Cash flow warning as dairy slump continues

The challenge to generate enough cash in the business over the next few months was outlined for dairy farmers this week, as the global dairy markets slump continued.

Cash flow warning as dairy slump continues

Prices fell 1.4% at this week’s GlobalDairyTrade auction, despite a recent increase in New Zealand futures prices.

Whole milk powder prices edged up 0.7%, continuing to out-perform skimmed milk powder, for which prices fell 3.6%, to their lowest level since September.

IFA national dairy committee chairman Sean O’Leary said the minister for agriculture in the new government must immediately suspend farmers’ superlevy bills, and introduce interest-free cash flow loans.

Meanwhile, Teagasc dairy specialist John Maher has been advising Dairygold Co-op milk suppliers that the total feed and fertiliser bill for the year is about €30,000 to €35,000 for an 80-cow herd, including replacements.

“If we assume that 75% of these bills have to be paid during the summer months, this amounts to about €6,000 per summer month.

“If 48,000 litres of milk are sold on average each month in the summer, at a 24c/litre milk price, the milk sales will be worth about €11,500 per month.

“This will leave about €5,500 to pay bills, cover living expenses and meet loan repayments.

“A family of two adults and two kids (under 13 years) requires on average € 3,500 per month to live on.”

Therefore, only €2,000 per month is available to pay other bills or meet loan repayments.

He advised every farmer to focus on improving their cash flow, and highlighted “cash providers” and “cash killers”.

Cash providers include selling surplus stock; acquiring a ‘seasonal’ loan; and retro- finance (banks will examine the possibility of re-financing some farm investment from last year or longer if cash flow was used to finance this investment).

Cash killers include capital expenditure on buildings/ machinery etc.

Purchasing a young bull (under two years) costs €2,000 plus, and this bull can only cover about 15-20 cows, whereas one round of repeats for 20 cows will cost about €200-300).

Other cash killers are reseeding (10 acres costs €3,000); or feeding 4kg of meal per cow when 2kg will do to cover minerals, Cal-Mag, etc, and produce 30 litres per cow with grass.

This will save €4,000 over the next three months in an 80-cow herd .

Spending €1,000 on scanning and fertility treatments is easily possible in an 80-cow herd (whereas the biggest improvements in cow fertility have come from the fertility sub-index in EBI, not from cow treatments).

In his cash flow advice to Dairygold Co-op milk suppliers, Mr Maher said fertiliser prices appear to be decreasing, but the level of ration fed has probably increased so far.

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