I realize that, given the solid margins of 2014, it is easy to forget about how difficult the prior eight years had been in the dairy industry. Recall the challenges of high feed costs for most of 2008 to 2013 and the calamity of $10 milk prices in 2006 and 2009? These years represented the trial of the century! I know that we would all like to forget these years, but, given our participation in a “world market,” some of them could occur again. Would you be prepared if these events happened again?
Over the next several blogs that I produce, I plan to talk about what to do if these events recur and, more importantly, how to prepare for them ahead of time. Think they cannot happen again? The September 2, 2014 issue of the Daily Dairy Report stated that we have seen similar times when ourU.S. prices are well above prices in the world market: “Similar price levels in September 2012 led toU.S. cheese imports (primarily fromNew Zealand) of more than 40 million pounds in November and December. CME spot Cheddar cheese prices that year traded above $2/lb. in early November but closed 2012 near $1.70.” Could this happen again? Possibly…
Would that impact your dairy operation? I know it would affect my Clients! In a moment, I will explain how I know. What has been different for the survivors historically? I believe it boils down to two primary factors. The first of these is having a plan on every major decision they make in their business. Now, please understand. No one really wants a “plan.” What they desire is what having a solid plan can provide them: the ability to make better decisions and, thus, achieve more profitable results!
The second major factor to success is knowing where you are financially at all times. I’m sure you have heard the expression: “What gets measured gets improved,” but please remember that “What gets measured and recorded gets improved measurably.” The reason for that lies with the fact that these steps will lead you to take action and make improvements in your business. The reason for this is that you know what needs to change to move forward successfully. We can’t do that if we are “flying by the seat of our pants!”
We have to know our current financial position at all times. Whether you are facing your banker or just facing the future, you simply have to know. It’s your choice and your responsibility. Next time, I will introduce you to a new system that some of my colleagues and I have been developing for making these very measurements within your business. Until then, start to review your marginal costs and returns. I think you’ll be glad you did.