Volatile times require farmers to compile realistic cash flows

Seamus McCaffrey
Seamus McCaffrey

Dairy farmers should be compiling their cash flow estimates for the year ahead based on an average milk price of 18 ppl, according to Omagh accountant Seamus McCaffrey.

“Managing cash flow is crucially important for every business,” he added.

“But this is particularly so in the case of farmers during periods of farmgate price volatility.”

Mr McCaffrey, pictured, added that the 18p threshold is one that is being used by the banks in their current assessment of the prospect for dairy moving forward.

“But, in the vast majority of cases, the base price is not the actual figure used to calculate individual producers’ monthly milk cheques,” he said.

“Bonuses for milk fat, protein and low somatic cell counts can add significantly to the actual price the farmer receives. And this, in turn, highlights the absolute importance for dairy farmers to maximise the quality of the milk they produce month-in, month-out.”

Mr McCaffrey confirmed that the same principle holds across all of the other commodity sectors.

“Where beef and lamb are concerned, the challenge is to ensure that all stock are farm quality assured and that they are fully in-spec from a classification perspective,” he confirmed.

Mr McCaffrey explained that, when drawing up a cash flow, all costs must be accurately distributed across all of the enterprises that make up the farm business.

“Good record keeping is, therefore, important,” he said.

“This means recording all farm costs accurately. Accurate stock sales’ predictions must be included when it comes to compiling a cash flow forecast.

“These can then be discussed with the farm’s accountant and bank.”

Mr McCaffrey admitted that a base price of 18ppl would make life extremely difficult for most dairy farmers in Northern Ireland at the present time.

“However, it leaves producers in a position where they must identify ways by which they can improve farm efficiency levels.

“Realistic cash flow forecast allow banks to identify the ways in which they can support clients’ businesses in the most effective way possible. Options in this regard include re-jigged over draft facilities, term loans and asset finance and capital repayment moratorium.

“But it is impossible for the banks to make any decisions at all if the farmer client has not produced realistic cash flows in the first instance.”