What’s Wrong with This Picture?

John Ellsworth, Success Strategies

New John Ellsworth
John Ellsworth, Success Strategies

I was recently discussing the changes of the past 40 years in the dairy industry with a client of mine, and he was quick to point out that his milk prices have simply not kept pace with every expense he is facing in his business. He pointed out that he had received slightly more for his milk in the late 1970’s than what he received last month, and at the same time, has been hit with increases in every expense item – Feed, Labor, Insurance, Supplies and many others…

I reminded him that just 20 years ago there were 60,000 dairies in the United States, compared with just about 40,000 currently. Yet, our cow numbers and overall milk supply both seem to remain adequate to meet our current market needs, characterized by larger, more efficient operations. If some future predictions are correct, the number of dairies in the U.S. could decrease to just 10,000 at some point, even though total market demand continues to grow. Who is to say how soon that may happen?

It scares me to think that, in a recent survey we completed of over 1,000 dairy operations, there were a number of these producers who claimed that they did not necessarily spend much time measuring their various costs per cwt, or the level of efficiencies in their dairy operation. They seemed too busy to worry themselves with these tasks… Whoa! It is definitely time to realize that we cannot continue to operate in the same way we have always done things, if all the “ground rules” have changed. We will literally get run over! We can both defy science and jump off the edge of the Grand Canyon, screaming “I don’t believe in gravity!” However, landing at the bottom will certainly change our beliefs about gravitational pull.

Since you are taking the time to read this article, I assume that you will want to be one of the successful survivors in this dairy challenge. A great starting point will be to measure each of our operating and financing expenses. Are we competitive with the industry averages (…besides, who wants to be “average?”) and are we getting better each year, in comparison to where we had been. If not, this can end up being a race to the bottom. The most common areas that I see producers struggle with are items like Supplies that used to cost $0.55-0.60 per cwt, now hitting levels of $0.80-1.00/cwt. Folks, we need to get off this train, because it’s heading into territory that you don’t want to visit…

In my last Success Strategies column, I wrote about how crucial it will be to maximize both Feed Efficiency and Labor Efficiency in your business. The best way to accomplish this is probably through items like automation, where you can milk more cows in less time and/or with fewer employees. Take a look back over the last 40 years, and I think you will observe a pattern here – where producers are milking more cows on larger operations with greater levels of automation. This is true in your industry, and it’s also true in many other industries. In fact, we are even starting to see some “backlash” against this trend.

In author Peter Diamandis’ September 1, 2017 issue of Abundance Insider, I saw this:

Tax the Rich and the Robots? California’s Thinking About It

“What it is: Jane Kim, on the Board of Supervisors for the City of San Francisco, has launched the Jobs of the Future Fund to help California head off the negative societal effects of increased automation. The fund is a solutions-based forum for labor leaders, businesses, nonprofits and civic organizations to build support for a tax on companies that replace human workers with robots. “As workers are displaced, the companies continue to pay a portion of the lost tax into a fund that can then be used for education, retraining and targeted investments in new industries,” reads the Jobs of the Future Fund website.

Why it’s important: Thirty to 50 percent of all jobs are at risk in the next 20 years, depending on which research you read. Job losses don’t just hurt displaced workers and their families — they also impact revenue for social services when they’re most needed. This initiative represents one approach local governments can take to help ease the transition into a future of increased automation.”

Spotted by Marissa Brassfield Written by Marissa Brassfield

This may be scary, but I believe it is just one trend that we may soon face as an industry. So, please start reviewing your available options today. I would also invite you to check out our Financial Techniques at https//:www.success-strategies.com. These will guide you to a more financially secure future. There is no better time to start than the present moment. Think about it.

John Ellsworth is a business and financial consultant at www.success-strategies.com. He can be reached at 209.988.8960.