Prioritise spending on expansion

Expanding dairy farmers need to be extremely careful about where they spend their money or they will limit their future potential and could risk serious financial difficulty in poor milk price years.

This was the key message on both the Hyland and Kerr farms at the Irish Grassland Association dairy summer tour this week.

David Kerr has increased from 40 cows in 2006 to 140 today and brothers Paul and David Hyland have increased from 130 cows in 1996 to 360 presently.

Expansion was financed from borrowings and savings as both farms were operating efficient businesses pre-expansion.

Both farms described borrowing money as a crucial step to growing their business and cited the investment of this money in the right areas as being essential to successful expansion.

For these farmers, the right areas to invest money are:

Low-cost, simple milking facilities: David Kerr milks 140 cows per hour himself in a well-designed 22-unit milking parlour with no frills. The Hylands plan to split the herd next year into two herds of 170 and 230 cows, so the current 16- and 20-unit milking parlours won’t have to be upgraded.

Low-cost, simple wintering facilities: Cow kennels on the Kerr farm cost €400 per cow space and a lagoon provides most of the slurry storage. The Hylands had an out-wintering pad which is being converted to outdoor cubicles, and have loose housing and conventional cubicles. In 2012 they went into partnership with Kilkenny farmer Eddie Teehan who also has cow wintering facilities.

Good paddock infrastructure for maximum grazing days: One of the first investments on the Kerr farm was €45,000 in fencing and water so the farm was well set-up to graze a large herd of cows.

Productive pasture: Almost the entire Hyland farm has been reseeded in the last 10 years and they hope recent investment in extra phosphorus, potassium and lime will help the farm grow 16t DM/ha in the future, up from 14t DM/ha grown last year.

Simple

The message from both farms is simple – if you are increasing cow numbers and invest in non-essential items, such as high-tech milking equipment, you have less money to spend in the key areas mentioned above, and your business will generate less surplus cash as a result.

Speaking on how the Hylands manage their finances, Paul said: “We grew our business in a series of stages and never thought we would be where we are today, planning to milk 400 cows next year.

“Strategic investment has been crucial. We set up a second milking platform via putting a milking parlour into a leased farmyard and moving the herd of cows from one milking platform to the other.

“We minimised costs in the initial years by transporting as much of the milking equipment from one parlour to the other – milk pump, vacuum pump, clusters and regulators were all moved.

“This freed up cash to either buy more quota, rear more heifers or take on more land if it became available.

“We were able to purchase that leased farm earlier this year as we have continually focused on only spending money where it will generate a return – if you can get cows producing milk from grass as simple and cost-effective way as possible, you give yourself the best chances for success.”

David Kerr had a similar message for the crowd. “More important than borrowings per cow is what the borrowings are used for. Ask yourself what return the money you spend will generate for you.

“I could have easily spent another €50,000 when putting in my 22-unit parlour in 2010 based on different quotes I got, but I kept it as simple as possible.

“The following year, 30ac of land came up for sale beside me, which I wasn’t expecting, but luckily I was able to purchase as I had limited investment in the parlour. You need to know what your business can afford and keep future possibilities in mind when investing.”

Cashflow

The key message for farm cashflow was not to be afraid to borrow and pay back for items over a number of years as opposed to paying the full amount in year one and leaving the business struggling to pay day-to-day expenses.

David Hyland said: “We are comfortable borrowing money as we know our farm finances well and that we can make the necessary repayments.

“Our mother Lucy is a partner in the business and she makes sure that we keep our financial records updated regularly.

“We have planned expenditure for each month and review this monthly to see how the business is performing. Trying to fund improvements from cashflow or trying to pay back loans too quickly can really put a business under pressure.

“Borrowing the money might be cheaper in the long-run if it allows you to do the job right.”

Increased profitability was the clear goal of expansion outlined at both the Kerr and Hyland farms. Every investment decision made during expansion reflected this goal, and contributed to the development of two very profitable businesses today.