Your seat on the roller coaster

 Resize text         Printer-friendly version of this article Printer-friendly version of this article

When in a roller coaster that's climbing a steep incline, your stomach usually tightens. That's because you know your heart will be in your shoes in just a matter of minutes when the roller coaster drops over the next hill. Yet, when the ride is completed, we often get back in line and ride again.

The highs and lows of the dairy industry feel much the same way. When prices are high, we enjoy them, but we know that supply and demand may cause prices to plunge down again. And, even when we look back on the highs and lows of the past three years, most producers still want to "ride" another round in the dairy industry.

The cyclical nature of the industry will undoubtedly continue. As a result, we must manage our business, anticipating the highs and lows.

Producers who succeed in this environment have the following things in common:

1. Manage every day. One of my favorite quotes is by author and publisher William Feather, "The prizes go to those who meet emergencies successfully. And, the way to meet emergencies is to do each daily task the best we can."

Don't get caught up in the emotion of high and low prices. Instead, focus on the job of running a dairy. When prices dip, dairy producers who watch expenses and efficiency levels on a regular basis experience the softest fall.

Not only should you be looking at today's numbers, but also expectations of where income and expenses can go. What do the futures markets look like? Should I be contracting commodities? Should I be contracting milk? What management changes in the daily operation should I be making? Am I at full efficiency?

2. Reinvest in the dairy. Those producers who continually reinvest operating money into the dairy, and reduce expenses whenever possible, have put themselves in the best possible position. When times get tough, these producers can borrow more money against their equity base. Then, when the market changes directions, they can begin repayment and start rebuilding that base.

3. Keep your banker as an ally. When low prices erode your cash flow, don't lose the phone number of the bank. Hopefully, your banker can assist you with financial advice and set up loan structures to help in different phases of the cycle.

Keep your lending institution abreast of budgeting, financial projections, herd status, and your business plan. This allows your banker to make informed decisions on credit structure and the bank's involvement. And, it can help your banker identify problems on the horizon and generate solutions. Waiting too long to inform your banker puts you at great risk.

4. Try new things when prices are good. It's essential to your business to try and improve the management of the operation. When prices rise, you may have a bit more leeway to try a new business practice or technology. Be sure to monitor any changes closely. However, don't forget to rebuild your equity base.

5. Keep a close watch on environmental issues and the political arena. Look for ways to improve your position, and be sure that you are in compliance with regulations in your area. Stay close to your governmental representatives, so they are continually aware of issues in the industry and how these things affect your operation. Be sensitive to the issues and look for ways to improve the image of dairy producers.

As patriot and founding father Samuel Adams said, "Great works are performed not by strength, but by perseverance." This certainly fits the dairy industry today. Develop the skills you need to stay in business in a cyclical market.

Anthony DeRose is an executive vice president of Wells Fargo Bank in Visalia, Calif.



Comments (0) Leave a comment 

Name
e-Mail (required)
Location

Comment:

characters left


Mycogen® brand Silage-Specific™ Corn Hybrids

No other company has more experience with silage than Mycogen Seeds. Mycogen® brand TMF corn silage hybrids are bred specifically ... Read More

View all Products in this segment

View All Buyers Guides

)
Feedback Form
Leads to Insight