Five years ago, many dairy producers felt very good about life. They felt good about their long-term business prospects. Then 2009 happened.
Since then, milk prices have climbed back up – and even reached record highs, but I’ve noticed that the feeling of bold confidence among dairy producers has not returned.
In my travels and visits with dairy producers earlier this year, it was clear that the mood has shifted. As a result of high feed prices and constant volatility, dairy producers today seem much more aware – and respectful – of the market forces.
With high feed costs and unreliable availability, dairy producers realize they don’t have control of their own destiny – especially if they are not raising most of their own feed. They realize that even though milk prices have been really attractive, their margins are not high. They recognize it wouldn’t take a very big change in the milk price to make their profit disappear pretty quickly.
Most of these producers never imagined losing money when they were selling $18 milk, but now they are realizing it could actually happen.
I saw a similar awakening in the grain market when corn went to $8. Large grain producers who had been very confident before that happened sold at $5. When corn went to $8, they were scratching their head – and their wallet – and questioning, "Maybe this marketing thing is getting a lot more challenging than it once was?"
Other industries from agriculture to Fortune 500 companies have seen similar scenarios.
While missing the market can be a costly mistake, it can also be a valuable wake-up call. The lesson is that understanding marketing alternatives must always be a priority – and there is always more to learn. I am seeing this mentality emerge among dairy producers today. Many of the producers I visited with this winter felt it was worth their time to improve their marketing. Whether they had minimal marketing experience or were pretty seasoned, the dairy producers I visited with saw value in becoming better.
The risk in the marketplace today is a very real threat to all businesses. It is important to use the tools available to manage that risk.
The increased risk and higher costs that the dairy industry has had to adapt to over the past five years are very similar to what Fortune 500 companies are also experiencing. Monthly, I meet with business executives who are members of The Executive Committee (TEC) – a group who share their collective knowledge and experiences to help each other generate better results for their businesses. They represent businesses worth $5 million dollars to nearly a billion dollars.
Since the recession hit in 2008, many of them have cut overhead and streamlined their businesses – and several of their companies have become more profitable than ever before. You would think they would have that confident, "life is good" mentality that I saw in the dairy business five years ago – but they don’t.
They too have a new-found respect for how quickly the market can change and how much risk – and uncertainty – exists.
Despite the challenges and uncertainty, I remain an optimist. With a focus on learning, improving and planning market strategy, I believe any business can have the opportunity to thrive in the new era that lies ahead.
Scott Stewart is CEO of Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at [email protected]
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