Is Uncertainty Impacting Decisions?
Updated: Feb 3
Did you get into the dairy business because you enjoy marketing? Probably not! However, whether you enjoy marketing or despise even thinking about it, the fact remains that it is a critical aspect of your business. You do not have to look far to find a market opinion, price prediction, or advice on when to sell (or not to sell) your milk, or when to buy (or not to buy) your feed. How are you supposed to digest all of this information in order to make the right decision?
Most producers will fall into one of two camps for making decisions: business-minded vs. market-minded. Market-minded decision makers are either right or wrong depending on how the market behaves versus expectations. The fear of being wrong often leads to taking no action at all! On the other hand, business-minded decision makers use logic to guide actions and act proactively with confidence.
In either case, both decision makers have equal amounts of market risk and their ability to predict market prices is equally ineffective. So, what separates the two? How can one consistently outperform the other in an unpredictable environment? It all depends on how success is defined! Here are a few characteristics that we have found create differentiation:
Market Minded (Common) vs. Business Minded (Hurley) Thought/Action
Desire to Maximize Price vs. Desire to Manage Price Uncertainty
- Far and away the greatest market minded temptation is to focus on market price. Marketing is seen as a game where the goal is to predict market direction and achieve an average price that is deemed to be acceptable at an arbitrary point in time. However, the same market price means something different to every operation. Comparing average price to the market has zero value and will result in unnecessary disappointment. - Comparison is the thief of joy!
Focus on Results vs. Focus on Process
- Are you afraid of making the wrong decision? Has a perceived “wrong” decision prevented you from taking additional action? These are signs that too much focus is being placed on results and hypothetical outcomes. Instead, increase confidence by knowing where you are at and where you want to be – just like using GPS navigation to guide your next journey. If you don’t have any goals, it is easy to drift towards focusing on price because that is the only benchmark.
Assume a Market Direction vs. Assume Any Potential Outcome
- Regardless of our market bias or any “inside information” we think we have; any price scenario is possible. Action should never be taken because “the market has to do X”, because when the opposite happens it will cause stress, anger, and disappointment. Instead, assume the market can move in either direction and make sure you are ready to tolerate either scenario financially and emotionally.
Seek Market Information vs. Review Planned Business Performance to Actual
- Understanding why the market is moving up or down, or reading about what the market might do if x, y, and z happen adds very little business value, and one could argue actually clouds judgement. A much better use of time is to focus on improving business processes and knowing where your largest areas of opportunity are. How well do you actually understand your operation?
Short Term Focus vs. Long Term Focus
- Generally speaking, managing cost and revenue farther out in time will produce less volatility in business performance. Try to find ways to reduce uncertainty, and day-to-day price movements become much less important.
The unfortunate thing about agriculture is that the status quo is to be market minded or have no plan at all. Marketing is often treated as a black box of magic that most dairy operations spend very little time trying to understand. Hurley and Associates has been working since 1988 to help farm operations move towards the business side of the table to realize the benefits of economic stability. Below is a graphical representation of the desired outcome. I would encourage you to do an honest self-assessment of your business – which trajectory are you on, and where do you want to be?
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