With current low milk prices, expanding your dairying enterprise while still retaining cash is a big challenge. Brendan Phelan is in the middle of significant expansion on his farm at Kilmacow in Co Kilkenny, close to the Waterford border. He milked 110 cows in 2014, he is milking 140 cows this year and plans to milk 170 cows by 2018.
There are 57ha on the milking platform but only 19ha of this is owned, with the rest rented on various leases with between two and 10 years remaining on them. A 25ha outblock two miles away from the home yard is owned by Brendan.
There is no hired labour on the farm and Brendan does nearly all of the work himself, apart from taking a few weekends off here and there. However, the heifers are contract-reared, leaving the farm at 100kg and returning in-calf in November of the following year. Nearly all of the machinery work is contracted out too, so Brendan’s primary focus is on managing the cows and grass.
Brendan is part of the Teagasc/Glanbia (GII) monitor farm programme led by Richard O’Brien from Teagasc. A farm walk held on the farm last week highlighted key areas of infrastructure to get right when expanding, but more importantly it went through the financial impact of expansion and low milk price on cashflow.
With so much land around the parlour leased, Brendan was apprehensive about investing too heavily on the farm. Prior to 2013, most of the cows were out-wintered on the outside block but a new cubicle shed was built on the milking block in 2013. Sixty cubicles were added to this last December, so he now has cubicles for 160 cows.
The parlour was originally a six-unit, but over the years this was increased to 12 and is currently a 16-unit where cow entry and exit is inadequate.
He has plans to improve the parlour and build extra slurry storage on the farm but these plans have been shelved for 2016.
The land is excellent quality and very free draining, typical of the southeast. Over 14t of grass was grown per ha in 2015, despite pH, phosphorus and potassium being below optimum on much of the milking block.
Richard O’Brien highlighted the issues on the farm: “It is hard to plan ahead when a high proportion of the land is leased, but at least there are nearly 10 years remaining on most of the land.
The overall stocking rate is low at 1.7 cows/ha and the outside block doesn’t contribute much as Brendan ends up selling silage off this land. That land could be leased out in a long-term arrangement and Brendan could get tax-free income from it but he is slow to do so as it restricts his options. He could use it to rear the replacements but then the whole labour dynamic changes.
“The next issue is cashflow. We have done a cashflow budget which shows that the farm will be in negative cashflow until October, presuming the current account had a zero balance at the start of January.”
Brendan’s profit monitor from 2015 shows total costs of 22.93c/l (excluding own labour) and a net margin of 8.17c/l or €460 per cow. But there is a difference between profit and cash.
“You could have massive profits but no cash. The profit figure can be deceiving – cash is more important,” says Richard.
Net cashflow in 2015 was actually €14,438. This is how much money was left over after drawings, tax, capital expenditure and loan repayments were made. Calving start date was 14 February in 2015 – deliberately delayed to reduce superlevy risk. It has since returned to 1 February but production in 2015 was still excellent. An impressive 508kg of milk solids per cow was produced, from 600kg of meal. Granted, stocking rate was low but all cows were dried off by 14 December.
The Phelan herd is excellent. Brendan has been crossbreeding for over a decade and the results are really showing. Average fat and protein last year was 4.85% and 3.83% respectively. By 2018, the stocking rate on the milking platform will be 3.1 cows/ha and it is predicted that the 170 cows will produce 539kg of milk solids each. Cash surplus in 2018, with a predicted base milk price of 28c/l (33.4c/l received) will be €48,989. This is effectively free cash – drawings, tax and loans will have been paid beforehand.
Moving on to 2021, the cash surplus figure increases to €55,173. Predicted milk price is the same at 28c/l and cow numbers remain at 170 but output per cow is predicted to rise to 551kg of milk solids. At this stage, the herd will be fully mature and milk solids are predicted to be at 9% by then (4% protein and 5% fat). A labour budget of €10,000 is included in each year’s cashflow forecast.
Current year
Base milk price for this year has been revised down to 23c/l, which, with Brendan’s higher constituents returns an average price to him of 28c/l. Between milk and stock sales and the BPS, total farm income is expected to be €261,449 in 2016. Total variable costs are expected to be €107,701. Meal feeding is budgeted at 500kg per cow, with 240kg fed to date. Some savings are ere expected to be made in fertiliser with less lime, capital phosphorus and potassium being spread.
Total fixed costs are expected to be €67,524. This includes land lease and contract rearing costs, as well as €10,000 for labour, even though Brendan doesn’t think that will be required. This leaves €86,224 available for tax, drawings and loan repayments which are expected to come in at around €77,000 which means the cash surplus for the year will be just over €9,000.
“There isn’t much more room to manoeuvre. We have cut back on meal and fertiliser but I’d be slow to cut back much more. I’m going to continue to use AI. We had stock bulls last year but I’m not going to buy them this year. Output is the big unknown – only time will tell how well the cows will produce,” Brendan said.
Richard O’Brien presented a graph of Brendan’s cashflow during the year (see Figure 1). Presuming the current account begins at zero, the net cash position will be negative from Jaunuary until October. At its lowest point in the month of May, the farm will be €45,000 in cash deficit. Brendan said that he would normally be cash positive in June or July, but the lower milk price is delaying it this year.
“The scary thing is that if the current account started out at minus €10,000 or more at the start of the year then we would never get into a cash surplus position. If that was the case we would be looking at maybe re-capitalising some of the capital expenditure work done last year out of cashflow, which really should have been borrowed for anyway,” Richard said.
Comment
Times are tough and cashflow forecasts don’t look pretty. A couple of things struck me on the way home from the walk. Firstly, excellent Jersey crossbred genetics are delivering high milk solids per cow. Average EBI is €183. The extra 5c/l in milk price as a result of higher constituents is making a huge difference this year – without it Brendan would be making much tougher decisions on which costs to cut.
Secondly, Brendan has peace of mind because he has completed a cash budget for this year and the next five years. No second guessing, no ifs or buts, no sleepless nights worrying about the unknown. If milk price changes again he can easily readjust the budget. This was great to see. Finally, Brendan needs to be commended for opening up his farm financial performance figures for the benefit of others.
Milking 140 cows and going to 170 cows by 2018.Lowly stocked farm with a high proportion of rented land.High milk solids production per cow from Jersey crossbred.Budgeting to make a cash surplus of €9,000 this year.
With current low milk prices, expanding your dairying enterprise while still retaining cash is a big challenge. Brendan Phelan is in the middle of significant expansion on his farm at Kilmacow in Co Kilkenny, close to the Waterford border. He milked 110 cows in 2014, he is milking 140 cows this year and plans to milk 170 cows by 2018.
There are 57ha on the milking platform but only 19ha of this is owned, with the rest rented on various leases with between two and 10 years remaining on them. A 25ha outblock two miles away from the home yard is owned by Brendan.
There is no hired labour on the farm and Brendan does nearly all of the work himself, apart from taking a few weekends off here and there. However, the heifers are contract-reared, leaving the farm at 100kg and returning in-calf in November of the following year. Nearly all of the machinery work is contracted out too, so Brendan’s primary focus is on managing the cows and grass.
Brendan is part of the Teagasc/Glanbia (GII) monitor farm programme led by Richard O’Brien from Teagasc. A farm walk held on the farm last week highlighted key areas of infrastructure to get right when expanding, but more importantly it went through the financial impact of expansion and low milk price on cashflow.
With so much land around the parlour leased, Brendan was apprehensive about investing too heavily on the farm. Prior to 2013, most of the cows were out-wintered on the outside block but a new cubicle shed was built on the milking block in 2013. Sixty cubicles were added to this last December, so he now has cubicles for 160 cows.
The parlour was originally a six-unit, but over the years this was increased to 12 and is currently a 16-unit where cow entry and exit is inadequate.
He has plans to improve the parlour and build extra slurry storage on the farm but these plans have been shelved for 2016.
The land is excellent quality and very free draining, typical of the southeast. Over 14t of grass was grown per ha in 2015, despite pH, phosphorus and potassium being below optimum on much of the milking block.
Richard O’Brien highlighted the issues on the farm: “It is hard to plan ahead when a high proportion of the land is leased, but at least there are nearly 10 years remaining on most of the land.
The overall stocking rate is low at 1.7 cows/ha and the outside block doesn’t contribute much as Brendan ends up selling silage off this land. That land could be leased out in a long-term arrangement and Brendan could get tax-free income from it but he is slow to do so as it restricts his options. He could use it to rear the replacements but then the whole labour dynamic changes.
“The next issue is cashflow. We have done a cashflow budget which shows that the farm will be in negative cashflow until October, presuming the current account had a zero balance at the start of January.”
Brendan’s profit monitor from 2015 shows total costs of 22.93c/l (excluding own labour) and a net margin of 8.17c/l or €460 per cow. But there is a difference between profit and cash.
“You could have massive profits but no cash. The profit figure can be deceiving – cash is more important,” says Richard.
Net cashflow in 2015 was actually €14,438. This is how much money was left over after drawings, tax, capital expenditure and loan repayments were made. Calving start date was 14 February in 2015 – deliberately delayed to reduce superlevy risk. It has since returned to 1 February but production in 2015 was still excellent. An impressive 508kg of milk solids per cow was produced, from 600kg of meal. Granted, stocking rate was low but all cows were dried off by 14 December.
The Phelan herd is excellent. Brendan has been crossbreeding for over a decade and the results are really showing. Average fat and protein last year was 4.85% and 3.83% respectively. By 2018, the stocking rate on the milking platform will be 3.1 cows/ha and it is predicted that the 170 cows will produce 539kg of milk solids each. Cash surplus in 2018, with a predicted base milk price of 28c/l (33.4c/l received) will be €48,989. This is effectively free cash – drawings, tax and loans will have been paid beforehand.
Moving on to 2021, the cash surplus figure increases to €55,173. Predicted milk price is the same at 28c/l and cow numbers remain at 170 but output per cow is predicted to rise to 551kg of milk solids. At this stage, the herd will be fully mature and milk solids are predicted to be at 9% by then (4% protein and 5% fat). A labour budget of €10,000 is included in each year’s cashflow forecast.
Current year
Base milk price for this year has been revised down to 23c/l, which, with Brendan’s higher constituents returns an average price to him of 28c/l. Between milk and stock sales and the BPS, total farm income is expected to be €261,449 in 2016. Total variable costs are expected to be €107,701. Meal feeding is budgeted at 500kg per cow, with 240kg fed to date. Some savings are ere expected to be made in fertiliser with less lime, capital phosphorus and potassium being spread.
Total fixed costs are expected to be €67,524. This includes land lease and contract rearing costs, as well as €10,000 for labour, even though Brendan doesn’t think that will be required. This leaves €86,224 available for tax, drawings and loan repayments which are expected to come in at around €77,000 which means the cash surplus for the year will be just over €9,000.
“There isn’t much more room to manoeuvre. We have cut back on meal and fertiliser but I’d be slow to cut back much more. I’m going to continue to use AI. We had stock bulls last year but I’m not going to buy them this year. Output is the big unknown – only time will tell how well the cows will produce,” Brendan said.
Richard O’Brien presented a graph of Brendan’s cashflow during the year (see Figure 1). Presuming the current account begins at zero, the net cash position will be negative from Jaunuary until October. At its lowest point in the month of May, the farm will be €45,000 in cash deficit. Brendan said that he would normally be cash positive in June or July, but the lower milk price is delaying it this year.
“The scary thing is that if the current account started out at minus €10,000 or more at the start of the year then we would never get into a cash surplus position. If that was the case we would be looking at maybe re-capitalising some of the capital expenditure work done last year out of cashflow, which really should have been borrowed for anyway,” Richard said.
Comment
Times are tough and cashflow forecasts don’t look pretty. A couple of things struck me on the way home from the walk. Firstly, excellent Jersey crossbred genetics are delivering high milk solids per cow. Average EBI is €183. The extra 5c/l in milk price as a result of higher constituents is making a huge difference this year – without it Brendan would be making much tougher decisions on which costs to cut.
Secondly, Brendan has peace of mind because he has completed a cash budget for this year and the next five years. No second guessing, no ifs or buts, no sleepless nights worrying about the unknown. If milk price changes again he can easily readjust the budget. This was great to see. Finally, Brendan needs to be commended for opening up his farm financial performance figures for the benefit of others.
Milking 140 cows and going to 170 cows by 2018.Lowly stocked farm with a high proportion of rented land.High milk solids production per cow from Jersey crossbred.Budgeting to make a cash surplus of €9,000 this year. 
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