Dealing with cash flow issues due to a fodder shortage
Looking for fodder next Spring when an actual shortfall materialises is unlikely to be a good strategy.
When Teasgasc met with Department of Agriculture officials recently, they presented some stark results showing that grass growth rates collapsed from Mid June onwards, with grass growth falling to below half the ten-year average falling to below 30kg DM/Ha and substantially lower in some drier areas, particularly focused in the east and south of the country.
Less than 50% of farmers are satisfied that they have enough fodder stored for the winter, and only 11% of farmers believe they have more than enough from which surplus could be sold. Farmers have been eating into winter fodder stocks and buying additional meal to bridge the gap between demand on farm and the grass on grass available on farm. The current conserved feed availability on farms averaged 4.3 months, with individual farmers and harder-hit areas having less fodder saved for the winter.
The fear now growing with farmers is that they will need to continue to feed what would otherwise be destined as winter fodder over the next couple of weeks, as grass will take a few weeks to recover and build covers. There is also concern that stock will effectively be down on top of grass as quickly as it grows, meaning the building covers ahead of the natural slowdown in growth rates in October and November will not materialise and the winter feeding regime will kick in ahead of what would otherwise be the case. And although it's months away, it would be foolish to ignore the prospect of an extended wintering period, which would put demand on stored fodder reserves next Spring.
The mix of advice from Teagasc ranges from spreading watery slurry and the timing of application of nitrogen to sourcing fodder such as hay, straw and silage to extend existing stocks, and that advice is welcome, but there are also significant financial decisions that farmers need to balance. With cash flow tight as a result of additional feed costs, lower production and poor prices and heavy tax bills arising from last year, some farmers are as concerned about conserving cash flow as much as conserving fodder.
The key strategy here is not to ignore the problem. The first step is to quantify what feed you have on the farm at present and how that matches up with your expected farm feed demand based on your expected stocking of the farm over the winter. Teagasc have useful calculation sheets available online for free, but most Co-op sales reps are familiar with the calculations and can assist with working out your farm position.
If you have a fodder shortfall, you need to assess whether that shortfall can be managed with careful pasture management, extending the grazing season and hoping for an early turnout or whether the shortfall is more systematic and needs to be actively addressed. Looking for fodder next Spring when an actual shortfall materialises is unlikely to be a good strategy, as your own good fodder will be used up and bought-in fodder may not be readily available, may be of lesser quality than what you yourself have used and may be even more expensive than is presently the case if scarcity materialised on a widespread basis.
Knowing that your farm is facing a shortfall that is unlikely to be managed out with luck, the next question facing farmers is whether there is fodder available to buy at a value that will deliver a return – is buying poor quality bale silage at a high price a better alternative to offloading non-core stock, such as empty cows or underperforming stock. A good point of contact is your local silage contractor, who generally has a fair idea of what silage stocks have been made locally and who may have been carrying surpluses over from last year.
Your feed sales rep should also be able to work out what the value of silage is relative to concentrates combined with straw or hay, which will allow you to consider buying feed other than silage. It can be more economical to transport hay and straw longer distances than silage due to load sizes, and quality becomes less of an issue with the concentrates making up the main nutritional element. Where buying silage or hay or straw is seen as the optimal strategy for your farm but cash flow will be stressed as a result, then strategies around this need to be considered.
These can include obtaining a temporary farm loan such as a stocking loan, which can be repaid a year out from drawdown typically. It is also possible to refinance equipment over a medium term, typically spreading payments over five years that may have been bought out of cash flow last year. By refinancing, effectively one can get a substantial part of prior expenditure back, albeit there will be future repayments due and an interest charge for the privilege.
If you intend on running up farm credit, make sure that this is cleared ahead of time with your co-op, milk processor or merchant and that this does not come back to bite you where the milk cheque is retained in the coming months to offset against your credit. Contractors will be facing particular hardship this year due to significantly higher diesel prices and less throughput from reduced areas for second cut and third cut, and leaning on contractors for credit can unfairly put their businesses at risk.
Another option for farmers under cash flow pressure is to defer non-essential spending or restructure existing loans in order to free up cash flow, but check first with your lender as to whether any changes would affect your future credit rating. On the tax liability side, some financial institutions do specific finance arrangements to cover tax liabilities, allowing an individual to spread repayments over 11 months, which may be particularly useful this year given the relatively high tax bills arising from last year and the tighter-than-normal cash flow position that exists on some of the hardest hit farms this year.
