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11 September 2018

Plan Your Cashflow Needs - Quantify the Impact of 2018 To Date

Posted By: AIB Business
cashflow-245

For most farmers, securing sufficient fodder for the winter ahead is priority. We are encouraging farmers to also think about their cash flow requirement, and to engage with your Bank early if additional support is required. There are a range of cash flow options available. I have included below a few sample case studies for reference to help identify the potential cash flow impact on your farm.

Dairy Case study:

100 cow Spring calving herd (replacements contract reared), housed a month longer than normal in Spring which meant an extra 40 bales of silage were required. Poor grass growth in late Spring also meant feeding an extra 8t of meal (€300/t), with an extra 14t of meal subsequently fed during the Summer months as a result of the collapse in grass growth.

Total silage demand for the winter period is 600 tonne (750 bales). First cut silage delivered 450 bales but limited grass growth resulted in the farmer feeding all their ground earmarked for second-cut silage. Milk production per cow is expected to be 5% lower than budgeted for at the start of 2018 and there was an increased labour requirement on the farm due to the difficult conditions during the Spring.

Estimated combined cost of the weather is as follows:

  Case Study Your Farm                        

Additional costs incurred during the Spring

40 bales @€30/bale

8t meal @ €300/t

€3,600          

Additional meal fed during Summer

14t meal @€275/t         

€3,850   

Additional Silage purchased for Winter 18

350 bales @ €30/bale  

€10,500  
Additional farm labour costs €1,800  

Reduced milk production (5% decline)

275 litres @ 34c/l (solids adjusted) x 100 cows

€9,350  
Total Additional Costs €29,100  
 

* Note: excludes potential increased Revenue Liability due to the increased incomes experienced by the sector in 2017

 

 

Suckler Beef:

40 cow Spring calving suckler herd selling weanlings in Autumn. Cows normally are out to grass as they calve (mid-March) but this year they remained housed until the 15th of April, due to the poor grass growth and were turned out on a phased basis.

Silage stocks were sufficient up until the 17th of March, but earlier housing in 2017 meant increased usage and resulted in the using up of any surpluses held. The farmer purchased 64 bales of silage (average quality costing €30/bale) and fed 2 kgs meal for 30 days - 2.5 tonnes of meal in total costing €260/tonne.

To supplement grass growth which was restricted by summer drought (5 week during June and July summer months), the farmer fed additional bale silage per day, using 35 bales in total. In addition, as one field planned for second cut bales had to be grazed, the farmer now has a requirement to purchase an extra 50 bales for the winter, costing €30/bale.

Combined with this, the weight of weanlings at sale is estimated to be c. 30kg on average lighter than previous years due to delay turnout of cows and reduced grass growth during the summer. 

 

  Case Study Your Farm                        

Additional costs incurred during the Spring

64 bales @€30/bale

2.5t meal @ €260/t

€2,570          

Additional silage fed during Summer

35t bales @€30/bale         

€1,050   

Additional Silage purchased for Winter 18

50 bales @ €30/bale  

€1,500  

Reduced liveweight impact

(30Kg x 38 weanlings X €2.50)

€2,850  
Total Additional Costs €7,970  
 

* Note case makes no assumption re divergent year-on-year market price trends

 

 

Store to Beef Finisher:

Store to beef farming customer finishes 150 continental type bullocks, selling in the Autumn. In a normal year cattle are out to grass from 1st March onwards with an average turnout date of the 15th of March.

This year, the cattle remained housed until the 16th of April. Silage stocks were sufficient up until the 28th of March which resulted in the purchase of an additional 110 bales of silage at €30/bale. To supplement the farmer also fed an additional extra 8 tonne of meal costing €240/tonne.

Grass growth was restricted during the summer which resulted in the farmer supplementing earlier this year at grass than normal. The farmer fed an additional 4kg of meal/head/day at grass, 35 days earlier than previous years.

Combined with the additional costs in the Spring and the Summer, the projected loss of thrive of the animals during the Spring, due to a delay in turnout was 0.4kg day (0.6kg average daily gain (adg) in the shed vs 1kg adg/day at grass).

  Case Study Your Farm                

Additional costs incurred during the Spring

110 bales @€30/bale

8t meal @ €240/t 

€5,220  

Additional meal fed during year

4kg/day x 150 head x 35 days = 21 tonne (@ €240/t)

€5,040  

Reduced liveweight impact

0.4Kg x 150 head x 31 days (@ €2.30/kg) 

€4,278     
Total Additional Costs €14,538  
  * Note case makes no assumption re divergent year-on-year market price trends  

 

Tillage: 300 acre tillage operator with 150 acres of Winter Cereals (50:50 Wheat & Barley) and 150 acres of Spring barley

Winter Barley:

  • 2017: yielded 4t/acre at €145/tonne plus 14 bales straw/acre at €10/bale (after baling costs) - €720/acre
  • 2018: yielded 3.5t/acre at €200/tonne plus 14 bales straw/acre at €20/bale (after baling costs) - €980/acre

 Winter Wheat:

  • 2017: yielded 4.5t/acre at €155/tonne plus 10 bales straw at €7 per bale (after baling costs) - €767/acre
  • 2018: yielded 4.0t/acre at €205/tonne plus 10 bales straw at €16 per bale profit - €980/acre

 Differential Winter Cereals: +€35,475

 Spring barley:

  • 2017: yielded 3t/acre at €145/tonne plus 7 bales of straw per acre at €10 per bale profit - €505/acre
  • 2018: yielded 1.8t/acre at €200/tonne plus 3 bales of straw per acre at €20 per bale profit - €420/acre 

Differential Spring Cereals: -€12,750

Assume 5% increase in input costs (as per CSO, 2018) - +€5,775

Combined differential: + €16,950 (€56.50/acre)

 

  Case Study Your Farm
+ / - Value of Winter Crops + €35,475  
+ / - value of Spring Crops - €12,750  
+5% increase in input costs - €5,775  
Total differential vs 2017 + 16,950  

 

The differential of €16,950 equates to a deficit of €57/acre. The impact at farm level for tillage farmers varies substantially depending on sowing date, rotation, soil type and location. The variation in impact from farm to farm for tillage farmers is probably more pronounced than in other sectors.

In the case studies outlined, it has been estimated that the effects of the poor weather has reduced cash flow by close to €200/suckler cow and up to €300/dairy cow in some of the affected areas. For a 100 cow dairy farm there could be a reduction of €30,000 in cash flow from a combination of reduced milk yield and increased costs which can have a significant effect on a farm’s ability to meet all costs, including family drawings/salaries, tax and bank repayments.

If you find yourself in such situations, the important thing to remember is that there are a range of supports available. Engage early with your bank and have an idea of how much additional support you require. In this regard, complete a simple cash flow budget. See www.aib.ie/farming for a cash flow template for reference if required.

Talk to us today - in branch; online: www.aib.ie/farming; or at 1890 47 88 33 to discuss how we can support your business needs.

 

Please be aware that all of the views expressed in this Blog are purely the personal views of the authors and commentators (including those working for AIB as members of the AIB website team or in any other capacity) and are based on their personal experiences and knowledge at the time of writing.

Some of the links above bring you to external websites. Your use of an external website is subject to the terms of that site.

Allied Irish Banks, p.l.c. is regulated by the Central Bank of Ireland. Copyright Allied Irish Banks, p.l.c. 1995.

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