Banks forecast 25c/l milk price in worst case scenario
Published 23/09/2015 | 02:30
The main banks are gearing up for a worst case scenario of a 25c/l milk price in 2016.
Glanbia cut their milk price by another 0.5c/l to 25c/l before a member's 1c/l bonus is included. Arrabawn also dropped their price under 26c/l, while Dairygold held at 25.5c/l.
It leaves just Lakeland Dairies and Kerry at 26c/l or higher, while Carbery continues to pay north of 28c/l.
An indication of how seriously the financial institutions are taking the downturn is the insistence by Ulster Bank that farmers use a projected milk price of just 25c/l in their cash-flow projections.
"This is really a worst-case scenario where we are testing the resilience of the enterprise," said Ulster Bank's agri manager, Ailish Byrne. "Even if a farmer is losing money at this price, we are open to working with them - provided it is the milk price as opposed to inherent inefficiency in the business."
However, Ulster Bank is taking a more positive view on medium to long-term financing, with a base milk price of 28c/l, excluding VAT, milk solids and hygiene bonuses.
Bank of Ireland are working off a milk price of 30c/l for land purchase loans, but it is slightly more optimistic for 2016, using a base milk price of 26c/l for cash-flow calculations over the next six to 12 months. While its head of agri, Sean Farrell, acknowledged that some enquiries were beginning to flow from farmers about their refinancing options for next year, he said that most farmers were in a good place financially this year.
"CSO figures show that the average milk price was 31c/l for the first half of the year, at a time when grass growth was good enough to facilitate a 13pc increase in output with very little increase in cost at farm level.
"So overdraft levels are similar, if not better, than average for this time of the year, with many farmers utilising as little as 20pc of their overdraft facility," he said.
For farmers concerned about tight cashflow next spring, banks are offering capital repayment holidays.
"We accept that commodity price troughs are part of price cycles in farming, not because somebody is running a business badly. So we will be open to parking capital repayments for six to 12 months without changing the rates," said Mr Farrell.
Ms Byrne admitted that their Northern Irish branches have been busy re-financing dairy farmers.
However, southern branches had yet to receive many enquiries about refinancing from clients.
"Tax bills might create some pressure in October, but we're hopeful that the 70pc payment of the Basic Payment Scheme will ease that pressure point," she said.