Dairy farmers: How to handle finances as milk prices set to fall
Dairy farmers who are facing into a drop in milk prices need to prioritise spending in areas that are key to the dairy business, according to Tom O’Dwyer, Teagasc Dairy Programme Manager.
He says the key is for farmers to first look at the fundamentals of their own farm and farm businesses.
“Don’t worry about your neighbour and what is happening around the country.
“Look at your own situation and your own bank balance,” he says.
O’Dwyer advises farmers to take each month at a time and to take their current account balance today as a starting point.
“Farmers should be able to put a reasonable stab at the (upcoming) milk price and should then add in stock sales during the month and, if no money is out going, that would be the current account without bills.”
O’Dwyer said dairy farmers should be in surplus at this time of the year, but need to plan the remainder of the year.
“If your accounts for last year are not finalised, do it now and do preliminary accounts for 2015,” he says.
“Farmers need to figure out what the total milk cheque could be for the end of the year, and then look at the expenses for the year and figure out if your profit will be down at the end of the year.”
If profit will be down this year, then the tax bill will probably also be down, but get your head around it now, he advised.
“Don’t wait until October.”
Where to cut costs
In a low milk price situation, O’Dwyer says dairy farmers need to prioritise the key elements of the dairy business.
“You have to feed cows.
“However, we would say that at this point of the year and onwards there is scope to save on concentrates”.
O’Dwyer says farmers should have enough grass to feed the cows as its beyond midway in the lactation.
If you have 100 cows, you can save 1kg a day, by seven days, by four weeks = 3t of meal saved.
“That adds up for a couple of months,” O’Dwyer says.
According to O’Dwyer, saving on fertiliser should not be an option most farmers look at. “People have to spend money on P K and Lime or it will hurt them in the long term.
“You can’t save in the short term on this.”
But he said dairy farmers need to question what the money from the big milk cheques is being spent on.
“Dairy farmers talk a lot about not having a substantial milk cheque till March. But they need to recognise that and make sure they have a reserve.
“Dairy farmers make a lot of money with May to October milk cheques, so you have to put some of that aside for when milk prices fall.
“In a good year on dairy farms, the repairs and maintenance are done in the second six months of the year, as farmers are too busy in the first six months. But, this year, that won’t happen in a lot of cases and that’s how they will can back some of the drop in milk price.”