David owns and farms 180 acres of good dry land in two blocks. The home farm consists of 84 acres and the outside block is 96 acres. The blocks of land are over 20 miles apart. In 2014 he milked 109 cows, reared 26 in-calf heifers, 22 heifer calves.
Expansion is not on the agenda for David. The main reasons are as follows:
His grazing block is already stocked at three cows/ha.There is no prospect of grazing lands becoming available in the next five years.He does not have an ambition to milk a large number of cows.A large amount of capital investment would be required to support expansion and David is not willing to take on the risk associated with additional borrowings.The scale of expansion would need to be large enough to justify one hired labour unit as David finds the workload with his existing herd demanding.The main points to note in the background for this plan are:
David and Freda have four children – three attending secondary school and one in third level.Overall farm borrowings are €180,000.There are no off-farm investments.He is the only full-time labour unit on the farm at present.Creditors have become very high in recent years.David has done a lot of thinking about his future and the farming business. In recent years the workload is too much for him and his family. With one child currently in third-level education and the other three in secondary school David must ensure his farming business can support the family in years to come.
He has decided to maximise the output and reduce the input as much as possible.
This can be done by making the following changes.
Lease out the outside farm on long-term lease.Enter a private contract clause with a lessee for Basic Payment Scheme.Contract-rear all replacement heifers.Stock the home/grazing block at 1.25 cows per acre or three cows per hectare.Rent additional land near home for silage making or buy growing silage.Hire part-time labour for calving period and relief milking at weekends.How will the changes contribute to maximising his output?
Leasing out the outside farm will enable him to avail of income tax exemption on the payment he receives for the lands. The lands are on the boundary of an ambitious dairy farmer willing to pay a substantial amount per acre.The contract rearing of replacement heifers will mean a reduced labour demand on the home farm. David will only need to focus on running the dairy herd.By continuing to stock the grazing block at three cows per hectare, he can maximise milk output from grazed grass without introducing additional feeding expenditure.Sourcing land nearer the home farm will reduce costs for transporting silage.Hiring part time labour will give David time with the family and it will allow them to enjoy time away from the farmLooking at the profit
The net profit before bank and depreciation is shown in the income and expenditure table. The net profits between 2015 and 2019 are varied as a result of different milk prices for each year. The average milk price planned over the five years is 31.6c/litre. In 2015 there will not be a sufficient surplus available to make the current interest only payment on the large loan.
A moratorium on repayments will be necessary for 2015 with the milk price at 26c/litre. David is meeting his bank to discuss this issue. It is planned that capital and interest repayments will start again in 2016.
David’s creditors are at €900/cow. I would like to see these reduced, but 2015 is not going to be a year for reducing creditors. It is important he continues to engage with creditors. Keeping lines of communication open and reassuring them he is doing everything in his power to reduce the bills will help reduce the risk of any legal action.
In 2017 there is an increase in annual surplus cash of €37,565 per annum (see source and application of funds). This meets David’s goals of generating extra surplus cash to reduce creditors and creating more time for family by employing additional labour.
In 2019 there is a large deficit. This is attributable to:
1. An increase in living expenses due to additional children in third level and
2. Milk price of 30c/litre. (See source and application of funds).
All businesses hit good and bad times, a sensitivity analysis highlights how the surplus cash amount can be increased or decreased by say a 1c movement in the milk price. The table shows movements which could wipe out or increase a cash surplus in a 12-month period. Milk price, interest rate and farm physical performance are the main items which could affect David’s business.
David owns and farms 180 acres of good dry land in two blocks. The home farm consists of 84 acres and the outside block is 96 acres. The blocks of land are over 20 miles apart. In 2014 he milked 109 cows, reared 26 in-calf heifers, 22 heifer calves.
Expansion is not on the agenda for David. The main reasons are as follows:
His grazing block is already stocked at three cows/ha.There is no prospect of grazing lands becoming available in the next five years.He does not have an ambition to milk a large number of cows.A large amount of capital investment would be required to support expansion and David is not willing to take on the risk associated with additional borrowings.The scale of expansion would need to be large enough to justify one hired labour unit as David finds the workload with his existing herd demanding.The main points to note in the background for this plan are:
David and Freda have four children – three attending secondary school and one in third level.Overall farm borrowings are €180,000.There are no off-farm investments.He is the only full-time labour unit on the farm at present.Creditors have become very high in recent years.David has done a lot of thinking about his future and the farming business. In recent years the workload is too much for him and his family. With one child currently in third-level education and the other three in secondary school David must ensure his farming business can support the family in years to come.
He has decided to maximise the output and reduce the input as much as possible.
This can be done by making the following changes.
Lease out the outside farm on long-term lease.Enter a private contract clause with a lessee for Basic Payment Scheme.Contract-rear all replacement heifers.Stock the home/grazing block at 1.25 cows per acre or three cows per hectare.Rent additional land near home for silage making or buy growing silage.Hire part-time labour for calving period and relief milking at weekends.How will the changes contribute to maximising his output?
Leasing out the outside farm will enable him to avail of income tax exemption on the payment he receives for the lands. The lands are on the boundary of an ambitious dairy farmer willing to pay a substantial amount per acre.The contract rearing of replacement heifers will mean a reduced labour demand on the home farm. David will only need to focus on running the dairy herd.By continuing to stock the grazing block at three cows per hectare, he can maximise milk output from grazed grass without introducing additional feeding expenditure.Sourcing land nearer the home farm will reduce costs for transporting silage.Hiring part time labour will give David time with the family and it will allow them to enjoy time away from the farmLooking at the profit
The net profit before bank and depreciation is shown in the income and expenditure table. The net profits between 2015 and 2019 are varied as a result of different milk prices for each year. The average milk price planned over the five years is 31.6c/litre. In 2015 there will not be a sufficient surplus available to make the current interest only payment on the large loan.
A moratorium on repayments will be necessary for 2015 with the milk price at 26c/litre. David is meeting his bank to discuss this issue. It is planned that capital and interest repayments will start again in 2016.
David’s creditors are at €900/cow. I would like to see these reduced, but 2015 is not going to be a year for reducing creditors. It is important he continues to engage with creditors. Keeping lines of communication open and reassuring them he is doing everything in his power to reduce the bills will help reduce the risk of any legal action.
In 2017 there is an increase in annual surplus cash of €37,565 per annum (see source and application of funds). This meets David’s goals of generating extra surplus cash to reduce creditors and creating more time for family by employing additional labour.
In 2019 there is a large deficit. This is attributable to:
1. An increase in living expenses due to additional children in third level and
2. Milk price of 30c/litre. (See source and application of funds).
All businesses hit good and bad times, a sensitivity analysis highlights how the surplus cash amount can be increased or decreased by say a 1c movement in the milk price. The table shows movements which could wipe out or increase a cash surplus in a 12-month period. Milk price, interest rate and farm physical performance are the main items which could affect David’s business.
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