Dairy Channel: Challenge of change in dairy industry

I had the opportunity to share breakfast and stimulating discussion with dairy leaders and industry representatives last Thursday prior to the Northeast Ohio Dairy Conference.

The discussion was led by David Kohl, Emeritus Professor recently retired from Virginia Polytechnic and State University of Blacksburg, Va.

Expert. Kohl is recognized nationally as an expert in farm business financial management and farm risk management. His writings and educational presentations have been widely quoted and distributed since the early 1990s.

Kohl likes to get people talking and sharing ideas so that he can play off the discussion to teach concepts of risk management, financial management and dairy farm profitability.

Kohl and conference host Dianne Shoemaker, Extension specialist, Dairy Industry, did a great job of getting participants to discuss their challenges and perceived opportunities in producing milk and servicing the dairy industry.

What they talked about. I was not surprised to hear many participants talking about the challenges of the rural-urban interface.

Dairy managers talked about the challenges of understanding and dealing with affluent non-farm neighbors in half-million-dollar homes who neither understand nor appreciate the slow-moving equipment, odor and noise of normal farming operations.

Kohl talked about the attitudes of dairy managers in the face of change. Being a good neighbor, keeping neighbors informed of farm operations, becoming involved in community organizations and activities, and sponsoring farm-based open-houses or field days will become increasingly important.

Kohl said dairy farmers must recognize that their businesses are ultimately controlled by consumer perceptions and preferences.

Trends. He cited trends in food merchandising which indicate that five or six corporations will soon control most of the food distribution in the United States.

His point is that uniformity and quality of farm products is increasingly important in determining prices farmers receive.

Furthermore, Kohl predicts, we can expect increasing influence to be exerted by food processors and marketers on the handling and feeding of livestock and dairy animals at the farm.

Can you imagine a representative from Wal-Mart coming to your farm to make sure you feed and handle your cattle humanely and in compliance with consumer driven guidelines? It’s not far away!

Land values. Bankers and loan officers talked about skyrocketing land values and the false security of the inflation-driven balance sheet.

Kohl said it is a very dangerous sign when farm managers ‘roll’ operating loans and credit lines over into longer term debt. This procedure, according to Kohl, means the business is not profitable and will see more problems meeting principle and interest payments in the future.

Production costs. As always, Kohl emphasizes the importance of knowing your production costs (I’ve heard him speak about this three times now). Many in the audience agreed.

It is important not only to know your costs, but also to keep accurate inventories of feed and livestock. Operating expenses and inventories are essential information in order to measure true profitability of any business.

Milk prices. Agribusiness people and bankers talked about the coming increases in milk prices driven by the cheese market.

Kohl and others commented that we now have a milk cycle in livestock commodity prices, similar to the beef and hog cycles.

Dairy producers need to learn about the causes and effects of these price fluctuations.

Worth noting. You need to remember that the very favorable prices to come will last nine to 12 months and likely be followed by 15 to 18 months of unfavorable prices.

There is simply no substitute for keeping and using good budgets and financial records.

Kohl talked about the importance of maintaining operating capital reserves in order to offset the times of low prices and poor cash flow.

Budgeting these price fluctuations into two or three-year cash flow projections can help you be prepared for the low prices instead of having to deal with ballooning open accounts for feed, fertilizer and the vet bill.

Fewer dairy farms. Nutritionists and agribusiness service and supply representatives talked about the declining number of dairy farms and the resultant need to cover more territory in order to keep business volume growing.

Mergers and consolidations in agricultural service and supply businesses present a confusing, ever-changing situation to producers. Product names, company names and sales/service representatives change frequently.

Producers commented that while they find the constant changes confusing, they also see opportunities to save money or get improved products and services as competition continues for limited numbers of farm accounts.

Kohl commented on a recent discussion in Ontario concerning new regulations governing manure applications on cropland, especially on tiled land.

Hauling manure. Ohio producers in attendance said hauling manure on the highways, even in large trucks can be a problem. But in areas of housing growth, hauling with tractor-drawn equipment can be downright dangerous.

Drivers are simply not willing to tolerate slow-moving vehicles on busy roads.

Several participants pointed out a need for better land use planning in almost all northeast Ohio counties.

While good land use planning cannot take away a farmer’s right to sell his land for development, it can ‘steer’ new development toward areas more suited for residential areas, and preserve more good farmland for farming.

Development strategies which minimize the loss of farmland and which contain urban sprawl and traffic to non-farming areas were strongly favored.

Challenge of change. The common theme throughout the discussion was the challenge of change. Change has been a challenge for dairy producers since the 1940s.

The longer I watch, the faster the changes and challenges come. Kohl says life “comes at you faster as you get older.”

Mike Estock, Farm Credit Services district credit manager, disagrees. With a mischievous grin, he said, “As you get older life still comes at you at the same speed, you just perceive it slower.”

I think being prepared for change is the biggest challenge of all.

(The author is an agricultural extension agent in Columbiana County. Questions or comments can be sent in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)