Despite a reduction in fertiliser, meal and energy costs over the last few months, 2024 is shaping up to be another low margin year. In the past, margin was largely determined by milk price but even though milk prices remain historically high, margin is low because costs are so much higher now.

In addition, weather-related issues have meant the amount of inputs being used has increased and the amount of milk being sold has decreased. Cows are doing their best to milk well, but they are not catching a break; grass quality is poor, grass supply is poor and grass intakes are poor during periods of wet weather.

After 16 months of producing low margin milk in bad weather, cash is tight and the mood among farmers is low. That’s the reality of the situation and sometimes it just has to be acknowledged for what it is.

The fortunes of farming have always been cyclical so it’s about managing through this period and being prepared for the better times ahead because they will come.

Financial management

There are two important things farmers need to focus on for the next few months: technical and financial management. In many ways, financial management is more important than technical management, but good technical management will make financial management easier.

However, good farmers need good weather and that’s not guaranteed in years like this so there needs to be greater emphasis on managing money.

In spring calving grass-based systems, cashflow lags behind the milk supply curve.

Prior to input cost inflation, if a farmer started the year with €0 in the current account, it would be at around minus €250/cow by the end of April.

Now with higher input, labour, interest and general cost of living costs, that figure is more like minus €500 to minus €600/cow by that time.

This is because the springtime is when most inputs are purchased and when milk supply and therefore milk income is at its lowest. Most farmers will finance this period through cash reserves, overdraft, stocking loan or through a combination of the above and merchant credit.

When the April milk cheque hits the account in late May that deficit should be reduced. Subsequent milk cheques should then start driving the current account in the other direction helped by BISS payments and any stock sales.

Financial challenges and cashflow forecast essentials

Farmers are experiencing a number of additional financial challenges now, compared to previous low margin periods. For a start, the big drop in milk price during 2023 came as a bit of a shock to many. Beacuse milk price remained significantly higher than the 2020/2021 period, there was a delayed reaction to the need to cut costs.

Plus, higher than expected tax bills had to be paid in autumn 2023, which ate into whatever cash was available. On top of this, poor grazing conditions in autumn 2023 and spring 2024 has meant more silage and meal has to be fed and cows produced less milk.

Table 1 shows an example of a cashflow forecast between now and the end of the year for a reasonably typical 120-cow farmer with a family to support (there is space on the table for farmers to fill in their own figures).

The first step when doing a cashflow forecast is to know the starting point. In most cases this is the current account balance and can be either plus or minus. Next, go through all invoices and work out how much money is owed for goods or services already incurred.

Contractor costs

For example, the contractor may be owed for slurry spreading in the spring. Then work how much money is expected to be brought in through milk and stock sales or any other income. Be realistic with expectations on milk yield and milk price. While dairy markets are improving, expecting a big increase in milk price for the back end is optimistic.

Finally, work out how much money is expected to be spent between now and the end of the year. For most items like meal, fertiliser and contractor it is easier to work out quantities first and then convert that to price per unit.

When all the sheet is filled in, the net cash position can be worked out by adding the total income to the current liabilities and subtracting the expected costs of production. As a guide, this figure should at minimum be around 15% to 20% of the expected income in order to have some buffer or contingency in place. If it is less than this or negative, then costs will have to be looked at again or extra finance introduced in order to pay all bills and maintain drawings.