In the middle of an uncertain economy, dairy producers might be forgiven for saying “Haven’t we seen this movie before?” The dairy industry is certainly familiar with markets, when low milk prices lead to a reduction in cow numbers and a drop in investment. Another movie we’ve seen is when the business is profitable, so producers invest, resulting in increased milk processing capacity, with the risk of oversupply. So why is this time so different? What is this new movie?
Ziskapp.com (based on 3.1 million U.S. cows) reports dairy producers expect at least 12 more months of profits, and while feed costs are edging higher, global milk production is showing slight declines, suggesting a tightening in the market. So why do I say this movie is different? The degree of uncertainty is unprecedented in our lifetimes. Russia’s invasion of leading grain producer Ukraine removed 30 million tons of grains from the global marketplace. China’s increasing confrontations with the U.S. has prejudiced markets for exports to the world’s leading consumer. The U.S. is at full employment yet showing all the signs of recession. Rampant inflation is pushing central banks to raise interest rates to cool it down. Pandemics continue to affect both economies and supply chains. Record droughts and fires are increasing market uncertainty in both grain and feed protein. And, in the middle of all that, technology and digitization relentlessly evolve; the speed of change is accelerating. So, what should cash-rich dairy producers do with a fundamentally sound business generating record profits when professional forecasters say disaster is around the corner?
Two Narratives
Two narratives are emerging. The first is that economic collapse, or at least a major recession, is just ahead, so dairy leaders should be conservative. Based on this higher inflation and interest rates, those who have kept their powder dry will have a wide range of choices to buy whatever they need, from farms to integrated operations, at rock-bottom prices.
Better safe than sorry, and maybe even a chance to come out ahead.
The other emerging narrative is to be brave: to use this moment to create or extend a lead over competitors, by investing in new technologies that can improve efficiencies, systems and processes to be more accurate and more responsive to customers’ real needs. Instead of focusing on the gloom and doom of the economy, focus on the positives. Rather than Chicken Little’s ‘the sky is falling’ scenario, it is time for producers to throw out the traditional playbooks.
Today’s times require visionary and inspired dairy leaders, not timid retrenchment. Are you ready?
Three Suggestions:
Digitize everything
Why has farming taken so long to invest in labor-saving devices? Having accurate, real-time measurements gives us the power to do things better. Identifying technology that can do tasks better and leaving farm workers to do the tasks that humans do better transforms the nature of work. More of the work gets done (at a higher level) by the technology, and the work is satisfying. Sometimes producers say the barrier is financial: ‘I won’t invest unless I get a 3:1 return’ or ‘My farm needs a payback in 18 months.’ In changing times, it is important to re-assess your decision metrics, to be sure they are appropriate and relevant. With money still at relatively cheap levels and the opportunity to out-innovate the competition, this might be exactly the time to adjust a payback interval or ROI formula. Invest in technology to reduce labor, increase business resilience and have happier customers. There are many options. Digitalization can be a powerful tool.
Reinvent your supply chain with AI
Artificial intelligence has few greater opportunities than to reinvent supply chains. No human, paper trails (or indeed spreadsheets) can manage the flow of goods in a system as effectively as artificial intelligence.
Knowing what goods need to be delivered, what stocks are being used at a rate faster than expected, and if a supplier has a delay can all be monitored in real-time. Supply chain improvements yield fast results, and their impact profitably is swift. Supply chains for milk, grains, seeds and crop protection, water and even energy are all important. Swarm Analytics is an example of a digital company doing this in the milk, feed and commodity markets to save millions of dollars by optimizing supply chains and inventory within the system.
Double down on talent
The world is awash in capital, but there is a war for human talent. Talent is the key to running an efficient farm, both in the short and medium term, yet as Kincannon & Reed reports it is currently taking 20% longer to get new leaders in place, with 30% more compensation than in the past. We talk a lot about the value of talent and leadership on our farms, but are we investing in it?
By AIDAN CONNOLLY
November 3, 2022
dairyherd.com
