Dairylink: Cash management critical as milk price falls

2nd June 2016

Dairylink: Cash management critical as milk price falls

Can the contractor be paid this month as well as the fertiliser bill? Is paying by instalments an option? Can you negotiate a discount for early payment or payment at the gate? From a financial perspective, monthly cashflow must be the number one priority for dairy farmers.

Taking control of farm spending and identifying the peaks and troughs in cashflow on each individual farm will make a difference in the current financial climate, and may be the only way a farm business can survive.

Generating cash is the key challenge for all dairy farmers for the months ahead. All project farms have taken steps to make the next four months count in terms of generating surplus cash before cows return to cubicles and the associated higher cost.

Given that we have limited control over the final product price once it leaves the farm gate, improving milk components to positively influence price should be priority. However, it takes a number of years with a focused breeding plan, so the only immediate avenue is to focus on the production system and the associated costs.

What costs can be removed, and what aspects of the system need to remain? Achieving technical efficiency in a number of key areas including feeding and grass management has been the main focus for the Dairylink group for the 2016 year.

As project adviser for the Dairylink group, the key challenge is to break the linkage between production and profitability which exists in the mindset of project farmers. All datasets collated by CAFRE or Teagasc, such as benchmarking and profit monitor, show no linkage between profitability and milk output. This means milk yield per cow has no relevance when we are discussing how dairy farmers can improve efficiency and generate surplus cash.

Farmer Focus - Bill Brown, Millisle Co Down

Cash is tight on the farm and has been all year with no surplus cash being generated since the start of January. I know this is the situation simply because I have completed monthly cash budgets and I’m monitoring farm income against cash outflow very closely.

If we assume a zero cash balance for the farm in January this year, the farm has generated £20 per cow surplus cash as at the end of May with all outstanding bills paid including first-cut contracting and all fertiliser purchased and used to date. This is a total cash surplus of £3,600 for the farm for the first five months of this year. You may consider this very poor for a 180 cow farm. However, this has been a major achievement for a farmer who started the year not sure how to produce milk at a cost lower than his 22ppl breakeven price required for the 2015 year.

Reality check

With a base milk price of 17.65p/l for our milk, I have to be realistic about how to produce milk this year. From the start of the year the focus has been on producing as much milk from grazed grass as possible. Purchased feed cost has always been the most significant cost on the farm, so getting cows out early and increasing the area available to the cows for grazing was the only viable option.

We are monitoring growth weekly and ensuring cows are moving on to top-quality grass daily. Cash has been ploughed into fertiliser to improve soil fertility, and ultimately produce more grass, and it is working, with the grazing block averaging 4.3t DM/ha between February and May.

Improving access to paddocks has also been targeted with 200 metres of new lane improving access to 20 acres. Plans are in place to extend the cow track at the other end of the farm to gain access to land which traditionally has been cut for silage four times each year.

You may ask how has this helped the cash situation on the farm? In April and May this year we reduced concentrate purchased for the dairy cows by 30t on the same period last year.

While I have no grass measurements for last year, I am confident the farm is growing more grass, and is better set up to capitalise on the grass. The next four months will be important on the farm. Cows are 190 days into lactation now, with production starting to slow down. With the grazing block well organised for the next rotation, I am confident more concentrate can be removed without any negative impact on cow condition.

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