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Cashflow planning after a difficult spring

Cashflow planning after a difficult spring

To say dairy farmers have endured a tough period on cashflow is an understatement. The last few months have been about doing the best we could with the conditions in front of us and generally this meant increased feeding with lower milk yield than expected.

This has put a strain on the cash position of most farms, especially as 2023 was a below-average year for profitability.

Calculate your cashflow

The starting point for a cashflow is relatively simple. See what cash you have on hand, and what is owed to you, for example a milk cheque or stock sales, and then add all the money that you currently owe, on overdraft, merchant credit, bank payments, etc. This gives you your starting point on the cash position of the farm.

What can be harder to establish for some farmers is how they will be able to pay back the money and when they will have surpluses of cash above their monthly commitments. This can lead to stress in trying to handle creditors and continue to operate the house and farm. To calculate the farm’s ability to repay its creditors, we use cumulative net cash per month divided by the number of cows on farm to give a guide on the cash position of the farm each month on a per-cow basis. In a normal year, it takes €300-€400/cow working capital to manage the spring cash requirements. This can be carried by merchant credit, overdraft or some farmers may have had cash in the system at the beginning of the year.

As Figure 1 shows, it will be the second half of the year before the farm will be in a positive net cash position.

Figure 1: Cumulative net cash / cow for the year

bar chart showing the cumulative net cash per cow per year, the farm is in a negative up until July before moving into a surplus until the end of the year

This is important for the timing of how you repay creditors. If you find yourself with a lot of short-term creditors due to the bad weather and cow performance, it is important to address the situation early. There are a number of options available, for example interest-only payments or retrospective finance of capital expenditure that was completed using cash over the last number of years. These options will ease the cash pressure on the farm and bring the farm back into a positive cash position earlier. If you require help, your local Teagasc advisor can assist in preparing cashflows for you.

This article by Dr Joe Patton, Head of Dairy Knowledge Transfer at Teagasc, first appeared in the June Teagasc Advisory Newsletter for Dairy. Access the full publication here.