How to cope with the impact of falling milk prices
Published 29/07/2015 | 02:30
With milk prices under pressure, I can't help but feel that farmers' milk incomes will be significantly affected next year, never mind the remaining milk months of 2015.
While most dairy farmers have accepted that milk incomes will be tight for the foreseeable future and have made some small changes to spending especially in areas such as capital expenditure or repairs and maintenance, the extent and duration of this price fall is still unknown.
The potential short and long term impacts of this low milk price will very much depend on an individual farm's efficiency, cost of production, business scale and structure, debt servicing and drawings requirements. If you are already feeling the pinch and are wondering where adjustments can be made, here are a few dairy farm business health checks to consider.
1 Cash is king
Protect your working capital. Working capital is the difference between current assets (often in the form of cash and stock, but these can include machinery, surplus silage etc.) and current liabilities (such as merchant and co-op debt, unpaid bills and overdraft).
If you are prudent, the current assets and liabilities can be managed in such a way as to provide a financial cushion in the lean times.
Selling surplus stock above your replacement needs is an example of how a farmer can provide a buffer to working capital.
And back in the days when we were getting 39c/l, it would have been good practice to operate without an overdraft, and to have aimed to bank potentially €200 to €250 per cow by the end of the year.