Volume 17: Issue 7 November 2015
BOTTOM LINE Sharing ideas, solutions, resources and experiences that help dairy producers succeed.
Martin Farms has the attitude Farm succession planning — see Page 3
Optimize farm taxes – see Page 9
Test cows’ genomes – see Page 11
Dairy executive training — see Page 13
Dairy farmers love what they do. But nobody ever said it was easy. Joe Martin takes the challenges of the job in stride. He keeps the perks of dairy farming at the top of his mind. “I love the independence,” he said. “I get to chart my own course.” Martin and his brother, Tom, run Martin Farms LLC in Edgerton, Wis. With a bit of help from family and three full-time employees, they crop about 540 acres and manage 230 cows. Tom handles all of the feeding and is the main crop field operator. Martin takes care of AI and baby calf work, manages employees, and assists his wife, Bonnie, with farm finances. The Martin family is intent on adopting modern technology and staying on the cutting edge of the business. “Obviously the dairy business is a profit-driven business, and we have to keep an eye on what’s profitable,” Martin said. “But we have learned there are many means to that end. We try to stay flexible.” Martin graduated from the University of Wisconsin-Madison in 1985, earning a degree in dairy science. He turned down various job opportunities and
Joe Martin of Edgerton, Wis., encourages producers to tap into the knowledge base and resources provided.
came home to farm. “Our father was very engaging and encouraging,” Martin said. “He told me I could do whatever I chose, but that the option to join the family farm business was always available to me.” T h e M a r t i n b ro t h e rs
represent the third generation to farm on their current site since 1917. For most of the past 100 years, Martin families milked approximately 40 cows. During the mid ‘90s, the Martins modernized and began expanding. See ATTITUDE, on page 2
Professional Dairy Producers® I 1-800-947-7379 I www.pdpw.org
2 November 2015 • PDPW • Dairy’s Bottom Line PDPW Board of Directors President Mitch Breunig Sauk City, Wis. 608-643-6818 mysticvalley@wildblue.net Vice President Marty Hallock Mondovi, Wis. 715-495-2812 marbec@nelson-tel.net Secretary
Business Conference March 16-17, 2016 • Madison, Wis.
PDPW’s Business Conference is no ordinary experience. It’s where dairy producers and industry professionals from across the country gather to network, grow professionally and inspire one another and themselves to achieve true greatness. It’s where innovative information, ideas and profit-focused solutions are shared.
Kay Zwald Hammond, Wis. 715-796-5510 rfkz@centurytel.net
In addition to having four captivating keynotes, “Inspire 2016” is where attendees have an abundance of educational choices: • More than 30 educational sessions • More than 40 world-renowned presenters • Multiple, hands-on workshops • Hall of Ideas & Large Equipment Show
Visit www.pdpw.org or contact 800-947-7379 for more information.
Treasurer Charlie Crave Waterloo, Wis. 920-478-3812 charles@cravecheese.com Directors Brian Forrest Stratford, Wis. 715-650-0267 bforrest70@gmail.com Jay Heeg Colby, Wis. 715-507-0030 jcheeg@yahoo.com Jeremy Natzke Greenleaf, Wis. 920-371-1968 jnatzke@yahoo.com Dan Scheider Freeport, Ill. 815-821-4012 dnscheider@gmail.com Linda White Reedsburg, Wis. 608-393-3985 linda@krdairy.com
PDPW Advisors Dr. Steve Kelm University of Wisconsin-River Falls River Falls, Wis. Steve Schwoerer Badgerland Financial Fond du Lac, Wis. Dr. Richard Wallace Zoetis McFarland, Wis.
Attitude Continued from page 1
“We were transitioning from a single-family enterprise, my parents’ farm, to a multi-family farm,” Martin said. “We knew we had to modernize and update our facilities, so we decided to take the leap and expand the herd.” Martin Farms’ herd grew from 40 to more than 200 in a matter of weeks. The family shifted their focus from cash cropping to their new cows.
Dairy’s Bottom Line is published by PDPW in cooperation with Agri-View. 1901 Fish Hatchery Road Madison, Wisconsin 53713 Toll-Free: 888-247-4843 agriview@madison.com www.agriview.com Editorial Managing Editor Julie Belschner 608-219-8316 jbelschner@madison.com Advertising Sales Manager Tammy Strauss 608-250-4157 tstrauss@madison.com
“At the end of the day, we like you’re doing after having cows,” Martin said. “Our inter- attended the PDPW Business est and ability lies more in the Conference,” he said. “And you’re dairy side of the farm, so that’s getting access to the best people what we decided to focus on.” at a very reasonable cost.” While planning for expansion, The ability to ask other proMartin gathered opinions from ducers about particular probPDPW members lems has been who ran small and invaluable to Mar“The concept large dairies. He of caring for cows tin. He said asking related to both. He for help is someto earn a living already knew what thing he had to is universal it was like to operlearn along the way. among dairies.” ate with a few dozen “We face the same challenges,” animals and was on Joe Martin Martin said. his way to learning the nuances of managing hun- “There’s a knowledge base out there of how to solve these dreds of cows, plus employees. “There’s help waiting at problems. If you can tap into PDPW no matter the dairy’s size that knowledge base, whether or owner’s management style,” through an academic referral or Martin said. “The concept of another producer, you can sift caring for cows to earn a living through the information and is universal among dairies.” find solutions.” Martin’s advice to other dairy Martin’s goals for the future: farmers who may be searching 1.) Encourage the next generafor a positive vibe or more tion. 2.) Set up a business that is insight on a particularly vexing attractive for family members to problem: Try attending the join, if they so choose. 3.) Stay annual PDPW Business Confer- on top of best practices. 4.) ence. Attending the conference Work with people who can help is what prompted him to change implement change. his calf-feeding regimen. “And we always want to be “If you dairy for a living, you’ll early adopters of new ideas,” he be re-energized about what said.
November 2015 • PDPW • Dairy’s Bottom Line 3
When it’s time for the last milking Farm succession planning topics and mistakes GEORGE TWOHIG Twohig Rietbrock & Schneider
Recently, farm succession planning has become the subject of seminars and farm publications. Today’s seminars and articles have been helpful in educating and motivating the senior generaGeorge Twohig tion to develop effective farm transfer plans. We appreciate this increased interest as our firm has always focused on assisting farm families in planning the transfer of their family farms.
Proper planning ensures that dairy farm businesses can successfully transition to the next generation.
Why have so many organizations and advisors now joined PDPW in realizing the importance of this topic? During the
Short on
1980s farm bust, many otherwise qualified children left the farm. The farm was then viewed as a seven day per week career
challenged by ongoing high debt and interest rates, limited net income from low milk and commodity prices and low valued farm real estate. Still, most farm owners fought through the 80s and 90s, often with a child or children willing to take on the challenge. Many of today’s farmers are now reaching retirement age and being forced to recognize the need to transfer their family farms. Fortunately, many farms (large and small) have grown, developed and remain competitive and sustainable. Modern farming techniques and new technologies have placed even greater stress on the quality of management, rather than just the daily labor of farming. See SUCCESSION, on page 4
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Succession Continued from page 3
For these farmers, their next generation can objectively view the farm as a meaningful and challenging career and an opportunity for financial security. Even with the increased focus on farm succession planning, consider the following common mistakes that affect the planning process: • Procrastination. Many farmers make the mistake of putting off their succession planning because they are busy managing the farm or do not recognize the benefit of starting early. However, starting early gives direction to both generations and motivates involved children to make a real commitment to the farm. The senior generation should recognize the farm’s transfer can assure that their
long-term needs are adequately met and the farm they worked so hard to build will continue to flourish. The time to start planning and acting on that plan is before your last milking is done. • Resistance to Change. Most farmers do not want to think about slowing down, retirement, disability or death. However, the transfer of the farm to the next generation requires leadership, which should come from the senior generation. Farm transfers first require the next generation’s participation in management decisions, increasing transfer of responsibility over time and eventually, the transfer of earned equity based on the next generation’s commitment and achievement as farm managers. Involved children have the expectation that they will have increasing and meaningful involvement in management decisions and play an important
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responsibility. • Lack of Formal Plan. In any occupation, most people do not like to think about being replaced. Successful people often develop a sense that they may be irreplaceable. But the future of the family farm must be based on the understanding that the farm will transfer to someone. Hopefully, that someone is a committed and qualified family member. See SUCCESSION, on page 6
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6 November 2015 • PDPW • Dairy’s Bottom Line
Succession Continued from page 4
This means facing the fact that succession planning is an essential component of farm management. It also means working with all family members in developing an effective written plan, communicating mutual commitment and gaining everyone’s acceptance. A key part of the transfer plan is the development of an effective business plan that outlines the farm’s mission, each family member’s business and personal expectations, and the present and evolving roles, responsibilities and authorities of the successors. An environment must also be established where the successors learn to work together as a team to meet a common goal for the farm. A CEO of a large company
once wrote: “Most companies are personality driven. Companies built to last are principleand process driven. Succession is largely impossible in the former, and relatively straightforward in the later.” • Relying on a Will. The estate plan is effectively the contingency plan for transfer of farm assets, not transferred before death. An effective farm transfer requires ongoing strategic planning for the farm and its profitability, management sharing, establishing the best business structures, and transfers of equity during the senior generation’s life with equity transfer being delayed until death only when beneficial. Farmers should realize that living trusts can assist in avoiding the delays, public exposures and added expense of probate. Most importantly, estate plans must be updated, from time to
time, to deal with changes in objectives, laws and the farm and family situation. • Relying on an LLC. Most farms are now operating as a limited liability company (LLC) and elect to be taxed as a partnership. The LLC may have been formed, in part, to facilitate transfers of equity to the children who are active in the farm. However, LLCs are only a component of the transfer planning process. As part of ongoing transfer planning, LLCs and all other components of the succession plan needs to be reviewed on a timely basis. There are many other tax, business and transfer planning techniques that may be, or become, advisable for a farm family’s unique situation. Each planning tool needs to be considered as there is no one-size fits all approach; each farm and family is unique.
• Selecting the Wrong Advisors. Farmers should recognize that there are attorneys, accountants and financial advisors who have focused their careers on working with farms and farm families. Qualification should be based on experience and reputation. You will be dealing with your farm’s management challenges, such as differing management styles, communications, conflict management, as well as, the unique legal, business and tax planning issues related to farm transfers. Fortunately, most families work on an ongoing basis with an experienced farm accountant and/or farm financial consultant who has substantial knowledge of the family and farm. It is our practice to team with these professionals because their experience with the farm and family is critical in farm planning.
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shape their business model prior to the transition process. Workshop trainers: • George Twohig, agricultural attorney with Twohig Rietbrock Schneider & Halbach S.C. of Chilton, Wis. • Andy Junkin, chairman of Agriculture Strategy, a company devoted to saving family farms through successful business transition and author of “Farming with Family Ain’t Easy” Starts at 9:30 a.m. and concludes at 4:30 p.m.
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8 November 2015 • PDPW • Dairy’s Bottom Line
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Choose the date and location best for you. • Tuesday, Nov. 17, • G o r d i e J o n e s , DVM, independent Arlington, Wis. cow p e r fo r m a n ce • Wednesday, Nov. consultant and dairy 18, Appleton, Wis. • Thursday, Nov. producer 19, Marshfield, Wis. • P h i l C a r d o s o , Randy Shaver Herdsmen, feed DVM, PhD, University managers, feed speof Illinois Accredited for up cialists and others to 6.1 CEU credits, who help manage a University of Wisdairy herd’s food supply—this one-day consin School of Vetconference is for you. erinary Medicine, Phil Cardoso Speakers will dig in and up to 4 CEU deep on today’s feed credits, ARPAS. tests, dry cow diets, Starts at 9:30 a.m. fungus disease in and concludes at silage and how to grow 4 p.m. herd production averPre-registration is age beyond 90 pounds appreciated to help for Gordie Jones of milk per cow. planning. For more Presenters: information, visit • Randy Shaver, PhD, Uni- www.pdpw.org or call PDPW versity of Wisconsin-Madison at 800-947-7379.
World Class Webinar Impact of Bedding Choices on Udder Health of Freestall Herds Wednesday, Nov. 18 Presented by Pam Ruegg, DVM, University of Wisconsin Clean, recycled sand. Mattresses topped with organic bedding. Manure-based bedding systems. Gain insight as Dr. Ruegg discusses a recent study conducted on Wisconsin dairies regarding freestall bedding choices and their effect on udder health and milk production. Dr. Ruegg
will address how to avoid negatively impacting milk yield, somatic cell count and other measures of udder health— and you’ll be given practical suggestions to best manage these types of bedding. The webinar will be presented live noon to 1 p.m., with a recorded session available to those unable to participate at noon. Pre-registration by Nov. 11 required for live and/or recorded session.
November 2015 • PDPW • Dairy’s Bottom Line 9
Fine-tune tax strategies for 2015 ANDY MCCARTY Badgerland Financial
At this time last year I wrote an article discussing record milk prices and the tax strategies that could be utilized to help minimize the tax burden. What a difference a year can make. This circumAndy McCarty stance shows the importance of using a long-term strategy to develop short-term goals. Compared to most other businesses, dairy farmers have very little control over input prices. They also have little control
over their revenue and the price they get for their product. Couple this with the vital role dairy farmers play in our economy and feeding our country and it is easy to understand why the tax code has been written with special rules for farming businesses. However, the tax savings resulting from using these special rules are not guaranteed unless you implement the proper strategies and file a tax return correctly. Why is tax planning important if my income is way down due to the drop in milk prices? One strategy in tax planning
is to try to remove the large up and down swings in income year over year. By doing this, tax brackets are fully utilized to help keep client’s tax as a percentage of their income as low as possible. Due to the record high milk
prices last year, many dairy farmers prepaid as many expenses as legally possible. We even saw clients entering into deferred payment contracts on their December milk checks to push that revenue off into 2015.
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10 November 2015 • PDPW • Dairy’s Bottom Line
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Depreciation Law
Capital Gains Rates on Culls Our current tax code gives reduced tax rates for property treated as capital gains. Income not subject to capital gains rates is taxed at ordinary income rates. Refer to the table to see rates for a “married filing jointly” filing status for 2015. If Taxable Income Is: Over
$
But Not More Than
— 18,450 18,451 74,00 74,901 151,200 151,201 230,450 230,451 411,500 411,501 464,850 464,851
Top Capital Ordinary Gains Tax Rate Rate
10% 15% 25% 28% 33% 35% 40%
0% 0% 15% 15% 15% 15% 20%
It is important to know that raised cows two years and older are subject to capital gains rates. Not all income is created equal when it comes to taxes. Income from the sale of cull cows will generally be taxed at a lower rate than income from milk or grain sales due to the preferential capital gains treatment. A common strategy is to incur enough expenses to offset farm income excluding cull cows. By doing this, we preserve the lowest taxed income and avoid “wasting” deductions that could be worth more in the next year.
We are once again left waiting and hoping for congress to act on Section 179 expensing and the 50 percent bonus depreciation write-off. As of 1/1/2015 the Section 179 limit reverted to $25,000 and bonus depreciation expired. Keep an eye out for this valuable deduction to be reviewed and extended before the end of the year. A good tax plan should address your options if the law is not passed. Repairs and Supplies Repair and maintenance regulations have been in place for more than a year. Among other items, these regulations clarified what should be capitalized and depreciated versus what can be expensed as repairs. Make sure to review any questionable items with your tax preparer. Friendly Reminders Taxes are unavoidable, but that doesn’t mean you shouldn’t have someone in your corner watching out for your best interest and trying to lower your tax bill by as much as legally possible. Also, it is important to evaluate your tax situation over multiple years rather than one year at a time. Having up-to-date and accurate records are vital if you want to have an accurate tax strategy and tax return. By aligning yourself with people you trust and can rely on you will be able to focus your efforts more on the farm and less on the financials. Andy McCarty, CPA, is a tax development manager for Badgerland Financial. Badgerland Financial is a proud Mission Sponsor of PDPW.
November 2015 • PDPW • Dairy’s Bottom Line 11
Unlocking potential of genomic testing DR. KENT WEIGEL Dept. of Dairy Science UW–Madison
Some thoughts about genomic selection and replacement heifers on an October morning... Genomic selection has revolutionized dairy-cattle breeding in the past seven years, with more than 1.1 million animals tested to date in North America and more than 30,000 new calves tested every month. For those that are selling e l i te b re e d i n g s to c k , ge n o m i c te s t i n g i s a Kent Weigel no-brainer. But what about the 99 percent of dairy farmers who are focused on selling milk? The most obvious use of genomic information, and the one that provides the most immediate payback, is the decision of whether to keep or cull a potential replacement heifer at weaning. Due to improvements in cow comfort and transition cow health, along with the availability of sexed semen, many dairies have excess heifer calves. Culling a genetically inferior calf that is unlikely to improve your herd’s bottom line
Genetic testing is a tool to consider when making culling and marketing decisions.
two years from now can generate some income today (enough to cover the $40 to $50 genomic test of the calf and several of her herdmates), as well as future savings in feed costs, manure handling, housing space, and breeding and veterinary bills. But, is this technology for everyone, and how should you use it? The first question is: “What is the genetic level of my calves and heifers?” If the answer is that most are at or below breed average, then you should seriously consider investing in
semen from higher quality bulls first. At minimum, you should use bulls in the 75th to 90th percentile, at least $450 to $500 Lifetime Net Merit for Holsteins or $415 to $475 for Jerseys, and hopefully a lot higher. Don’t be afraid of young, genometested bulls with lower reliability values – their high genetic merit is worth the risk. A good rule of thumb is that the reliability of the average of three genometested bulls is equal to that of one progeny See GENOME, on page 12
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12 November 2015 • PDPW • Dairy’s Bottom Line
Genome Continued from page 11
tested bull, so just spread the risk over three times as many bulls. And if you’re worried about calving ease, just use genome-tested bulls that are a year older and already have calves on the ground. The next question is: “Do I have extra heifer calves, and if not, am I willing to invest in sexed semen to create a surplus?” If no, then nothing will be gained by genomic testing, at least in terms of culling decisions. If yes, then you have an opportunity to make more informed decisions with genomic testing. If you only want to cull the bottom 10 percent to 15 percent of your calves, then it probably makes sense to test only the bottom half, assuming their pedigree information is complete and accurate. On the other hand, the extra investment in testing all of your calves will allow additional uses of the genomic test results. Decisions such as whether or not to mate a certain heifer or cow with sexed semen (if she is good) or beef semen (if she is not), or which potential mating sires will lead to less inbreeding and reduce the chance of a lethal genetic defect, can provide additional returns several times throughout the life of an animal once she’s been tested. Based on data from more than 800 animals at UW-Madison and a nearby commercial farm, heifers that ranked in the top quartile, based on genomic predictions, as calves produced 5,000 pounds more 305-day mature equivalent milk in first lactation than their herdmates that ranked in the bottom quartile. That’s a huge difference, and one that we knew about
two years earlier! There is no single recipe that will work for every farm. Your herd replacement protocol should be specific to your goals, and it should address very clearly if, when, and how you will: 1) Use sexed semen to generate extra calves from above-average heifers or cows 2) Use beef semen to generate feeder calves from below-average heifers or cows 3) Use genomic testing to cull the poorest heifer calves 4) Use genomic testing to identify optimal mating sires Your protocols should also spell out your sire selection criteria in detail, to ensure consistent genetic progress. Assisted reproductive technologies, such as ET or IVF, might come into play down the road if you identify a truly elite heifer through genomic testing, but it’s important to walk before you run. Lastly, if you decide to invest in genomic testing, make sure you use the results in every way possible to improve your farm’s bottom line. This seems obvious, but last year I was asked to consult with a farmer who had stopped genomic testing because it wasn’t working on his operation. Upon reviewing the farm’s records, the problem was clear – he hadn’t used the genomic information in any breeding or culling decisions and was essentially ignoring the results. Genomic testing isn’t a magic bullet and it isn’t for everyone. But it is a technology that will allow you to identify, accurately and at a young age, the groups of animals on your farm that are the best candidates for various breeding, culling and management actions. If you make the investment and use the results wisely, you’ll make slightly better decisions each day, and this can add up to significant profits in the long run.
November 2015 • PDPW • Dairy’s Bottom Line 13
If you have the heart of a leader and the mind of a manager, this event is for you
2016 Managers Academy to raise lid for leaders insight to raise that lid. Developed by the Professional Dairy Producers®, this unique business training is designed specifically for CEOs—dairy owners and managers, industry directors, processors, marketers and distributors—and provides a format where professionals from throughout the food system and across the country can gather to grow and gain a specialized edge to proactively position the security of their business’ brand. Dates of the executive-level training are Jan. 19-21, 2016. The location is in warm and sunny San Antonio, Texas. Because management and conflict go hand in hand and unresolved conflict can result in loss of productivity, Day 1 of See ACADEMY, on page 14
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In his book “The 21 Irrefutable Laws of Leadership: Follow Them and People Will Follow You,” leadership expert John Maxwell states, “Leadership ability is the lid that determines a person’s level of effectiveness. The lower an individual’s ability to lead, the lower the lid on their potential. The higher the leadership, the greater the effectiveness.” Business coaches agree that, many times when owners, management or team leaders are stuck on a certain plateau, it’s not a reflection of their abilities but an indication that they have reached their “leadership lid.” The good news is that every leader’s lid can be raised, and Managers Academy for Dairy Professionals™ is the ideal place to obtain the tools and
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14 November 2015 • PDPW • Dairy’s Bottom Line
Academy Continued from page 13
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Managers Academy training will zero in on “Building Bridges.” Trainer Dr. Becky Stewart-Gross will share researchbased information and use small group interaction and learning activities to help parBecky ticipants recogStewartnize conflict, Gross understand its nature and the five myths surrounding anger and conflict and provide the tools and information to resolve conflict. Tuesday evening’s dinner speaker, Charlie Arnot of the Center for Food Integrity will address the need fo r i n d u s t r y Charlie Arnot transparency, which he calls “the new currency of trust.” With consumers skeptical of dairy farm processes, Arnot will provide insights into consumer expectations, and more importantly, what can be done to
increase transparency that builds consumer trust in today’s products and processes—and a company or industry brand. Day 2: Glean Ideas for Outside Industry Day 2 of Managers Academy will take participants out of the classroom, on the road and into three very different out-of-industry businesses. These tours are not your typical tourist venues; they are insider-only stops where participants will interact with management and examine the business from conception to current challenges and successes. Stop #1 will be HeartBrand Beef Inc. that has developed a niche market for its highly marbled Akaushi beef. Aligned with its vision to “create a world where beef can be enjoyed without compromise,” this small business focuses on the farmto-table concept; markets high-quality cuts of beef, as well as heart healthy beef sausages, to high-end restaurants and grocery stores and discerning consumers; and conveys their story directly to consumers. In an effort to build consumer confidence, they also bring chefs and consumers to the ranch to see their cattle,
November 2015 • PDPW • Dairy’s Bottom Line 15 hear their story and connect with animal agriculture. Stop #2 will be a family-owned business that grows and provides its customers with fresh, high-quality mushrooms year round. Kitchen Pride takes the mushroom business from A to Z—not only growing the mushrooms but delivering its fresh mushrooms daily to many Texas markets using its own trucks. This family knows the devil in is the details, takes quality-control to the max and builds consumer trust via sustainability and other values that speak to consumers. Stop #3 will be the Tejas Rodeo Company that has numerous entities: a rodeo, live country music and dancing venue, mechanical bull riding, horse boarding, riding lessons, cowboy church and even a restaurant. Managers Academy participants will learn what led the Tejas Rodeo Company to expand from its start as a rodeo for the public to other venues— and how this business uses its rodeo to not only entertain rural and non-rural audiences of all ages but to educate and inform the public about the uses of animals in their show.
D ay 3 : B e i n g C r i s i s Prepared Leadership abilities are in greatest demand when the situation is most confusing, uncertain or unknowable, and few things in life are more confusing, uncertain and unknowable than when a crisis strikes. To function in this uncertain world, leaders have to be able to see a larger picture and see the crisis from others’ eyes. Leaders must be able to act as quickly as possible and move with confidence and skill. All of this requires conducting advance work in order to minimize damage. Day 3 of Manager Academy
will put dairy executives back in the classroom with public relations and crisis manageLinda m e n t g u r u s Basse Wenck Linda Basse Wenck and Jane Duke, both with MorganMyers. This duo will prepare dairy executives so they can handle a crisis rather than it handling them. Managers Academy participants will gain the information and skillset to know what to say and do when a crisis hits, plus will learn how to say it and to whom to say it.
The 2016 Managers Academy isn’t for everyone. It’s dairy business training of Jane Duke the highest caliber and is specifically for individuals owning or managing a company or team within the dairy industry who want to acquire critical competencies needed to drive their business forward—and remain sustainable in a crisis. The academy is limited to the first 100 registrants. Visit www. pdpw.org or contact 800-9477379 for more information.
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