How to Focus on What You Can Control in a Challenging Market

Bill Earley for DairyBusiness

Bill Earley Dairy Business Manager ADM Animal Nutrition™ ~ Photo by Tracie Hall

Dairy producers have been through challenging times before and are some of the most resilient and resourceful people I know. Multiple years of low milk prices, market volatility and constrained margins can take an emotional toll on a farm family. If we aren’t careful, our minds begin to focus on factors we have no control over like weather patterns, global trade, immigration laws, and the list goes on.

Focusing on what we can’t control is often a diversion from focusing on the areas of business that we can control. Although easier said than done, it is more important than ever to stay focused and concentrate on the issues and on-farm challenges that you can control.

Internal Evaluation

A challenging time warrants a deeper look at what you are doing well and areas that need improvement. In this case, it’s important to be true to yourself and your operation and take an objective look “under the hood.” For instance, taking a closer look at what areas of the operation can provide cost-savings opportunities without compromising productivity and profitability. This means examining all aspects of the dairy including staffing, milking management practices, parlor efficiency and throughput, animal grouping, cow comfort, feed management and nutrition, forage management, reproduction, contracted services, veterinary protocols, and culling procedures. This examination can lead to fine-tuning and can enhance the operation’s overall cost control and profitability.

Rely on an External Resource Team

Work closely with your professional resource/advisory team by tapping into their respective areas of expertise and implementing practices to strategically reduce costs.

Determine who should be on your advisory team¾nutritionist, veterinarian, reproductive specialist, agronomist, milking quality management expert, commodity broker, risk management expert, accountant, financial advisor, lender, etc.¾and ask the question, “If this was your dairy and your money, with constraints on margin and cash flow in mind, what cost-control measures would you implement to get the best return and why?”

Next, have your advisors and their supplier resources conduct a walk-through. Due to the day-to-day rigors on the farm, producers often become “barn blind” and may not detect subtle, and sometimes not so subtle, profit leaks. Encourage advisors to examine the operation with fresh eyes and provide feedback on what improvements can be made at the lowest cost.

Finally, conduct individual or collective team meetings to discuss any known profit leaks, develop a prioritized list of action items, and plan to correct them in a cost-effective and timely manner.

Feed, Cow Comfort and Culling

Feed and nutritional intake represents the largest cost variable on a dairy farm and is an area where discretionary cost-cutting opportunities need to be reviewed. Take a look at all diets (pre-weaned calves, heifer replacements, dry cows, transition cows and lactation groups) and feeding management practices on the farm along with your feed costs and consulting fees. Your nutritionist can run multiple diet scenarios and evaluate where additional savings can be achieved. The question then becomes, how can feed cost/cwt. of milk produced be reduced without compromising milk and milk component production? From a heifer replacement perspective, how can we cost-effectively improve upon age at first calving?

 

Feed additive evaluation

There are well-researched additives that are typically incorporated into an animal’s diet to address specific needs and provide return on investment. Think about the additives you use. Are you getting the expected results? How are those results being measured? Are your results providing the return you expected? If not, should these additives be removed from the nutritional program and are there other additives that could potentially be profitable to add to the diet?

 Evaluate the three rations

There are three proverbial rations. First, the ration the nutritionist develops using a sophisticated computer model to provide a balance of exacting nutrients to meet specific production and component levels. Second, there is the ration that is mixed and delivered to the cow, and third, there is the ration the cow ultimately consumes. Work with your nutritionist to audit your entire process from feed ingredient storage, to handling and mixing, availability to the cow, intake and analytics, to ensure the diet is what is expected.

Inspect what is expected

As feed changes are made, it is critical to monitor results to ensure productivity, reproductive and health goals are being achieved. Remember cost cutting should be done strategically.

Evaluate feeding management practices on the farm

Forage is the foundation of the diet. Are you optimizing the harvest, storage and feed-out of your forage base? Are you using a silage preservative? Are your piles covered and feed-out practices conducive to maintaining high-quality forage and minimizing waste?

Providing high-quality forages is the best way to reduce purchased feed cost. Is feed accessible? Is dry matter intake in line with ration expectations? Are all waterers working properly and is ample fresh, clean water available?

Evaluate storage and mixing of commodities

Shrink on commodities is a major cost. Average shrink can be from five to 15 percent. Losses attributed to weather (wind and rain), rodents and birds, as well as spoilage and errant mixing/handling spillage can be considerable. Focus on storing, handling and mixing commodities in a manner to minimize shrink and waste.

Cow comfort never should be compromised

 There is no better return on investment than ensuring cows are provided a clean, comfortable environment. Heat stress is a major drain on farm profitability, so it is important to prepare accordingly with proper fan and mister maintenance and placement, dietary modifications, and stress reduction in high-stress areas such as the holding pens.

It is also important to review voluntary culling strategies and remove animals that aren’t meeting expectations. Knowing the root cause of involuntary culls can lead you to address areas where improvement and potentially management changes are needed.

 

Empower Employees to be Part of the Solution

 If there is one thing that cows (and employees) need and respond to, it is consistency. From an employee perspective this begins with establishing clear expectations. Review your standard operating procedures (SOPS) and protocols and ensure that they are being adhered to. If you don’t have standard operating procedures in place, it may be a good time to develop them.

SOPS can help in maximizing the efficiency of your labor force and elevate operational consistency. Work with your consultants if you need help developing SOPS for their specific area(s) of expertise (e.g. treatment/post-calving protocols, nutrition and feeding management, milking management, etc.).

Optimize Labor Efficiency and Productivity

Ask yourself, are you getting the most out of your employees?  Are they trained to do their jobs? Are the expectations clear? Do you have job descriptions and SOPs for the tasks required in a given job?

Empower your key employees to be a part of the cost-saving process. Encourage employees to suggest ideas on how costs can be reduced and/or how efficiencies can be improved in their area of responsibility. Discuss the ideas as a team and consider offering a reward for “Best Cost-Saving Idea of the Month.” This encourages employee participation and gets employees to take ownership of the implementation of their ideas.

Employees need to know that cost reduction is a focus. Communication is key to ensure that they are aware of their importance in the process.

Analyze Finances and Records

Get the most out of data to make impactful management decisions

In today’s world there is no shortage of data. What’s important is knowing how to use that data to help detect profit leaks and implement management practices that can have a positive influence on your business. Work with your external resource experts to evaluate data pertinent to their individual areas of expertise.

Work with your accountant

Your accountant can be a valued resource in laying out cost allocations in the respective areas of your business. This information can then be used to review high cost areas, how costs have changed, and assist in detecting areas where cost reduction is most impactful. Know what your break-even cost of production is and what is influencing it.

Develop sound business plans and be proactive with lenders

As financial institutions become more restrictive with their lending practices, producers have to develop sound business plans to demonstrate they are a viable risk in both prosperous and difficult market conditions. Take a proactive approach with your lender, understand the financial benchmarks used, where you stack up, and what ultimately impacts your lender’s decisions. Discussing plans to help your operation weather the storm will go a long way in building a lender’s confidence in your abilities.

Regular (quarterly) financial check-ups with your lender are also important so as not to let emotion overcome logic. Knee-jerk emotional reactions can often result in profit loss.

Implement Price Risk Management Practices

Take advantage of forward contracting opportunities and get all input discounts available

 When financially-feasible, producers need to take advantage of forward contracting, cash discounts, volume discounts and bulk discount opportunities, all of which, can add up to significant dollars in your pocket.

 Work closely with your commodity broker and nutritionist to optimize commodity purchasing and handling and get the best ingredient buys/contracting opportunities that fit into your diet parameters. Closely monitor how incoming ingredients are handled to minimize shrink and feed wastage which often leads to significant profit losses.

Work with input suppliers on cost projection scenarios and try to protect price when you can.  At the same time, it may be prudent to consult a milk marketing expert on whether milk price risk management may be advantageous for your operation.

Optimize Milk Worth – Get All of the Premiums Available

Focus on achieving maximum premiums that will enhance milk value

If premiums are offered based upon milk quality, milk components and/or volume, it is essential to discuss the best management practices with your advisors. The goal is to ship as much milk worth off the farm as possible.

Remember We’re in This Together

There is strength in communication so don’t be afraid to reach out to fellow trusted producers and/or valued professionals to discuss how they are managing during particularly stressful times.

Sometimes we simply need a sounding board. Producer groups, whether found on social media or locally in your community, can be helpful to scrub ideas. Surround yourself with successful producers who can look at things objectively, are solutions-oriented and focus on the things that you, as a producer, can control.

Cows at Sanborn & Sons Dairy, Inc., consuming a custom lactation blend formulated using ADM’s RationFlex Lactation SolutionsSM. Photo Credit: Bill Earley for ADM Animal Nutrition™.

Develop a Plan for a Sustainable Future

In summary, I will end where I began; dairy producers are some of the most resilient and resourceful people I know. Have faith in yourself, take action and don’t waste time and energy on what you can’t control.

Cost saving practices need to be done in a strategic manner to ensure you don’t “save pennies to lose dollars.” The goal is to improve profitability. As they say, you can’t cut your way to prosperity, particularly if it results in loss of milk, reduced reproductive efficiency or compromised herd health.

Use your team of advisers and tap into their expertise. They are an extension of your business and committed to your dairy’s profitability.

This is a great industry full of hard-working and dedicated people. Although we are experiencing challenges now, I truly believe changes made during these difficult times will better position your business to thrive in times of prosperity.