Dairy: Challenging times demand rigorous financial planning
Published 27/04/2016 | 02:30
The average 100-cow dairy farmer will see an estimated €25,000 knocked off his milk cheque this year. Trying to deal with this level of income loss without some sort of plan is a form of madness.
The average spring calving dairy herd in 2015 had a gross output of 32c/l, costs of 20c/l leaving a net profit of 12c/l, excluding own labour, according to the Teagasc profit monitor results.
With current milk prices, this net profit figure looks set to be at least halved in 2016, unless costs are drastically reduced.
For the majority of dairy farmers there is very little "fat in the system" to cut, but this year, all bets are off and every item of expenditure has to be looked at.
Many items may be small in nature, but a lot of small cuts can add up, some may add risk to the business, but that risk needs to be assessed. Others may cause long term pain, but if the money isn't there, then it isn't there.
I've completed many cash flow plans for farmers, and in years like this, all lines on the cash flow plan have to be examined carefully.
The headings (in the panel opposite) give an example of a very basic example of a cash flow plan which most dairy farmers should be able to make an attempt at completing.
When completing the cash flow plan under the headings, firstly enter all the figures for 2015, then estimate as best as possible what the 2016 figures are likely to be. If the bottom figure is a large minus, then you need to go back up through each line on the table and identify some realistic changes/savings.