Profit: The Most Vital Part of Sustainability
I went to visit Mike McMahon, the farmer featured in our cover story, on the tail end of a family vacation in July. As my husband and I sat with him discussing sustainability, my two-year-old on my lap coloring as quietly as a toddler can, there’s one specific comment he made that I can’t stop thinking about. He said: “Profitability is the most important aspect of sustainability. If you’re not making money, what are you doing this for?”
Man, I was challenged by those comments. You see, we’ve had some black swan hiccups on our farm this year that will mean our profits will be extremely slim. And if I’m being really honest, there have been several times the past few months that I’ve wondered if the long days, late nights, people problems and creative bill paying is all worth it. A wise banker once told me there’s a difference between a cash crunch and a systemic business plan problem. Thankfully, we’re dealing with a cash crunch, but some of you are dealing with the latter.
Profitability is easy to figure out. You’re either making a profit or you’re not. Being honest with yourself about your financial situation is a lot harder.
“A majority of dairy farmers are finally profitable given the significant increase in milk prices but less than half have been profitable on a year-to-date basis,” says Sam Miller of BMO Harris, speaking of the farms in his portfolio. “More than half are now profitable on a monthly basis, which should continue for the balance of the year if market conditions hold.”
Milk prices are currently at levels not seen since 2014, and the dairy margin coverage and market facilitation programs should provide your farm an injection of cash. This is our time to mend balance sheets and fix cash positions.
“Act on scenario plans for improved milk prices - restore working capital, review and act on price risk management plans, and actively monitor cost and other metrics,” Miller recommends.
It’s also a great time to sit down with your lender and/or accountant to get really honest. Is your line of credit, which has likely doubled or tripled in the past five years, being used to bridge a cash issue or are you using it as a Band-Aid to cover a hemorrhage in your business plan?
Profitable dairy farmers don’t rely on higher prices to improve their financial situation, instead they make management adjustments to improve margins, Miller says. The biggest mistake made by dairy farms in Miller’s portfolio that aren’t profitable, is that they believe they are helpless.
“They act too slowly to adjust to market conditions, believing they can’t make many changes,” he says.
That’s simply not true. You have the power to control your business, you’re the owner after all. If you want your farm to be more economically sustainable, it’s up to you to figure that out.
It’s easy to think about sustainability in terms of water recycling or nutrient management, or you might even picture a methane digester. But for McMahon, who has become the face of sustainable dairy farming in the northeast, the most important piece of the puzzle is profitability. It’s the most important piece of your puzzle, too.