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Thursday 8 December 2016

Dairy: Some advance planning now will ease the calving burden in January

Mary Kinston

Published 16/12/2015 | 02:30

Sucklers well stocked up on the Cass farm, Abbeyleix, Co Laois. Picture: Alf Harvey/HRPhoto.ie
Sucklers well stocked up on the Cass farm, Abbeyleix, Co Laois. Picture: Alf Harvey/HRPhoto.ie

My children have written and posted their letters to Santa listing the presents they are hoping for.

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My personal Christmas list is always a list of jobs to be done over this quieter period so we are set up for the spring, and the onslaught of 2016 calving. I find this very useful - and important - because it's very easy to get in the holiday mode once the cows are dry.

With all these distractions, the end of January arrives rather quickly and with calving looming there's an urgency to have the system set up once again. So some advance planning certainly helps in our preparations.

Top farm priorities for me during the dry period is the timely dosing and vaccination of stock, maintenance and a thorough cleaning of the parlour and dairy, and preparation of the calving and calf-rearing facilities.

I think there is nothing better than being able to put a freshly born calf into a clean and bedded pen where feeders are clean and ready for use with everything you need being where it's needed.

However, even when you think you are ready you may still find yourself rushing around trying to find a stomach tube or flutter valve for example.

Unfortunately, at this time of year there's also a big list of paperwork to be done. Getting the accounts up to date and finalised for January analysis is a job that I insist on each member of my discussion group completing.

While we could all leave this up to the accountant, when you're looking down the barrel of a base price of less than 26c per litre, knowing what it costs you to produce a litre of milk is crucial.

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Even though it's not the norm yet, an even more important figure is what it costs you to produce a kilogram of milk solids (kgMS). The price paid per litre varies so much on the back of milk solids, that the return per kgMS would be a more robust comparison between farms.

Once 2015 figures are completed and the assessment of your position made, the next crucial step is to do the 2016 budget.

However, before you take this step, there are a few key questions that are often overlooked.

When you analyse a farm's profitability, you are assessing the enterprise's cost of production or profit, either per litre, per kgMS, or per hectare. However, the farm's cash-cost or cash-surplus are actually quite different figures when compared to profitability. Unfortunately for most, it's the cash that matters most.

Therefore, I recommend that you make yourself very familiar with the costs of the business below the line of profitability. These items include the annual cost of debt servicing, the true cost of personal drawings including all household costs, and the money spent on health and life insurance, pensions and savings.

Tax bills

The annual tax bill must also be considered, along with the amount spent on capital investment items on the farm in the last year?

Finally how much debt do have you outstanding with coops and merchants, and on December 31 how much of an overdraft or credit line will you have used? All these items come below the line of profitability. So while a business may look very profitable, it is these items that will actually determine whether a business is cash-rich or (like many) cash-poor.

All of these items can also be considered in terms of cent per litre or euro per hectare to make you aware of cash costs for 2016. When creating a budget, being aware of these figures is crucial as they must be paid for by the business, and they can determine whether a business will close the year with more or less debt with the coop, merchants or a higher or lower overdraft level.

When cuts to a budget are needed the only item here that can be cut substantially is money spent on capital investment. Truth be known, overspends on capital items are often the cause of cash-flow pain, having limited the cash surplus of many dairy farmers in the years leading up to, and even during 2015. With a low milk price almost certain for 2016, zero capital spend should be a consideration for all.

For those considering expanding the farm's debt through increased working capital loans, co-op or merchant debt, or bank overdrafts, serious thought should be given to re-jigging some of the on-farm investment that may have been made out of cash-flow in recent years.

For example, the likes of sheds can be retrospectively financed over a 10-15 years.

Mary Kinston is a discussion group facilitator and consultant farming with her husband in Co Kerry

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