“Rome wasn’t built in a day” is an old expression that I’m sure you’ve heard people express many times. You know what? It’s true. Recently, however, I’ve been surprised to hear some bankers and vendors to the dairy industry exclaim their surprise by stating that they cannot understand why producers aren’t catching up more quickly on old Accounts Payable.
While I am often shocked to hear them say this, let’s review what has happened during the past five years. All dairymen have been “shell shocked” by low milk prices from 2015 through 2018. Early 2019 also did not roll out any super high milk prices either. At best, they may have been at “break-even” levels for a lot of producers. Prices have come up, but that has only been since mid-2019.
Simultaneously, the cost of almost every item that a dairyman uses has continued to go up, despite the Federal Reserve Board stating that we have almost no inflation. Really? Why is the cost of fuel 30% higher than it was two years ago? Why are my flights up by 50% over the last 24 months? I’m not sure what they are measuring, but I believe it is safe to say that almost everything has gone up in price during the past four to five years.
Thus, the lower milk prices since 2014, combined with higher expenses and additional borrowing to overcome any cash shortfalls, has created a situation where it has been much more difficult to cash flow. I believe that has been true for all producers. Hopefully, these points will help address any vendors or bankers who are asking why producers are struggling to catch up. In one case where a lender asked this, he had decreased the amount that the borrower could revolve back on his lines of credit. Of course, this lowered his Loan-to-Value, but it tightened cash flow even more…
So, what can a producer do to get caught up? Here are several suggestions:
As I stated in the title of this article, “Rome wasn’t built in a day.” I would expect that this will take some serious time and thinking,
but I am confident that, given the right amount of time & thought, you will figure it out! Please allow me to leave you with two questions.
What action do you need to undertake this week? What will you do differently, going forward?
Think about it.
Here’s a suggestion for you. Sign up for our new Success Strategies Business Navigator Program. If you are open to learning new concepts and discussing them with other producers, you should take a look at this new program that will start early next year. 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.