Ulster Bank tells farmers to plan for 22c average for milk in 2016
The bank’s senior agricultural manager, Dr Ailish Byrne, said: “We do not know that milk prices will fall to that level, but we would hope that this was the bottom of the cycle.
"We are asking farmers to prepare for a worst-case scenario and to look for support at that level for a full 12 months.”
She was speaking at the recent Joint Oireachtas Committee on Agriculture, Food and the Marine dairy industry discussion with bankers, who warned of dairy farm cash flow difficulties in 2016, but said the farmers were doing OK financially so far in 2015.
Allied Irish Banks head of business banking Ken Burke said their dairy farmer customers remain well positioned.
For every euro drawn on dairy farmers’ overdrafts in AIB, there is a multiple of four times cover in terms of cash held and surplus cash in other current accounts or deposit accounts.
“Average overdraft utilisation was at 24% during October 2015 and credit balances were up 32% year on year.”
He said outstanding loan balances in the agriculture market reported into the Central Bank were down to €3.3 billion earlier this year, having peaked at €5.5bn in 2009.
“We are asking our farmer customers to complete a cashflow forecast for 2016 and to anticipate where the pressure point will come and how we need to deal with it.”
“If we are giving a period of interest-only payments or a payment holiday, we are not re-pricing those facilities.
"They are offered at the existing price.”
He said phasing superlevy bills over three years and paying a significant advance on direct payments helped alleviate cash flow pressure.
“We have been working to support those farmers with high tax bills to spread the cost over the year.
“We anticipate that, in the main, working capital pressure will not manifest on dairy farms until quarter one of 2016.”
“Market signals suggest the downturn could extend into the second half of 2016 and that recovery may not materialise until after the peak months of Irish production in 2016.
"We are encouraging all dairy farmers to undertake a cash flow plan for the year.”
Bank of Ireland managing director Mark Cunningham also anticipated increased requests for cash flow support during the first half of 2016, but said farmer overdraft utilisation levels remained very low.
“Our typical farming customer started this year in a stronger cash flow position than in 2014.
"They have overdraft balances of just 15% of their overall permission levels.
“We will again support them, as necessary, where we are comfortable with the overall viability of the farm.”
“The increased volume of production during the course of 2015 has compensated significantly for the reduction in price.
"We have not had to reschedule any loans at this juncture.”
Ulster Bank managing director of the commercial banking division, Eddie Cullen, said only a very small number of farmers, fewer than five, had contacted them so far with a view to accessing options such as increased working capital facilities, or an interest-only option.
