Competition’s Place in the Dairy Industry
By Jayne Sebright, Interim Executive Director
“Competition” in today’s society can sometimes be viewed as negative. When our children start in youth sports programs, coaches tell them not to keep score because it doesn’t matter who wins. “It’s not about the competition, it’s about learning the game and having fun,” they say.
But, when you’re a parent, it doesn’t take long to realize that, no matter they hear, children quickly decide it’s all about the competition. Even at the young age of 5, siblings start keeping track of everything — who was first to learn to walk, ride a bike or even use the toilet. It doesn’t matter whether it is in sports, school or even just playing with friends, all they want to know is “who got there first.”
So, is it bad to let competition be the driver that motivates us to get better? Without competition, would anyone ever know what they are truly capable of? Or, is it true that staring at the back of a person’s head does actually make you run faster?
Within the dairy industry, competition has driven businesses to innovate on the product side and farms to hone their businesses on the production side. It has also led to advancements on the farm, new product markets, and to US dairy products, potential made from the milk produced right on your farm, marketed across the globe.
Think of how far we have come in just the past 15 years.
In 2000, US milk production was at 167.66 billion pounds, with 9.127 million head of dairy cows producing an average of about 18,204 pounds annually. In 2015, 9.317 million cows produced 208.63 billion pounds of milk, with an average of 22,393 pounds per cow, a 25-percent increase from 2000. On the export side, 2015 dairy exports were valued at $5.2 billion with 3.65 billion pounds exported, or 14 percent of the milk supply. That is a dramatic increase from 2002, when US dairy exports were valued at $992 million with less than 3 percent of the nation’s milk supply exported, on a total solids basis.
Pacing Us to Get Better
At the farm level, we’ve made momentous gains in reproductive performance, milk quality, nutrition strategies and many other key performance areas. In fact, in just the last two months, Pennsylvania herds on DHI-test have dropped somatic cell count averages to below 200,000, a feat that many would have said was impossible just 20 years ago. Once one farm is able to do something, more farms are working toward that goal, with competition driving us to get better.
On the flip side, competition is what causes tremendous volatility in our pricing cycles. The current depressed milk price period is a result of just that. When milk prices were at all-time high levels in 2014, dairy farms took that as a signal to add cows and grow their milk production. Now US cow numbers are sitting at 9.325 million head, the highest level since December 2008, with the global pipeline for milk running full. Domestic and worldwide market competition caused by the oversupply, combined with depressed markets in China and Russia, have driven the price down to levels not seen for several years.
Back to my original question, is competition actually making things better? It depends on whether you are willing to learn from the game. Referring to the sports analogy, the best coaches I have seen from the sidelines are those who, win or lose, use the game as a teaching opportunity for the kids – to point out the good and bad to show them where opportunities were missed.
Learning from the Game
So, what are you learning from this experience? I once heard that, in life, there are those who skate to where the puck is and those who move to where it is going to be. I would add that there are also those who just watch it go by.
We don’t know how quickly dairy prices are going to rebound. Supply and demand have to adjust to be more in balance, and it’s anyone’s guess how long that will take. But, what we do know is that every dairy farm must focus on the business, manage the margin and skate to where the puck is going to be to stay in this game we call the dairy business.
Earlier this month, the center hosted four Dairy Industry Roundtable Meetings for agribusiness professionals around the state. Each meeting included a discussion on strategies farms are employing to work through the current downturn. Here are just a few the folks who attended had to offer:
- Know your cost of production and what your margin is. Penn State Extension recently did a survey of 2016 projected break-even price levels on 110 Pennsylvania dairy farms. The average projected break-even price was $19.04 per hundredweight, but the range was from $16 to $27. Knowing your cost of production and your margin is critical, especially when you are working with below break-even milk prices.
- Seek and accept good advice. Several individuals suggested that good farms pay for good consultants, and those struggling often aren’t willing to even accept the free advice out there. Whether you pay for a business consultant or you talk to the people who work with your farm every day, such as your lender, accountant, nutritionist or veterinarian, seek their advice on strategies to move forward. Often, they may bring up an idea that you haven’t considered before.
- Develop and follow standard operating procedures. When stress levels are high, corners can get cut. But, in today’s milk price environment, every penny counts. Maximizing quality premiums and component levels can boost your milk check by more than a dollar per hundredweight. Make sure every employee knows the protocols in place for your milking procedures and feeding strategies. Have them written out, especially if you have multiple people performing the same task.
- Find someone to set your pace. Those producers who are involved in peer groups say the process of comparing numbers and knowing where they stand against peers motivates them to improve in areas where they are falling behind. If you aren’t in a discussion group, the Dairy Trend Analyzer Program available through the center can help you compare performance against similar farms and historical trends on your own dairy.
- Talk to your lender and know your plan. Lenders said they are hearing from the producers who are being very proactive and from those who are really struggling. They are concerned about the middle group that hasn’t reached out yet. Make sure you are communicating with your banker about the strategies you are using to work through the downturn. Don’t wait until it’s an emergency and you have to call them in last-minute desperation. Call them early and have a plan in place to present.
The Center for Dairy Excellence is here to be a resource for your dairy. Along with the DTAP Tool, we can connect you with resources to help you monitor markets and work through the downturn. If you want to work with a consultant, we also have the Dairy Decisions Consultant Program. To learn more, visit www.centerfordairyexcellence.org or call 717-346-0849.