Maine Farmcast Episode 14: Dairy Financials and Breakeven Milk Price with Joanna Lidback
On this episode of the Maine Farmcast, Dr. Glenda Pereira, assistant Extension professor and state dairy specialist for the University of Maine Cooperative Extension, has a conversation with Joanna Lidback, CFO for Adirondack Farms and the principal consultant for Adirondack Management Services. Joanna is a Certified Agricultural Consultant and has over 20 years of experience in dairy financial analysis with a background in agricultural credit and consulting. She holds an MBA from the F.W. Olin School of Management and a B.S. from Cornell University. Joanna and her husband Adam started their own dairy farm in Northern Vermont, and are raising their three children there.
Episode Resources
- Learn more about Joanna Lidback
Transcript
Glenda Pereira: 00:29
Welcome to The Maine Farmcast. This is your host, Dr. Glenda Pereira. I’m an assistant Extension professor as well as a dairy specialist for the University of Maine Cooperative Extension and an assistant an assistant professor within the school of food and agriculture. Today, I have the pleasure of speaking with Joanna Lidback, who comes to us from Vermont and from Adirondack Management Services.
Glenda Pereira: 00:54
Joanna will be talking to us about dairy financials and breaking down cost of production. Joanna, would you introduce yourself to our listeners?
Joanna Lidback: 01:05
Sure. Thanks, Glenda. Happy to be here today. Looking forward to our talk. My name is Joanna Lindback. I live in Westmore, Vermont. That’s in the Northeast Kingdom. I am also CFO for Adirondack Farms and the principal consultant for Adirondack Management Services. My husband and I also have a small dairy farm of our own where we milk about 80 cows. We graze during the summer months and raise all our own replacements.
Joanna Lidback: 01:37
Also trying to strive for that sought after diversified income stream as well. I started my career, Farm Credit out of, Cornell, and I was there for 4 years as a loan officer. I went back and got my MBA. And then I found myself falling in love with a Vermont farmer and moved to Vermont, and sort of retooled my career at that point as well. I went into to consulting and was a, basically a a consultant trainee for a few years, before becoming a full blown consultant for Yankee Farm Credit in 2014.
Joanna Lidback: 02:20
In 2020, I joined Adirondack Farms and started Adirondack Management Services where I’m able to be an independent consultant, focus on dairy. Dairy is my passion. I love cows, and I also love the people who take care of the cows as well. So it’s a it’s a nice marriage of of those parts of my, my personality.
Glenda Pereira: 02:46
Okay, so thank you for joining us, and I know that listeners will, take a lot, away from our conversation today. So, would you tell us what is a favorite place or location that you have been to?
Joanna Lidback: 03:04
Yeah. So this maybe comes as no surprise, but when I was in college, I got to, live, study abroad and live for about 5 months in New Zealand, which is also known as the dairy export capital of the world. And so there were lots of cows there, lots more cows and people, but it was really cool to immerse myself, not just in a dairy industry in a in a different country, but also, of course, in the culture there. It was just it was a really a great time. It’s beautiful.
Joanna Lidback: 03:41
You get a lot of different types of climates really and topography in a very small place. So it was really cool.
Glenda Pereira: 03:53
So in regards to today’s topic, so you’ve mentioned a little bit about your background and kind of how you got in into this space. Having so much knowledge about the northeast and specifically, you know, our our our, like, our market, our production, setting. Right? So we’re we are predominantly a fluid market. Would you just give us sort of, like, the cliff notes about the northeast, as it compares to maybe the other parts of the country?
Joanna Lidback: 04:28
Yeah. So the northeast so it’s interesting that you say that it’s a primarily fluid. It actually so I know that the joke out there is you could find all five people in this country that understand milk pricing and put them in in a room together. That’s how few folks really understand it. But the reality is, you know, you can take pieces and parts of that and start to break down and figure out that the thing is, it’s not just about fluid milk.
Joanna Lidback: 05:05
It’s not just about milk in terms of of pricing. We’re paid based on what our milk is used for, which, yes, there’s a component of that. That is fluid milk that goes into jugs, you know, that that that is that is used, in schools, that kind of thing. This it also goes into cheese, butter, ice cream, yogurt, whey, you know, dry products. It’s it’s so it’s pretty it’s pretty comprehensive list.
Joanna Lidback: 05:34
That said, you know, we have our 4 class blend price, class 1, 2, 3, and 4. And, you know, used to be one of my previous roles as knowledge exchange director of knowledge exchange. I would follow, you know, how that utilization changes over time. And we when I first started in this in in as my career, I should say, so so the early 2000, we had about a 40% utilization of class 1 milk, which is the fluid milk, the stuff that goes into into fluid products. And, we are usually hovering around 30%, but I know that we have dipped under 30% a few times.
Joanna Lidback: 06:22
And so that is still a bit of a benefit. It was a bigger benefit, obviously, when we had a higher percentage going to fluid milk, only because, the class one price is usually the highest price. I mean, it is the highest price. So when you blend that price with the class 2, 3, and 4 prices, it can sort of give us a little bit of a lift, here in the northeast. And not to complicate things, but class 1 is usually traditionally, it had been based on the higher of class 3 or class 4 pricing.
Joanna Lidback: 07:05
There’s a bit of a change where they changed it. Instead of the higher up, they did did a blend and average of the class 3 and 4, plus to to to come up with the class one price. But that really hasn’t worked out in the northeast favor. And it really we haven’t really seen, I think, the, the innovation and marketing and and and, new product development that I that was intended to to try to by by coming up with that sort of scheme. So there’s been an effort to try to bring back the higher of pricing, class 3 or class 4, and I believe that we are getting that through in our, in our advocacy work
Glenda Pereira: 08:05
so that we may see that again. And so, sort of transitioning a bit, in in your, professional role as a financial adviser, I kind of wanted to, sort of, paint a picture of what your work has entailed in working with Northeast Dairy Farmers, and sort of break you know, walk us through what the cost of production is like, within the northeast, and obviously keeping, you know, just things general. What what is this cost of production metric that we hear about quite often?
Joanna Lidback: 08:52
One of my former colleagues at Farm Credit, was just a great branch manager. I loved visiting with him, but he always loved to raise these questions that make you think. And he’d say, Joanna, what is a cost of production on a dairy farm? And the first time he asked me, I sort of launched into, you know, the specific mechanics or definition of what cost well, it’s your you know, all of your inputs and, you know, and and and and there’s various, you know, different ways to look at it. Net cost of production or, your variable cost, your fixed cost.
Joanna Lidback: 09:37
And he was like his point was, we don’t have really a uniform way of looking at cost of production in the dairy industry. And so what I’ve come up with to say is, like any good economist, well, it depends. Right? But the devil the devil is in the details in that, you know, there are different ways to measure the cost of production on dairy farms. I feel like just talking about cost of production sort of misses another opportunity in the way of non milk income.
Joanna Lidback: 10:23
Oftentimes, I will either talk net cost of production, which essentially gives you credit for non milk income, or breakeven milk price. Breakeven milk price I like. I think it’s the most practical. It’s a cash number. Net cost of production typically, includes depreciation, which is also very important, but you don’t write a check for depreciation.
Joanna Lidback: 10:48
And and typically when you’re when I’m starting with folks, I really want them to get a good feel of what that check writing number is and what is required to cover it between the milk check and everything else that comes through the checking account, whether that’s cocoa sales, beef cap sales. I mean, those those have been huge this year. Or maybe it’s, you know, a maple syrup, you know, segment or a patronage from a cooperative they belong to or it’s an off farm job. I know there are a lot of folks out there in academia, in some of these NGAs, and and and just pure economists who who want to delve into the finances of a farm and the economics of a farm and and how many people or families can it really support. But the reality is people don’t necessarily get into dairy farming for economic reasons.
Joanna Lidback: 12:02
It’s usually a labor of love, a family legacy, a dream. You know? They they love the land and the cows, or maybe they’re really good at at making cow feed, cow crops. You know? And so that’s kinda where where I start.
Joanna Lidback: 12:22
I try to meet people where they are and figure out where to shine the light first in terms of what what needs some focus or, attention.
Glenda Pereira: 12:36
Yeah. And then and then to continue on that, so you’ve given all of our listeners a very good tip. Maybe instead of using or calculating cost of production, looking at their breakeven milk price because especially a lot of farms in the northeast, they have diversified and they have quite a bit of non milk income. So what are some of the other elements if folks want to calculate their breakeven milk price? And these are actually shared from Joanna, so I know operating expenses is on the list, other family incomes, principal payments.
Glenda Pereira: 13:15
We already we already covered non milk income, and then obviously your milk check.
Joanna Lidback: 13:20
One of the coolest things when you start getting into, building budgets from the bottom up using breakeven milk price. You know, I’ve had a few times where people over the years have taken on this additional diversification diversification project, and I’m loathed to to say what it is, but maybe it’s maybe it’s, you know, doing a value add product with milk. Maybe it’s making yogurt or some kind of butter or cheese. I’ll just throw them all out there so you know. But, the reality is it’s a lot of work and if it’s not a high margin item, you have to move a lot of product too.
Joanna Lidback: 14:11
And sometimes you find the juice isn’t worth the squeeze, you know, that you would be better served to focus on, you know, the day to day of the farm and of the dairy farm and the cows and making sure that they’re, you know, getting bread back on time and they are you know, all the little things, you know, feeds getting pushed up adequately, and, you know, you’re reviewing diets with your nutritionist. There’s really no there’s no magical equation. There’s no there’s no it’s not about luck when farms are dairy farms are successful financially. It’s just they don’t just do the big things right, but they they also pay attention to all the small things too. My business partner and I talk about the underwowing method of management because management itself is oftentimes not glamorous.
Joanna Lidback: 15:23
It’s not it’s it’s not fun sometimes. Let’s be honest. But coming up with systems that work and keeping on top of the details oftentimes will lead you to wow results. You know? And it’s important to recognize that and to to to to take in the fact that you did accomplish a goal or you did, you know, whatever whatever it is, that you did do it so that those grueling, underwowing, non nonexciting days of whatever the case may be, you know that it’s worth it.
Glenda Pereira: 16:09
Yeah. I really like that. So making sure I I think some of the things that you said, you know, focusing on the small stuff that adds up to the to the large stuff. And I think there’s a saying that you had mentioned earlier. How do we tackle this, you know, financial aspect of dairy farming?
Joanna Lidback: 16:32
Oh, yes. Right.
Glenda Pereira: 16:36
Financial aspect of dairy farming.
Joanna Lidback: 16:38
Right. So there’s, you know, no two farms are the same. There are people in various stages of the financial acumen spectrum, if you will. And whether this stuff completely overwhelms you or you’re in a position where you are short on cash, you’ve got a a high level of current liabilities, whether it’s your accounts payable or or out of control or or whatever it is. There’s only one way to eat an elephant, and that’s one bite at a time.
Joanna Lidback: 17:19
So just pick a place to start and get going. You know?
Glenda Pereira: 17:24
No. Absolutely. And I think making it relatable is how folks will remember this. Right? You said, you know, taking one bite at a time and no two people are going to, you know, like, let’s say metaphorically speaking, if we were to eat an elephant, you know, we’re not gonna start eating from the same section.
Glenda Pereira: 17:44
So, like, you mentioned some folks, might be in this space in their financial journey. Others might be in this other space, and so just starting wherever you’re at and picking a part at it is, the best strategy to to kind of tackle this. But what are some strategies to lower their breakeven milk price?
Joanna Lidback: 18:07
Sure. So so for lowering breakeven milk price, the first place I start is well, generally speaking, the thinking about the 5 keys profitability. That first one is capacity that we’re talking about before. Is so capacity or sorry, gross sales. You know, making sure that there’s sufficient 100 weights going out the door.
Joanna Lidback: 18:33
Right? Capacity is another one. Are you is are are all your stalls filled? Can you operate with a little bit of, higher stocking density? You know, those kinds of questions.
Joanna Lidback: 18:51
But, usually, when we’re talking about costs themselves, which cost control is one of the keys to profitability, you have to start with the biggest one on a dairy farm, which is feed costs. Making sure that your feed cost per 100 weight are in line with a benchmark or with, your own results from previous years, whether that’s, you know, improving or, you know, whatever the case may be. Or making sure that, you know, getting back to the juice being worth the squeeze, if your feed costs are a little higher, does your milk income support that? Right? Are you getting you know, do you have a a pretty a high component corrected 100 weight, where you’re getting a higher dollar value per 100 weight so you can afford to spend a little bit more in feed cost per 100 weight.
Joanna Lidback: 20:00
Another way to drive down breakeven milk price is, you know, we talked about non milk income. And just as long as it’s not taking you away from what you’re needed to do with the cows and the in your in the farm. The the main sort of, you know, spoke of the or the main hub of the of the farm. You know, make sure that you’re you’re you’re maximizing that income. I and then the other thing too is family living costs.
Joanna Lidback: 20:38
I mean, we’ve all seen the the headlines about inflation. We’ve all been paying our grocery bills over the past year and a half or so. And while it’s slowed down a bit, it’s it’s still a real thing. And this is an area that is a very sensitive subject and folks get kinda awkward about because nobody wants to tell someone they are, you know, spending too extravagantly or, you know, really get into their business in that way. But certainly, again, there are benchmarks out there if if you’re curious about where your, you know, your your home finances, how they line up, with others in the industry.
Glenda Pereira: 21:28
Okay. Yeah. No. I think those were that was good advice on how to, potentially lower your breakeven milk price. And so in your role as a dairy farmer yourself, what are some of the practical things that you’ve learned that maybe you can share with other folks about how to go, you you know, even even just head in that direction.
Joanna Lidback: 21:54
Things I learned as a consultant that I have applied in my dairy farmer, my dairy farm role farmer role is, remembering the 5 keys of profitability. And the first one we always talk about is gross sales. So, basically, the idea is you have to have enough on the top line of the income statement. You have to have enough whether that’s through production volume or price, which dairy farmers typically don’t set their own price so that’s why we focus so much on production to in order to, you know, pay all your bills. Like if you’re not shipping enough milk to cover your overhead that’s not a good situation.
Joanna Lidback: 22:50
So, finding that I don’t want to say sweet spot that sounds too corny, but finding that space, I guess, where you’ve got enough milk in the tank to cover, you know, to cover all of your bills and and also sort of, like I was saying earlier, you know, balancing out how many grain checks you’re gonna get in a month is is really helpful.
Glenda Pereira: 23:18
And then as we near the the end of our conversation, Joanna, is there a, you you know, a free tool that you use or that you recommend for farmers to use that can help improve their bottom line?
Joanna Lidback: 23:29
I started this blog called dairy dividends dot com to for this very purpose. Right? For for helping others in my industry, folks who, you know, just maybe need a little help or guidance from time to time, and it covers a whole lot of different, topics. And I do share free tools on on there from time to time. If I have a breakeven milk price worksheet calculator, and if anybody who’s listening would be interested in that, I’d be happy to send it If they want to go to dairy dividends.com and send me a message through there, I would be more than happy to send it along.
Glenda Pereira: 24:18
Just so you know, Joanna, my next question was gonna be how could folks reach out to you or learn more about the work you’re doing? So you already, beat me to the punch. Thank you so much, Joanna, for joining us today on the main farm cast. I joined our conversation. I know that listeners, have lots to think about when it comes to dairy financials.
Joanna Lidback: 24:43
Yes. Awesome. Thank you.
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