‘Time to look at cash flow issues’

editorial image

Now is the time for milk producers to sit down and compile accurate cash flow forecasts covering the next twelve months, according to Ulster Bank agricultural manager Cormac McKervey.

He said the next few months will prove challenging for the dairy sector.

“While the last three Fonterra auctions have been positive, the industry is not out of the woods yet,” Mr McKervey added.

“For example, the devaluation of the Euro against Sterling has served to cancel out the

gains that we might have expected to secure from the recent

tightening in world milk supplies.

“Sterling is up 18% year-on-year, which is a big disadvantage for processors here trying to compete with product from the Republic

of Ireland.

“So there is no real evidence to indicate that farmgate milk prices will increase to any

great extent here in Northern Ireland for the coming months. This is why it is so important for dairy farmers to develop accurate cash flows, certainly through until the end of 2015. Armed with this information farmers can then sit down and discuss their finance requirements.”

Mr McKervey, pictured, was commenting in the run up to the first of five public advice meetings for dairy farmers, to be jointly hosted by CAFRE and each of the main banks. He will speak at the first of these, which will take place at CAFRE’s Loughry campus on Monday evening next.

“Cash flows must take account of all projected income streams and outgoings, including drawings within the business,” he said.

“Account must be taken of a partner’s income, if relevant. As part of this process producers should estimate price, as best they can. It is likely to be in the 21 to 23 ppl bracket. Other income streams will include the sale of cull cows, calves and other young stock.

“Outgoings will include feed bills, fertiliser bills, fixed costs, existing bank repayments and contractors’ charges. It is also important for farmers to identify those times of the year when there will be a larger draw on their cash flow than others. These could include the contractors’ charges associated with the making of first and second cut silage.”

In cases where the need for additional finance is identified by clients, Ulster Bank will look at one of three options. The first is an approved 12-month overdraft increase; the second is an agreed 12-month capital holiday on existing loans with the third being an agreed mix of both these measures.

“Each client’s case will be decided on its individual merits,” said McKervey.

“Where increased overdrafts are given the increase should be repaid over a two to three year period, ideally by the end of 2017.

“Where capital holidays are deemed to be appropriate, there will be no extension to the repayment period of the loan. Once normal trading conditions are resumed, repayment levels will be increased in line with the need to ensure that the loan is paid off in full within the time frame agreed when the money was originally borrowed.”

Mr McKervey concluded: “We are aware that the milk price crash is a global issue and beyond the control of farmers, so producers should not feel embarrassed about seeking extra help and should contact the bank as soon as they can.

“We will do what we can to help. We will assess each case as it’s presented and the cash flow will be central to assessing the funding gap. This will then help us decide how the bank and its customer can work together to plug the gap.”