With 15 specialty sessions offered at the Professional Dairy Producers of Wisconsin (PDPW) Business Conference recently, there was something for everyone. It is always a challenge to determine which session to attend. Progressive Dairyman selected four of them, and each are recapped below.
Jason Karszes, farm management specialist with the PRO-DAIRY Program at Cornell University, and two New York dairymen examined how to increase and maintain profitability during volatile times.
It’s no secret that today the highs are higher and the lows are lower when compared to 30 years ago. The question posed by Karszes was: “What are we doing with our profits during the good years to position ourselves for the poor years?”
Data was collected from 107 farms over the course of six years. When the top 20 percent of farms were separated by return on assets without appreciation from the remaining 80 percent, Karszes said the top farms always had more working capital as a percentage of expenses. In 2011, that difference was 27 percent compared to 19 percent averaged by the remaining dairies.
The top 20 also had a lower debt per cow of $2,698 in 2011, compared to $3,256 in the lower percentage.
In his experience, the successful farms are the ones that know their numbers, question everything and pay attention to slippage (what’s actually happening as opposed to what was supposed to happen).
They are also the farms that pay less for hired labor per hundredweight, but pay more per hired worker.
“People are a key part of farms being successful,” Karszes said, noting it extends beyond the owner and employees to the team of service providers the farm relies upon.
“Our greatest asset is our employees,” said John Dickinson, a dairy producer from eastern New York.
Dickinson added he believes in having ample working capital, focusing on efficiency in terms of pounds of milk per hired worker and investing in greater efficiency.
One recent investment on his farm was revamping his manure-handling system, which not only reduced bedding costs by $92,000 but also cut the cost of spreading in half.
In western New York, dairy producer Don Jensen is farming with his son and daughter and 21 employees. In addition to experienced staff, Jensen said he relies on technologies like milk meters and activity tags to monitor the herd.
“I look at a lot of numbers every day,” he said. “A lot of things can’t go wrong for too long before we know it.”
He likes to watch feed efficiency, milk prices, somatic cell count, average milk production, protein, butterfat and the incidence of disease.
Jensen continues to reinvest capital in the business and said his debt per cow is a little high now because he just built a digester to be operational this spring. Its main objective will be to supply bedding to the farm.
Profitability is linked to productivity as Karszes, Dickinson and Jensen each spoke of the importance of a workforce. In an afternoon specialty session, Jorge Estrada with Leadership Coaching International Inc. helped his audience understand what it means to have an engaged employee.
There is a difference, he said, between a motivated employee and an engaged employee. The motivated employee is in it for what they can get back out of it (paycheck, bonuses, etc.) but an engaged employee is in it for the sake of the game, because they believe in the cause.
Estrada said it could take a few months to get an employee engaged in the work that they do. Five behaviors to help with that process are: building trust, setting SMART goals, communication, holding people accountable and recognition.
Three panelists took a look at what lies ahead for dairy globalization. Chris Herlache with Schreiber Foods said a growing demand for dairy products would drive the need to grow supplies.
According to Herlache, the supply will come from limited sources. New Zealand doesn’t have any more land to expand their grazing operations and Australia’s drought a few years ago shrunk its dairy industry by 25 percent.
China is growing its own dairy industry but still lacks consumer trust in its products. India has a significant amount of cows but low productivity per cow. Plus, it’s unlikely for the country to grow large dairies, he said.
On the other hand, the U.S. has high potential to grow. It has a good land base, plenty of feed and access to global markets.
Al Levitt from the U.S. Dairy Export Council said six steps are needed for the U.S. to become a bigger player in the export market.
1. Broaden the product portfolio from niche products to bulk commodities. Some companies have started to produce products specifically for the global market.
2. Tighten product specifications. For milk powder, this means producing a low-spore powder. Some U.S. suppliers can meet this, while others still don’t.
Ensure product safety (with the use of traceability). The baseline expectation of buyers is to be able to trace a product from the consumer back to the bulk tank.
3. Address price volatility. Compared with cheese and butter, the price discovery for milk powder is much more complex. The market structure needs to be improved to facilitate risk management practices that provide benefits across the supply chain.
4. Catch up on free trade agreements. The U.S. has reached only a few trade agreements, while our competitors have been very aggressive here.
5. Reform pricing structure. Levitt said he does not endorse any particular plan, but he mentioned pricing reform should include flexible pricing, achieve greater predictability and transparency of price, and let market incentives better align product portfolios with customer needs.
Anand Rao, general manager of technical services with Fonterra USA echoed the other panelists, noting the projected rise of emerging markets and urbanization that will fuel a strong demand for dairy nutrition.
There will be a need to feed dairy to infants and children. A larger aging population will look to dairy proteins to help combat sarcopenia – the degenerative loss of skeletal muscle mass.
“Dairy consumption is highly correlated to development,” Rao said. “As the middle class grows, people begin looking for conveniences as part of nutrition.”
He also pointed to a growing dairy industry in Africa. Kenya and South Africa could be fairly important players in 15 years.
The U.S. economy has been on many minds since the last recession hit. Dr. Lowell Catlett, a futurist from New Mexico State University, explained what it means to be in the world’s largest economy.
Coming off its worst recession since 1938, the U.S. added $1 trillion in the second-fastest time ever to become the world’s first $15 trillion economy in 2010.
At the time, the second-largest economy was Japan at $5 trillion. “We were three times larger than the second-largest economy,” Catlett stressed.
What about debt? According to Catlett, the country’s debt needs to be put in perspective. Using information posted on the CIA’s website, Catlett looked at debt compared to GDP for countries around the world.
The most indebted country, he found, was Zimbabwe at 226 percent. The second-highest was Japan at 224 percent. Germany came in at number eight, Canada at 15 and the U.S. at 32.
“The country has the capacity to handle its debt, as long as it’s moving toward being paid down,” Catlett said.
With an emphasis on STEM (science, technology, engineering and mathematics), Catlett said, “don’t bet against America.”
He added that manufacturing is coming back to the U.S. with technologies such as open source hardware (OSH), 3-D assemblers and wireless smart mobiles (WSM). “These new technologies will also create growth in healthcare and agriculture as the demand for new lifestyles worldwide expands,” Catlett said. PD