It appears that with the New Year we are seeing a recovery in both the milk prices and cattle price
Long term we have entered a cycle of considerable volatility and must remember this. Nobody knows how large the swings will be or the speed of the cycle, but it would be prudent to assume that for dairy businesses we should plan to be able to operate on a continuous milk price of about 24.5 to 25 p/l as an average across the cycle.
The pain endured by most dairy farmers over the last twelve to eighteen months has had a very dramatic impact. In many cases overdrafts have been stretched and the creditors extended to enable people to survive. What is often forgotten is the reality that getting in trouble does not take long whereas climbing back out of it is a lot harder and takes several years. It is also important to remember that your “unofficial Bankers” or merchants have problems of their own to deal with. Thus we must enter a period of consolidation now, whereby waste and inefficiency are eliminated as far as possible and a sound financial footing is regained.
Looking forwards, it is important to be honest about what you can afford to buy and then set the term of payment ( be it a loan or H.P. ) to a level and time frame you can meet. People have often rushed into a deal they desire and then had to meet the pain of paying for it when they are not in a strong position to do so. Many arable farmers fell into this trap a few years ago when they re-equipped their farms but then did the “paying” on H.P. in a period when they could ill afford the money after grain prices fell.
Some farmers having been placed under pressures they never dreamt of, have met the challenge head on. Faced with seemingly unbeatable price drops, they have stopped focusing on milk price which was outside their control and concentrated on their costs. For some this was a sobering exercise when they realised how much waste they have in their systems. In some cases, the amount of money saved has been very significant. What now has to happen is that those costs are not allowed to creep back into the business. The aim must be to create a sustainable business that provides the basic needs of the family without building in undue risk. Risk management in periods of volatility is what makes the difference between a good versus a mediocre result. Simple “boring” systems tend to produce the goods in both good times and bad.
The message behind this is to stop and take an honest look at what you are trying to achieve and then set a strategy to reach your goals over a sensible period of time. Be realistic as to what can be afforded and set clear priorities focused on what you “need” as compared to “want” or desire. People who plan and have simple understandable businesses tend to succeed. Complexity can be your enemy and takes a lot more managing and generally costs more. The people with simpler business models that are not pushing the boundaries, have weathered the storm better than the higher yielding complex systems.
More about Ian Browne
Ian Browne of the Farm Consultancy Group