Rebounding milk prices: How do we respond?

As of this writing, milk prices have shown a desperately needed improvement from the dismal levels that prevailed for much of 2002 and 2003.

Charles E. Gardner

During that time, even well-managed dairy farms were losing equity, and many were experiencing severe cash flow problems. These conditions forced herd managers to examine every expenditure, and to eliminate those that did not generate a fast return. Now that things are a little better, is there anything we should do to serve our clients and, in turn, improve our own bottom line?

I would approach clients by asking them how they see the improvement in milk prices. This allows you to assess their mood and their readiness to move forward. I envision saying something like "John, in the past few months there has been some improvement in the milk price. Are you finding it a little easier to manage now?" Then listen carefully to the reply, and encourage him to keep talking.

Lay the foundation

For example, he might say, "Yes, we've got all of our accounts current again, and now it is time to attend to some things we've been letting slide." Your response could be "That sounds good. What types of things are you considering?" He will likely then go on to list vaccinations, hoof trimming, perhaps dry cow treatments, maybe even pregnancy exams. Or, he may talk about some capital improvements, such as replacing mattresses, installing fans, putting down rubber matting or purchasing a feed monitoring program.

On the other hand, he may say that despite the improvement in milk price, his operation is still not cash flowing, and he is really concerned. Your reply to this would be something like, "What do you think is the main reason you're not able to make ends meet?" From there he may list high feed costs, low milk production, high debt payments or some other factor. Or, he may say that despite the increase, the price of milk is still too low for him to survive.

His answer is crucial to how you proceed. If he is sincere, and identifies some aspect of his operation as being responsible for his continued cash flow problems, then you have a tangible area in which to intervene.

If he perceives high feed bills to be the problem, you have the opportunity to review his feeding program with him. If, on the other hand, he is still blaming low milk prices, then he is "stuck," blaming factors outside his control. There is far less opportunity with people in this mode than with one who accepts responsibility for their own success or failure.

Let's return for a moment to the producer who acknowledged that they had "let some things slide for a while," but were now in a place to catch up. Ask him to identify just what is on his list, and then add whatever suggestions you have. Do the same with capital improvements. Be aware of opportunities to make long-term changes, while your client is considering these things.

For example, now may be the time to try a timed insemination program that he would not implement in the past. On the other hand, if he discontinued brucellosis vaccination, you can discuss whether or not it is worthwhile to return to that practice.

After discussing items that fall under the category of "catching up," ask your client if there is anything else he is considering. The idea is to keep asking open questions to learn what is of concern to him (or her).

Keep it open

Once you reach a point where you are confident he has shared it all, you can bring up additional ideas. I would consider asking what he thinks he needs to do to be better prepared for the next run of low milk prices, which will surely come.

One area that I think may be fertile ground is to help your client to develop a program to predict feed usage, and then compare predicted feed costs to actual. I believe many farms are very weak in this area. When feed bills seem too high, the nutritionist gets blamed, but in many cases spillage and over feeding are the real culprits.

Consider constructing a spreadsheet that will predict feed use if the formulated ration is truly followed. Then, review actual consumption as a comparison. With purchased feeds, looking at delivery slips will tell the story. For stored feeds, an inventory will have to be performed periodically.

So far we have talked about helping the client. How does all of this help you? Obviously, you must have your relationship structured so that you get paid for your time. If that is already in place, then you are all set.

If not, you need to move forward and get it in place. If your client is not willing to pay you for your time, then he does not really value the service, and you need to serve him in a more limited capacity.

There is one final point to consider as we consider improving milk prices. What are you doing with your own accounts receivable? Many practices saw them mushroom in the past two years. Now is a time to get aggressive and insist on payment.

Getting paid

The key to responding to the improvement in milk prices is to use it as a springboard to get your clients talking. This is true in all situations, and should be a planned part of every visit. Find out what is on their minds, and learn how you can help them meet their needs. Open-ended questions are the best way to do this. Do a little mini-rehearsal in your own mind of how you are going to start each visit. When you really listen, the opportunities will come to the surface.