A cousin of mine who’s a retired veterinarian, Fred, recently asked me, “How in the world can dairymen keep track of and manage financial, production and human resources management all at one time?” It seemed daunting to him.

Bob Le Cocq

While I can certainly understand his perspective, and the compressed margins we’ve been experiencing lately make it even more challenging, more than three decades of working with many dairy producers has shown me that progressive, successful operators seem to have the ability to concentrate on some crucial strategies to keep their operations growing.

I have been thinking a lot about Fred’s provocative question and identified what I believe are the three key best practices for optimal dairy management – to not only survive but thrive regardless of the volatile business and social environment we are living in.

• Have a well-defined, effective management and ownership team.
• Support an effective, positive production labor team.
• Manage with respect to financial positions and trends.

The following are some observations I have learned from working with dairymen over the past 34 years.

1. Establish an effective management/ownership team

• All management teams have a different chemistry. Recognize and respect that. Team members are often related and remember, spouse opinions do count.
  
  
• Keep the business case in the forefront. If this isn’t done, family relations often fall apart. Develop processes that promote disciplines to the business goals of your farm.
  
  
• Evaluate and adjust the roles of each manager/owner. Define each individual’s “day job.” Objectively analyze strengths and weaknesses and leverage those to benefit the operation. Often, key owners will do some tasks they like to do – but shouldn’t do if they are to manage and keep the farm flowing well.
  
  Examples include excess time spent operating machinery or manure hauling. Having key owners/managers doing tasks that allow the flexibility to manage helps the operation run more smoothly and efficiently.
  
  
• Create an environment that fosters discussion of new ideas. This means allowing the time and atmosphere that fosters creativity. You may need to survey your team to figure out your baseline on this one.

2. Support an effective, positive, production labor team

• Pay competitive wages, have defined labor positions and review with employees on a regular basis what works for your farm. Do everything you can to eliminate job turnover; it is a killer for morale and farm operating costs.
  
  
• A key manager-owner told us last year that he had to move into the human resources area – even though he was not comfortable doing so – to figure labor management out for himself and his dairy. Despite the challenges, it has been a hugely positive move for their business.
  
  Employees like feedback. Spend some time working with them, plus do regular performance reviews.
  
  
• Support employees’ goals and development. Send them to seminars and involve them in solutions to projects.
  
  This takes effort, and sometimes it just feels easier to kick this can down the road. Refrain from procrastination and you will see team engagement and new possibilities unfold.
  
  
• When working with clients on earnings analysis, we often see expenses being similar between farms, but the output from those expenses paid varies greatly. Accrual breakevens can vary by at least $4 per hundredweight on an ongoing basis.
  
  Presently, we are seeing breakevens mostly in a range of $15.25 to $19.25 per hundredweight. Efficient production levels are important, as well as cost control, in order to improve this number. 
  
  Very important numbers on the expense side include feed cost per pound of milk, labor and heifer/cow replacement costs. Benchmarking within a peer group can be beneficial, but benchmarking against your own cash flow and budget plan are more important.

3. Manage with respect to financial positions and trends

Wow, what an area to talk about. It involves everything you do, right? However, here are some key things to consider:

• First and foremost, it is critical to be a low-cost producer – all the time. This can carry you in good times and bad.
  
  
• It’s never been more important to understand your income over feed cost and how to improve it. Involve your team, including your veterinarian and nutritionist. Control feed shrink and don’t feed more animals than you need to.
  
  
• Income over feed cost has been a common term the past couple years. There are a lot of figures that go into this, but in short, after feed cost what you have left per hundredweight of milk needs to cover these three categories:
  
  
• Annual principal + interest payments of term debt, including new capital debt on projections
  
  
• Annual labor per hundredweight including family living cost
  
  
• All other variable costs per hundredweight including repairs, supplies, vet, bedding costs
  
  
• With the present milk prices lower, and a decreased milk basis, many dairies are struggling to maintain all the categories mentioned above.
  
  
• Good debt structure and management of new capital costs are very important, as is maintaining adequate working capital. Review with your lender and farm business consultants early on how you may structure your loans to maintain cash flow. Lock some rates in if you have not done so.
  
  Some variable rates on lines of credit may be fine, but lock much of it to other term debt rates. You may need to utilize a term loan to have adequate working capital. Dairymen typically don’t like to do this until they have to. I recommend doing it before you have to.

Finally, a quick reminder regarding an area I feel is very important to the long-term progress and success of dairies, and one that often gets neglected and suppressed – strategic planning for your farm, business and family.

It may seem overwhelming and time-consuming, but in my opinion, strategic planning falls into the “important but not urgent” category. If neglected, the long-term cost is significant. Families should work together to develop a step-by-step plan to move the ball in positive paths. Don’t wait for a son, daughter or business partner to come to you and tell you they decided to do something else. By then it’s often too late. Proactive, positive communication helps achieve a healthy, satisfying outcome for the business and family.

John C. Maxwell is a favorite author of mine. In one of his books, Thinking for a Change, he breaks down areas of good thinking into 11 parts. Here are my favorites:

• Unleash the potential of focused thinking.
• Discover the joy of creative thinking.
• Release the power of strategic thinking.
• Question the acceptance of popular thinking.
• Enjoy the return of bottom-line thinking.

When meeting with my clients, we spend time in all of these areas. I have noticed such a thirst for our visits and for exploring possibilities for their business and family. In each visit, an action plan evolves to take steps on priorities established in our discussions. These action plans have a short timetable, usually around three months, to get specific things done.

I’ve been so inspired by the joy and energy clients exude during these visits. Their action plans may not have happened if time and place had not come together to think, focus and discuss important things of their business and family.

Maxwell says, “Master all that you can – including the process of shared thinking which will help you compensate for your weak areas – and your life will change.”

I encourage families to utilize consultants and other trusted advisers to help them in these areas. Yes, we all need help. I challenge you to be willing to accept it. The possibilities and business growth will be more than worth the time and effort.  PD

Bob Le Cocq contributes regularly to AgStar Financial Services, ACA, a weekly ag-insight blog.

• Bob Le Cocq

• Financial Services Executive & Dairy Specialist
• AgStar
• Email Bob Le Cocq