‘Merchants bearing the blunt of dairy farm cash flow struggles’
Merchants and co-ops are bearing the blunt of cash flow struggles on dairy farms, according to Bank of Ireland’s Susan Maher.
Speaking at a Teagasc Managing Through 2016 Dairy Farm Walk in Co. Kildare, the Agri Manager said farmers struggling with cash flow need to take control of their own situation.
Maher said that many farmers are using the credit facilities provided by co-ops and merchants to ease the burden of a tight cash flow caused by lower milk prices this year.
“If you are taking out merchant credit over an extended period of time, the interest rates can rise up to 15-16% on your outstanding balance very quickly,” she said.
However despite the increase in merchant burrowing, she said that the number of farmers using over draft facilities to deal with cash flow issues are quite low.
All of the banks expect that that pressure is going to come back on us and I think the banks should be the first port of call for farmers.
Farm debt restructuring on the increase
The number of dairy farmers looking to restructure their debts has increased over the past six weeks, she said.
The Bank of Ireland Agri Manager said that some dairy farmers are looking to pay back their debts over a longer time frame.
Maher continued to say that many dairy farmers have a number of loans repayable under different terms and this often results in higher repayments in the short term.
And in a bid to ease the burden of short-term repayments, she said that many borrowers are looking to restructure their debts to longer term loans.
No ‘silver bullet’ to guarantee success
Maher also said there is no silver bullet to guarantee success when it comes to managing debt on farms, as every farm will require a different solution.
However there are a number of options farmers can avail of to ease some of the financial burden on their farms.
Borrowing against existing infrastructure
Maher said that one of the key things that has been seen on Irish dairy farms over the past two-to-three years is farmers investing in capital infrastructure on the back of a favourable milk price.
“When milk price was up at 38-39c/L there was work done on farm because there was a cushion to fund the work and it wasn’t funded by way of bank borrowings,” she said.
She said when farmers can quantify the money they have spent over the last number of years they may be able to take out a loan against the asset to re-inject cash back into the business.
The term of the loan will match the type of capital development that you undertook.
Farmers will be able to apply for a 15-year term loan on the strength of a farm building, she said, a seven year loan on the back of an investment in stock and a seven-to-10 year loan on roadway and fencing spending.
“It is absolutely an option that is there for a lot of farmers.”
A letter from an accountant should be sufficient prove to show that the work has been carried out as it will show up on the financial accounts as either an addition to assets or repairs and maintenance on the profit and loss, she said.
Interest only debt repayments
Interest only payments might be an option on term debt, she said and that is available across all of the banks.
She said that Bank of Ireland offers the Agri-flex option, which allows farmers to make interest only payments on stocking, term, land purchase and farm building loans.
The interest rate doesn’t change but you can extend out you loan repayments by a six or 12 month period
“Once the interest only period has lapsed you can extend out your term or you can pay it back over the existing term at slightly higher repayments,” she said.