Signs that farm cash-flow pressures will ease, AIB
AIB, one of Ireland’s main domestic ‘agriculture’ banks, has said the cash-flow outlook for farmers is improving as output prices are and should remain strong, feed prices have moderated, energy prices have lowered somewhat, fertilisers prices look to have peaked and the weather is now much more favourable.
Speaking to Agriland, AIB agri-strategy manager Anne Finnegan noted the cashflow outlook is improving for farmers following an unprecedented and very difficult farming year as a direct result of the fodder crisis. In addition, she stressed that AIB’s doors are always open to farmers experiencing tight cash-flow difficulties.
When asked what was the average debt a farmer was carrying in AIB, Finnegan said it depended on the farmer and the region. ”Our market research indicates that only 50 per cent of farmers have bank debt, however, this figure varies depending on the sector. For example, dairying is more capital intensive than dry stock sectors and a greater proportion of dairy farmers have bank debt. Broadly speaking Irish farming is a lot less indebted than many of our European counterparts.”
Finnegan noted the weather of the past 12 months was unprecedented for Irish farmers with the result of limited fodder supplies and significantly higher feed bills than normal.
“With the longer winter and late spring, the average farmer required more working capital for animal feed. The impact varied by region and was very much dependent on rainfall and land type with heavier soils much more impacted. Parts of Nork Cork, West Limerick, Kerry and the Western Seaboard for example were particularly badly affected.”
The results of the Teagasc Fodder survey update is due out next, which the AIB agri-strategy manager said, will be key to determine the fodder position going into the winter.
She said indications are that the cash-flow position for the sector should have improved this year. “We would expect income to increase by 5% to 10% this year which should give farmers the opportunity to repay some of the short term feed debt which they have accumulated. It will be the end of the year, after the Single Farm Payment has been paid, or early 2014 when farmers know their full cash flow position. At that stage, we would expect some farmers may have a need to refinance some of the accumulated short term debt..”
The AIB agri-strategy manger also noted it has not seen a high uptake of its farm restructuring loan in recent months. ”The AIB farm restructuring loan is designed to alleviate cash-flow pressures. It is a short-term loan facility for amounts up to €100k per farm at a discounted rate to cover an overdraft or maybe merchant credit. But to date we have not seen a very significant uptake of this loan.
She noted a promising outlook for the remainder of the year. ”We would expect farm incomes to rise by 5% to 10% this year. This year is very different to 2009. Farming in 2009 saw very depressed output prices and input prices declining at a lower rate. In terms of this year, output prices remain strong, feed prices have moderated, energy prices have lowered, fertilisers have peaked and the weather is now more favourable which gives farmers a better run at it.”
The one message AIB wants to get out there is to contact your bank early if you are experiencing cash-flow problems, Finnegan added.
In terms of dairy expansion, AIB has noted that there is strong evidence that farmers are gearing up for milk quota removal. ”We are seeing increased demand for finance from diary farmers for invesment in dairy parlours and equipment, winter accommodation and slurry storage. In addition, there is increased interest in the land market. Along with the increased capital expenditure there is also a demand for increased working capital”.