I was with three discussion groups in the last two weeks – two in Wexford and one in Kerry. The downturn in milk price wasn’t the theme of the meetings; getting back to basics and considering every investment carefully before spending a bob was top of the agenda for most farmers. All three hosts were top farmers in their own right but I believe all three will take very serious messages from the discussion group farmers, which just emphasises the power of the discussion group.
One of the farmers is one and a half years into a 10-year lease of 32 acres adjoining his milking platform and over the last 18 months he has invested more than €55,000 (€1,700/acre) in land draining, reseeding and installing fences and roadways.
The farmer has done a super job. The land hadn’t been farmed for years when it was taken over and now it has the potential to grow 10 tonnes of dry matter per hectare. The downside is the cost and essentially this farmer now has a little over eight out of 10 years left to get his return. He also has to pay an annual land rental fee so it is getting quite expensive by the time all the bills are paid. The development work alone will cost him €170 per acre per year at nominal values.
Cashflow woes
Like many farmers, the investment in the land was done from cashflow. The knock-on effect is that cash is tight now, especially with milk prices going down. The consequence is that the farmer last week was considering selling stock (maybe some maiden heifers or heifer calves). The reality of the situation is that the farmer needs all the stock he has to allow him milk more cows so he has the potential to realise a return on the developed land.
The lesson for all is that, for long-term investments like long-term land lease and repair, don’t do it out of cashflow. It’s a long-term investment – put the cost out over seven to 10 years with a term loan.
I know borrowing is not always possible and farmers are not always comfortable with the idea, but tight cashflow can be a harder hole to get out of and you can become a forced seller very quickly, which is not a good position to be in.
Additional advice from the group was that the farmer should renegotiate the lease into a rolling lease so that the farmer always has at least seven or eight years in front of him after such a substantial investment. It takes a few years to get land growing good quantities of grass and a bad milk price year or two thrown in would reduce the number of years to achieve a return very quickly.
Culling decisions
One of the farmers was considering culling some first-lactation cows that were not milking very well. The farmers argued that one lactation wasn’t enough information on which to base such a drastic decision and often cows develop into better milkers with better composition from second to third lactation. Given the investment to get the heifer into the milking parlour in the first place, the message from the farmers was to at least give her a chance to express herself.
Roadways
If you don’t get them right, they can start to cost you very big money. One of the farmers had a very good base in for a roadway but it hadn’t been finished off. The advice from the group was to buy in stone to cover off a depth of one to two inches (nice shale type stone that will flatten out after heavy rolling) to create a much more comfortable walking surface. The farmer had hoped heavy rolling of the base material might be enough but it wasn’t good enough and cows were walking in single file along the roadway – the best signal to the farmer that they didn’t like what they were walking on.
Milking parlour
investment
All three farmers were considering work on extending their milking parlours as they were increasing cow numbers or had more land coming available. However, two of the farmers had employed labour so the advice from the discussion group was to make the parlour work a little harder (12 rows per milking) at least in the short to medium term until other term loans were reduced. If this means someone different milking in the morning or the evening, then let that be the case. Maybe even employing someone else to do only the evening milking might make more sense in the short term until the business is on a stronger footing or until a clear picture of where cow numbers or land area available is tied down.
Contract-rearing
One of the farmers was sending his calves away for contract-rearing but they weren’t leaving the farm until they were weaned from milk (10 to 12 weeks old). While the farmers liked the arrangement, they suggested a better arrangement was to get the heifer calves away earlier because then it would free up more time and labour at a very busy period of the year for dairy farmers.
Employ labour
Don’t make every day a hard-work day. Stand back from your business and assess the labour requirement. If you are putting on the fertiliser spreader at nine o’clock in the evening to go and spread 30 acres, then you might need to consider labour or at least part-time help. While you might enjoy driving and spreading if you have increased cow numbers, then you will have work, and if you have the right employee, a farm worker can do a lot more than just milk cows. You can of course look at other options like contracting out all the machinery work, contract-rearing young stock, contracting out one of the milkings – all these options essentially hire in labour and some options suit some farms better than others.
Note: I know some farmers are often cautious about telling the truth to near neighbours, etc, but to get the best out of your group, you have to be open with them. There’s little point in fudging the truth and sending them away with the wrong impression. You might be better off in a group away from home if you find it’s not working.
IN BRIEF
Don’t make long-term investments in parlours, land or machinery out of cashflow. If borrowing is an option, a medium-term loan is much better value than interest rates in excess of 10% on overdrafts.While reseeding and drainage can deliver a high return on investment, they can soak up a lot of money by the time the job is complete. Plan carefully what the job is going to cost in advance and get outside advice if necessary.Farm roadways need a good surface or lameness, reduced milk and slow walking can cost a dairy farmer big money.Have balance in life and in business – you don’t need to work 16 hour days every day to be successful. Consider your options for employing labour or reducing the work you complete.
I was with three discussion groups in the last two weeks – two in Wexford and one in Kerry. The downturn in milk price wasn’t the theme of the meetings; getting back to basics and considering every investment carefully before spending a bob was top of the agenda for most farmers. All three hosts were top farmers in their own right but I believe all three will take very serious messages from the discussion group farmers, which just emphasises the power of the discussion group.
One of the farmers is one and a half years into a 10-year lease of 32 acres adjoining his milking platform and over the last 18 months he has invested more than €55,000 (€1,700/acre) in land draining, reseeding and installing fences and roadways.
The farmer has done a super job. The land hadn’t been farmed for years when it was taken over and now it has the potential to grow 10 tonnes of dry matter per hectare. The downside is the cost and essentially this farmer now has a little over eight out of 10 years left to get his return. He also has to pay an annual land rental fee so it is getting quite expensive by the time all the bills are paid. The development work alone will cost him €170 per acre per year at nominal values.
Cashflow woes
Like many farmers, the investment in the land was done from cashflow. The knock-on effect is that cash is tight now, especially with milk prices going down. The consequence is that the farmer last week was considering selling stock (maybe some maiden heifers or heifer calves). The reality of the situation is that the farmer needs all the stock he has to allow him milk more cows so he has the potential to realise a return on the developed land.
The lesson for all is that, for long-term investments like long-term land lease and repair, don’t do it out of cashflow. It’s a long-term investment – put the cost out over seven to 10 years with a term loan.
I know borrowing is not always possible and farmers are not always comfortable with the idea, but tight cashflow can be a harder hole to get out of and you can become a forced seller very quickly, which is not a good position to be in.
Additional advice from the group was that the farmer should renegotiate the lease into a rolling lease so that the farmer always has at least seven or eight years in front of him after such a substantial investment. It takes a few years to get land growing good quantities of grass and a bad milk price year or two thrown in would reduce the number of years to achieve a return very quickly.
Culling decisions
One of the farmers was considering culling some first-lactation cows that were not milking very well. The farmers argued that one lactation wasn’t enough information on which to base such a drastic decision and often cows develop into better milkers with better composition from second to third lactation. Given the investment to get the heifer into the milking parlour in the first place, the message from the farmers was to at least give her a chance to express herself.
Roadways
If you don’t get them right, they can start to cost you very big money. One of the farmers had a very good base in for a roadway but it hadn’t been finished off. The advice from the group was to buy in stone to cover off a depth of one to two inches (nice shale type stone that will flatten out after heavy rolling) to create a much more comfortable walking surface. The farmer had hoped heavy rolling of the base material might be enough but it wasn’t good enough and cows were walking in single file along the roadway – the best signal to the farmer that they didn’t like what they were walking on.
Milking parlour
investment
All three farmers were considering work on extending their milking parlours as they were increasing cow numbers or had more land coming available. However, two of the farmers had employed labour so the advice from the discussion group was to make the parlour work a little harder (12 rows per milking) at least in the short to medium term until other term loans were reduced. If this means someone different milking in the morning or the evening, then let that be the case. Maybe even employing someone else to do only the evening milking might make more sense in the short term until the business is on a stronger footing or until a clear picture of where cow numbers or land area available is tied down.
Contract-rearing
One of the farmers was sending his calves away for contract-rearing but they weren’t leaving the farm until they were weaned from milk (10 to 12 weeks old). While the farmers liked the arrangement, they suggested a better arrangement was to get the heifer calves away earlier because then it would free up more time and labour at a very busy period of the year for dairy farmers.
Employ labour
Don’t make every day a hard-work day. Stand back from your business and assess the labour requirement. If you are putting on the fertiliser spreader at nine o’clock in the evening to go and spread 30 acres, then you might need to consider labour or at least part-time help. While you might enjoy driving and spreading if you have increased cow numbers, then you will have work, and if you have the right employee, a farm worker can do a lot more than just milk cows. You can of course look at other options like contracting out all the machinery work, contract-rearing young stock, contracting out one of the milkings – all these options essentially hire in labour and some options suit some farms better than others.
Note: I know some farmers are often cautious about telling the truth to near neighbours, etc, but to get the best out of your group, you have to be open with them. There’s little point in fudging the truth and sending them away with the wrong impression. You might be better off in a group away from home if you find it’s not working.
IN BRIEF
Don’t make long-term investments in parlours, land or machinery out of cashflow. If borrowing is an option, a medium-term loan is much better value than interest rates in excess of 10% on overdrafts.While reseeding and drainage can deliver a high return on investment, they can soak up a lot of money by the time the job is complete. Plan carefully what the job is going to cost in advance and get outside advice if necessary.Farm roadways need a good surface or lameness, reduced milk and slow walking can cost a dairy farmer big money.Have balance in life and in business – you don’t need to work 16 hour days every day to be successful. Consider your options for employing labour or reducing the work you complete. 
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