Cash flow warnings on milk price fallout

Supplies two years ahead of 2020 targets but some operations will struggle to stay 'afloat'

Expanding herds are presenting mounting credit costs.
Expanding herds are presenting mounting credit costs.
Louise Hogan

Louise Hogan

Dairy farmers have been warned that cash flow problems could hit many farms next spring, as expanding herds present mounting credit costs.

Teagasc warned that available cash on farms may become tight in the busy months ahead, and agriculture consultant Mike Brady urged farmers to plan now and consider their finance options.

The warnings come as figures show that the country's dairy sector is racing ahead of projections this year, and is now expected to hit the targetted 50pc increase in Food Harvest 2020 plans two years ahead of schedule.

Dairy farms will deliver 6.2bn litres of milk this year - a massive 1.1bn litres more than baseline produced in 2009. Some of the biggest increases are coming in the back-end, with a 16pc rise in milk flowing through the pipes of the creameries during September compared to last year and some processors reporting a 30pc in October.

Dr Pat Dillon, head of Teagasc Moorepark said that the initial 50pc of the projected increase in milk supply will be relatively easy to achieve and that's reflected in this year's growth figures.

"We could expect a 6pc increase this year, with a 4pc to 5pc increase in the following years" said Dr Dillon. "Based on our milk solids we look set to achieve the target by 2018."

Ireland's milk production surged by 9pc up to August this year on 2014, with the UK recording a more modest 1.5pc growth, the Netherlands up 4pc and Germany up by less than a percentage point.

However, Dr Dillon cautioned that low milk prices could curb growth as farmers may "lose confidence", while weather conditions will also be a key factor.

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The Teagasc dairy expert described 2015 as a "relatively good year" with a combination of strong grass growth delivering good solids and farmers receiving a higher prices early in the year.

However, he said that next year dairy enterprises would be starting from a low base, with depressed milk prices, which was "going to be difficult".

Independent dairy consultant Mike Brady said the 2009 experience when milk prices collapsed to 22c/l-23c/l showed that it is spring time when the impact of lower milk prices really hit home.

This year farmers have benefitted from the mild October weather delivering strong grass growth. This has helped farms postpone dipping into winter forage stocks.

The low base milk price means some farmers have deferred paying part of their bills, which means they may face larger repayments during the busy calving months of spring.

"Throw anything extra into the mix - diseases in calves or the young fella crashing the car - and it can be the tipping factor," said Mr Brady.

"You can look at all the key performance indicators you want but when you roll it all in, the only figures that matter - whether you're milking 30 or 630 cows - is the surplus or deficit of cash projected for next year. "That is all dairy farmers need to know."

Mr Brady said situations where farmers experience mental health issues over financial difficulties were rare.

"I've a Samaritans number in my phone and I haven't had to use it often, but it has been handy to have it on a few occasions. You have an obligation to pick up the phone to ring someone to get them help."

Teagasc dairy advisor James Mullane urged farmers to plan ahead to keep on top of their bills to "keep the whole operation afloat", and avoid damaging their credit rating.

"You need approximately €300 a cow either in a current account or an overdraft facility for next spring," he said, adding that the figures can depend on the size of the farm.

All the advisors' highlighted options to aid farms and cut down on expenses.

These include identifying cull cows and offloading them rather than finishing them and potentially reducing stocking rates if milk prices remain low next year.

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