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New Year, New Me

14 January 2019
Type Media Article

By Francis Curran, B&T Drystock Adviser, Teagasc Galway/Clare

What will you remember 2018 for? Will you want to remember it? Farming has been far from easy in the last 12 months, A wet spring, snow in March and a very dry summer. Although many will agree this winter has been kind “so far”, hopefully, the inevitable payback was given in advance and we get the boost of an early spring.

There is no doubt now that there are many challenges ahead over the next few months for Irish farmers. Brexit will happen in March and no one really knows how that will pan out. In the meantime we must plan ahead and keep the wheels in motion. In January, the farm finances are a good place to start. The current farm financial position is a true reflection of the farming operation. It can be difficult to motivate yourself to sit down with a pen and paper, but the time will be well spent. If you have gotten through 2018 unscathed financially, you are in a good place.

A Profit Monitor (PM) although not perfect is a great way to assess your farm year to year and to see where you stand compared to average and top farms. The PM outlines output, variable costs and fixed costs. We often hear of gross and net margin per hectare figures but the PM system also gives figures on stocking rate, liveweight output per hectare, Liveweight output per Livestock unit and many more which are really useful figures in evaluating the farming operation. The PM input itself can be a complex exercise, a professional Agriculturist, such as a Teagasc Advisor or Agricultural Consultant who is used to the ins and outs of the PM will likely be needed.  However, at the end of the day, it is you that is providing the input information, costings and output figures to them.  Remember, what you put in is what you get out. So, some searching of paperwork records will be required for accurate figures.  

For a first time user, the following information is required:

  • Opening and closing stock numbers, stock purchases
  • All farm income- BPS, ANC, Mart/Factory dockets
  • All variable costs- Fertiliser & Lime, meal, Veterinary etc
  • All fixed costs- diesel, land rental, repairs & maintenance

NOTE: If you are using ICBF Herdplus, the cattle numbers and a good deal of the sales information will be accessible from here.

Once the information is inputted and reports are generated, discuss how your figures compare with other farms and where improvements can be made for the coming years. It is also worthwhile recording a few notes on what went well and not so well on the farm during the year. The positive outcomes provide a feel good factor that you have achieved something tangible and the negatives offer motivation for the coming year to drive on and improve attach this reminder to the financial reports.

Once we have an idea where we stand for the previous year the next task is compiling a budget for the year ahead- a daunting task for some. You might say are you mad? How could you budget in drystock farming, especially this year, but it definitely has merits. Budgeting what cash and when it will be generated during the year is central but perhaps estimating the costs associated is more important. Regular budgeter’s probably use specific worksheets or computer programs, but you could use a blank page. Budgeting is not an exact science, but a ‘best estimate’ is better than ‘no estimate’.

A simple method is to divide a page in two. List all estimated income due to be received down the left hand side. On the right hand side list all expenses often they don’t vary a huge amount year to year. Total up both sides and subtract expenses from income. At the end there will be either a surplus or deficit, it’s from here we cut our cloth to measure. When budgeting income certain items are more or less guaranteed BPS, ANC, beef genomics, sheep welfare are easy to input. When it comes to stock sales now and after lambing/calving is the time to look through what animals will be available to sell during the year, Although the price of cattle is difficult/impossible to estimate, when accounts are looked at and analysed over several years an average price will emerge, the average price over the last 9 years on my farm has been €2.07/kg live weight this is the figure I use for budgets along with my average sale weight. Do you know your figures?

As regards input costs, we hope that weather will be less extreme this year and meal feeding and silage costs will return to more normal levels. We can estimate how much fertiliser and lime will be spread and more importantly where it’s needed if following a nutrient management plan which in turn allows us to estimate the cost we will likely incur after shopping around. Whether the figures used for all expenses are 100% accurate is not all that essential but what is important is to be as prudent as possible with output and input prices allowing sensitivity of 5-10% or greater to deal with uncertainties.

In poor price years, money must be managed to ensure that all essential bills are paid (including living expenses) and that no long term damage is done to the business due to a shortage of money.

The main priority is to minimise all non-essential spending until cash income improves the following are some pointers:

  1. Prioritise essential living expenses.
  2. Eliminate all non-essential expenditure; both farm and personal spending
  3. Review Financial Repayments; perhaps a payment could be skipped and added to the end of a loan- this needs agreement from the lender
  4. Review monthly pension, savings and life assurance payments 
  5. Involve all family members in analysis and finding solutions where possible

A budget carried out now does not have to be limited to financial elements, assessing grass supplies with a farm walk and estimating silage reserves in the yard are timely exercises to complete as these are essentially money in the bank. Wish you all the best for 2019!