It’s the end of harvest. It’s time to clean up or make repairs to your equipment to get it ready for next year. It’s also a time to think about how you’ve performed from an operational standpoint. But, as you have more downtime over the coming months, it’s also an opportunity to take your management skills to the next level.
Moving forward, successful dairy operations will more than likely be the ones with chief financial officer (CFO)-level management skills at the top. In this evolving industry environment, managing your herd and navigating swings in milk prices will be table stakes. Issues like climate change, water supply, geopolitics and trade disruptions are likely to impact the industry in ways we haven’t seen before. Dairies with next-level management skills are anticipated to be best positioned to take advantage of the opportunities that will come in the wake of these challenges.
Managers of today vs. tomorrow
We’ve previously discussed some of the management skills dairy operators should possess, including:
- Using timely and accurate financial information to make informed decisions on production inputs, risk management decisions and capital deployment
- Risk management skills to navigate the increased market volatility and an ever-changing regulatory landscape
- Understanding every aspect of the operation, from $100-an-hour jobs to $10-an-hour jobs.
That’s the baseline right now, but it won’t be sufficient in the near future. Next-level managers will also be adept at the following:
- Information management. The growth of data on farms continues at a rapid pace. Understanding what numbers matter for decision-making purposes will be critical. Is it pounds of milk per cow per day, milk per hour or milk per robot per day? Homing in on your critical data points will be key as you build your dashboard going forward.
- Next-level accounting. Whether this is balance sheet based or earnings statement based, having a clearer understanding of your cost of production will be critical. What parts of your operation are your strong suits? Which ones are weak? Enterprise and cost accounting will be essential in determining that. Being able to control costs in both good and bad times is crucial to success long term.
- Risk management. This will still play a key role. Volatility is not going away, but government payments could. Honing your skills and creating triggers to drive decisions should be key parts of your process.
- Resiliency. Maintaining a zero-balance operating account may not be sufficient any longer. Working capital in the form of line availability and cash will be king.
- Nimbleness. Being able to adapt and change to market demands, whether it’s consumer or regulatory driven, will be critical to taking advantage of opportunities. If your dairy plant called you tomorrow and offered a $1.50 per hundredweight (cwt) premium for your milk if you started deploying a genetically modified organism (GMO)-free feed practice, could you respond quickly enough with an understanding of whether it’s profitable for your operation? Do you have the team and ability to conduct the analysis to determine the impact and possible outcomes of deploying the practice?
- Market alignment. Strategic alignments will be critical in both the input and output sides of your business. From having a home for your product to managing input sources and services, alignments will continue to play a key role.
Be Nimble
You’ll note that there’s not a lot about production skills in either list. That's because being a strong production manager is what’s expected. CFO-level management skills are becoming the minimum requirements because that’s where the industry is headed. The issues that will affect agriculture in the near future include alternative proteins, carbon markets, export disruption because of disease or geopolitical issues, urban and vertical farming, and food-mile reduction.
Being nimble will be particularly crucial. We’ve previously written about the importance of resiliency, and that’s also important. But, whereas resilience is reactive – the ability to stand tall in the face of adversity – nimbleness is proactive. Nimble management includes possessing return on investment analytical skills. While having access to both held capital and borrowing capacity is important, being able to quickly discern when and how to deploy that capital can help operators analyze – and possibly take advantage of – new opportunities.
A farmer we frequently speak with, for example, is looking to exit the pork business while remaining in proteins. He’s determined that the salmon business is the best fit because conversion rates are more favorable and it allows him to reduce his carbon footprint, which could allow him to take advantage of carbon tax credits.
We’re in a time of great disruption, which is often intimidating. But disruption also creates opportunities. Times like this favor operators who are willing to significantly improve their management game.
PHOTO: Getty images.
Note: The opinions, estimates and projections, if any, contained in this article are those of the authors. BMO Harris Bank endeavors to ensure that the contents have been compiled or derived from sources that it believes to be reliable and which it believes contain information and opinions which are accurate and complete. However, the authors and BMO Harris Bank take no responsibility for any errors or omissions and accepts no liability whatsoever for any loss (whether direct or consequential) arising from any use of or reliance on this article or its contents. This article is for informational purposes only.
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