, should we welcome these problems and challenges at all times? Not necessarily. I’m not always thrilled by the challenges my Clients and I face. Yet, if we look at them as new potential opportunities, rather than as a calamity (You know, “Woe is me…”), you will undoubtedly be better off.

Let’s say, for example, that you’re not as profitable as you’d like to be. Imagine that happening in the dairy industry… Try out the following steps:

  1. State the Objective or Desired Result as specifically as possible. For example, you might say “Boost my Net Profit.”
  2. Next, get more specific on your goal: For example, “Achieve Net Profits of $200,000 this year.”
  3. Make a list of all the Obstacles that oppose that goal.
  4. Set a Target Date for this goal to be reached, e.g. by 12/31/2020.
  5. Identify the “Payoffs” for reaching this objective.
  6. List the primary Obstacles in more detail: Low Milk Prices, Operating Costs being too high, Excessive Debt per Cow, High Labor Costs…
  7. What Strategies can you utilize to overcome these Obstacles? Write them down.
  8. List who can help you complete the tasks necessary to overcome these Obstacles.
  9. How soon can these steps be taken? What specific actions will it require?

It’s a lot to think through and implement, but remember: No one plans to fail. They just fail to plan! In the words of Alex Morrison:

“You must first clearly see a thing in your mind before you can do it.”

That’s true for this process as well. See you at the Finish Line!

Our new Success Strategies Business Navigator Program is now available on line and begins April 17th. If you are open to learning new concepts and discussing them with other producers, you should take a look at this new program. It’s completely online, freeing you from travel but offering you an opportunity to learn from industry experts in the areas of milk marketing, management, financial analysis & banking/finance. For the value of the milk production of one 85 lb cow for a month, you can enroll in this quarterly workshop program for one year. What have you got to lose? Check out our 30 minute “Free Preview Class” at:    

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You won’t regret it. I wish you the very best for a success-filled year!