A compass for navigating today’s economic whitewater

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The past couple of years have been challenging for dairy producers, to say the least. So it was standing-room only at the session offering insights into how to manage today’s “economic whitewater” at this week’s Professional Dairy Producers of Wisconsin Annual Business Conference in Madison, Wis.

“You need to have a good offense, defense and special teams, advises David Kohl, agribusiness entrepreneur and business coach. “That is, you need to have a strategy to manage revenues, manage input cost and manage interest rates”

Dairy producers John Koepke, Oconomowoc, Wis., and John Noble, Linwood, N.Y., agree.

“We’re going to have to accept more volatility and we must be able to jump on opportunities,” says Koepke, adding that part of his business strategy is to understand his dairy’s break-even point, and actively market above that point to guarantee profit on a portion of its production.

For his farm, Noble says that in addition to using a range of risk management tools, he and his management team have focused on identifying weaknesses in their animal production systems, like reducing its DOA rate and better utilizing facilities and employees. He notes that by taking these steps, and others, the farm did not cut its labor force or wages when times got tight.

Meanwhile, Noble also hones in on feed cost using a myriad of tactics, like implementing higher forage diets, better use of weigh-backs, double cropping rye/triticale with corn for forage, adding snaplage to the feed mix rather than corn meal and challenging the need for every crop, management and feed input.

Both farms have been extremely cautious with their use of capital, cutting back on capital purchases to preserve cash and working hard to reduce debt. And each has diversified their operation to take advantage of multiple revenue streams.

“We utilize depreciable assets to the fullest,” says Koepke. “We usually buy used equipment, maintain stuff to a fault and run them until they are dead,” noting that a tractor bought in 1969 still pulls the corn planter each spring. “And we make sure that all enterprises make money, or if they don’t, we look at how they complement another enterprise so that it makes more money, or it reduces risk.”

In addition to this advice, Kohl offers the following checklist to help you deal with the economic challenges that still swirl throughout the dairy industry: 

  • You need a good relationship-lender. That means not always choosing the bank with the lowest interest rate, but one that knows the industry and knows your business and will ride with you through thick and thin.
  • You must know your cost of production by enterprise.
  • Assemble a good advisory team to add objectivity to your decisions.
  • Maintain modest amounts of leverage combined with lots of liquidity.
  • Have a profit plan. With increased volatility comes increased opportunity. Be sure you know how you’re going to deal with that.
  • Conduct business planning. Build plans for one-year, five-year and even 10-year increments, making adjustments over time as circumstances require. This exercise helps communicate with lenders, as well as with your partners and even yourself.

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