Don’t look back: Something might be gaining on you

Posted on September 5, 2012 in Dairy Performance
By Al Gunderson I recently came across an article I wrote for Progressive Dairyman back in June.  At that point, experts were forecasting a record crop and producers’ attention was focused on where the milk price might be for the rest of 2012 and into 2013.  After this year’s drought, feed prices have taken center stage. I also looked back upon another article I wrote regarding federal agricultural policy with great disappointment.  It seems Congress cannot agree on a Farm Bill or a drought relief plan.  It’s frustrating to see that we cannot put political victories aside to focus on what is needed to ensure the world’s safest, most economical, abundant food supply. It is the challenges of times like these that ultimately determine the success or failure of livestock operations.  Those that spend time not only working to increase their production, but also critically thinking about how they will manage the risk inherent in their operations, will be those that “live to fight another day.” We have been talking about risk management techniques for some time.  We have encouraged you to plan for the bad times and really think about what might happen from a financial perspective if large cost or revenue swings happen.  It’s times like these that really underline the importance of a risk management strategy, a solid financial base and strong communications with your lender. I wish I could give you a checklist of things to do now to save your operation from a drought disaster.  Unfortunately, the time has passed to do much about it other than to deal with reality and start planning for the future with the “facts” at hand.  Here are some points some of you have identified as important:

  • Know your current and future forage needs.  This is the basis for feed program planning.
  • Don’t get locked into any one ingredient; keep the options open.
  • Prices are important, but margins are critical.  It’s not what you spend; it’s what you have left afterward.
  • Understand the top three drivers of your cost of production and look at them on a current and projected basis.
  • Can you reduce the risk on your major inputs and outputs?  What does that cost?
  • Decreasing production makes economic sense in very few situations.  However, chasing the last pound of production regardless of cost is generally a loser as well.  Do you know why certain items or production practices are part of your program?  Do they pay?  Were they needed at one time, but now times have changed?
  • Are you spending time on $50 decisions or $5,000 decisions?  Who is “running the numbers” and planning for changes that could radically affect your profits?  Do the cows run your operation or do you?
  • When was the last time you scheduled a meeting with your lender?  If your answer is “not for a while,” you might be expecting an invitation to answer many of the questions listed above.
  • While talking to others to gather ideas is a good practice, don’t just run with the crowd.  Your set of circumstances may dictate a different path.

I hope the results of the fall harvest are all bigger and better than we fear they might be.  In fact, fear and uncertainty might be one of the biggest risks we have to overcome. This article was originally written for Progressive Dairyman.  About the author: Al Gunderson is the Vita Plus vice president of sales and marketing.  He has served as the general sales manager since 1987 and added purchasing to his responsibilities in 1999.  Gunderson first came to Vita Plus in 1979 as the swine product manager after he earned a bachelor’s degree in meat and animal sciences and master’s degree in ag business management from the University of Wisconsin-Madison.  He is a member of the American Registry of Professional Animal Sciences (ARPAS) and the American Society of Animal Sciences (ASAS).  Gunderson is the chair-elect of the board of directors of the American Feed Industry Association and chairman of the board of trustees for the Institute for Feed Education and Research (IFEEDER).

Category: Business and economics
Dairy Performance