Opinions & Sacred Cows: Passion unleashed!
By Ron Goble
Sitting in on a session led by Michael Boehlje, Purdue University distinguished professor of applied economics, no one nods off! In fact, as he roams the standing-room-only venue, he engages his audience with rapid-fire, in-your-face questions and statements, which leave your mind in a spin.
To say Boehlje is enthusiastic is an understatement at its best. He is passionate about his desire to teach and motivate businessmen and women (dairy producers) what they need to be doing in the midst of their management and economic struggles. Although he was hooked up to the Central Plains Dairy Expo sound system, he really didn’t need one.
He had a lot to share. About the business climate, Boehlje indicated that the global economic recovery is sluggish; Europe is a mess; China rift with uncertainty; and U.S. jobs growth were moving at a snail’s pace. Milk output continues to increase and the future of dairy export growth is still in question. Milk prices are under pressure. Feed costs remain high, but he believes prices will decline modestly. Milk/feed ratios are declining with 2.01 in February 2011 and 1.58 a year later. Profit margins weaken and likely will continue under pressure, he said.
If these observations weren’t hard enough to hear, Boehlje’s message was clear, producers could expect “tighter margins, more risk, and increased vulnerability.”
All that said, good management is more important than ever. Producers need to manage the slack while maintaining flexibility in running a lean operation. Better management is essential. “Most don’t position themselves to grow the business. That’s the No. 1 constraint on successful growth...having adequate management to bring things up to snuff.”
Boehlje stressed adopting new technology, which simplifies and takes advantage of precision/process controls and allows expansion of automation and information. Focus on quality, consistency, and continuous process improvement. “Reinvest earnings, but protect operating margins because the chances of the downside is more than the upside,” he warned. “If I’m a good manager, I have profit opportunity. Capture the upside and mitigate the downside.
“Running a dairy today is VERY difficult. Capital markets reward those who manage their operating risk. What do you do when ICE shows up and your employees flee? What do you do if you have an environmental spill, change in farm policy? Risk audits these days have 132 areas of risk,” the professor declared.
Boehlje pointed to Fair Oaks Dairy in Indiana as the example of operating under the critical element of “economics of size,” where they believe that a 3,000-cow milking herd is the most efficient in the industry.
The bottom line for the professor was to encourage producers to “scan the business climate critically while looking outside agriculture. Focus on running a lean operation with flexible strategies that can make the most of your reserves and manage your capital structure and lock in interest rates for financial stability.”
Like most of us, even dairy producers need reminding to tighten up on the reigns and get that runaway horse under control. Maybe it would be profitable to look outside the box of traditional thinking and adopt new and improved management strategies that have been proven more effective, especially in times like these. Boehlje certainly provided plenty for everyone in the room to chew on.
