“The Times – They are Changing…”
Some of you probably remember the old song recorded by Bob Dylan many years ago. In it, he appealed to many, including Senators and Congressmen, that the times were changing, and that we needed to take some positive action to move forward successfully.
I think we’ve reached that point once again as an industry. As I recall, we used to assume that every third year, we would see a substantial, positive upturn in our industry. That concept may appear naïve today. As I write this blog, we are half way through the fourth consecutive year with financial losses. This is substantiated by the National Dairy Advanced Index for the first quarter of 2018, which is produced by the accounting firm Genske Mulder & Company, showing a Net Loss after Debt & Draws at $2.09/cwt.
Wow! What business can afford that type of return? How long can you hang on at that rate? A key industry term we often hear about is your “Burn Rate.” It is basically a measure used by banks to determine how long you can continue to lose money at the current rate before you run out of “lendable equity.” The numbers are reaching the danger zone for many producers.
It is clear that our industry is changing dramatically, and the rate of change is gaining speed. Herds are becoming fewer in number and larger in size. In the United States, we have gone from about 60,000 dairies 20 years ago to around 40,000 today. How long until we get to 20,000 operations? It may be sooner than we think. As operations get larger, can yours survive? Will you be able to keep moving forward? I hope so.
Under the assumption that you continue to operate, here are a couple of suggestions for you, and, frankly, they apply to every business, including mine:
- Are you operating at peak efficiency?
- Are there areas of your operation that include “Sacred Cows,” items you continue to keep to celebrate the “good old days?”
- Are there any areas where you can boost your efficiencies further?
- Can robotics play a greater role in your business? In light of labor costs climbing, sources of labor becoming less available, the increased cost of employee benefits and the challenge of workers’ compensation costs/claims, these new tools could be a life saver for you…
- At the risk of sounding negative, and I don’t mean to do so, can your operation “break even” with a milk price of $14/cwt? I’m not asking you to work for nothing, but I also believe we need to continually push for lower costs & greater efficiencies. Otherwise, we are fighting a losing battle!
If you would like to learn more about similar topics and the tactics our Clients have used to improve their outcomes, as well as what applications of these lessons you can make in your business, please join us for our next Success Strategies Mastermind Group series of quarterly workshops in July 2019. They are designed to teach more people the Finance & Strategy Concepts that I offer business people. Signups have begun, giving you the opportunity to learn these same concepts and meet with other producers who have overcome some of the same challenges you may be facing. Check them out at:
Hopefully, these bullet points will provide you with some “food for thought.” If you can think of others, please feel free to share them here. This entire thinking process is absolutely critical today, and if you need assistance, please e-mail me at firstname.lastname@example.org or check out our website for many useful tools for your ongoing business evaluation at www.success-strategies.com. I’m always available for a follow-up call and wish you the best of success!