Managing Cashflow
If your profits are up in 2024 to date, consider setting aside some cash to help tide you over next year. If your cashflow is under pressure, review your loans and interest rates and look for opportunities to secure better value. Where available, consider using savings to support working capital if necessary. Other options to consider include delaying non-essential capital expenditure or seeking funding by way of a loan.
Budgeting for the months ahead
A well-prepared budget can help you anticipate and prepare for future challenges, such as the weather-related difficulties that many have faced this year. If you don’t have a budget in place for 2024, it is not too late to plan one for the remainder of the year and into 2025. Working out your fertiliser, concentrate, and feed requirements will help you estimate what you need to budget for the remainder of the year. You must also look at your income sources and any other costs you expect to incur. Once you have this information, you will be able to produce a financial budget and predict whether you will be cash-positive or negative in 2025.
Software, such as ifac’s FarmPro, allows you to track this budget against real-time income and expenditure to ensure you are always up-to-speed. If, after completing your budget, you expect to be cash-negative after drawings, loan repayments and tax, you need to examine funding options. Now is the time to review cashflow and potentially look at funding options, not next spring if the farm runs into cashflow issues.
This year's weather has been particularly difficult for farmers, highlighting the importance of effective cashflow and budgeting. Your accountant and agricultural advisor can provide practical advice to improve the overall performance of your business and show you how your farm is performing when compared to similar farms in your sector. We always promote the concept of a ‘farming team’ where the farmer, accountant and agricultural advisor work together for the benefit of the farm. By bringing all of your professional advice together, you get a deeper understanding of your business, which enables you to identify and address potential problems, grab opportunities, and make the right decisions at the right time so that your farm can survive and thrive both now and in the future.
Cost and Output Variances
Working with our clients on a regular basis, we are seeing variances in costs and output. Dairy farmers are being hit from both sides in regards to output and costs. In an unusual scenario, we are seeing overall costs per cow decreasing slightly but the cost per litre rising. This is due to the production dropping more than the overall total cost and, therefore, increasing the cost per litre. The other area we are seeing is the overall variance in costs in the sector from mid 30 cent mark (circa €1,900 per cow) to over the 50-cent mark and climbing towards 3k a cow. Two factors are driving this, stocking rate and feed inputs. Overstocked farms are seeing spiralling feed costs and not getting an exponential return on output. This driving cost per litre and a very negative effect on margins. Every farmer regardless of their chosen system must have a sustainable number of cows for the available grass they are growing. This calculation is different on every farm but is vital each and every framer spends time examining their stocking rates and adjust accordingly.
From a cashflow perspective if a cow is costing circa 2k a year and majority of costs are incurred in first 1/3 of the year farmer need to have adequate cash reserves carrying into the late winter / early spring. In ifac, we believe farmers need to have min €200 per cow available cash (banked / overdraft) in order to not incur significant merchant credit balances in this time period.
It's clear that careful management of costs, stocking rates, and cashflow is essential for dairy farmers to maintain profitability and sustainability in their operations. Regular monitoring, adjustment, and planning are key to navigating the challenges in the sector.
