Beef farmers who can provide benchmarking reports to support loan applications have a stronger chance of securing new funds, Ulster Bank’s Cormac McKervey told attendees at a beef webinar last Thursday.
In the second in a series of four webinars focused on sustainable beef production organised by CAFRE and AFBI alongside various industry partners, McKervey said that beef and sheep farmers lag behind others when it comes to completing benchmarking.
“We see fantastic benchmarking from pigs, from poultry, some from dairying. The beef and sheep side, we see very little,” said the bank representative.
“Benchmarking helps you make sensible business decisions, and in terms of borrowing money, credit departments love figures and if you have a report and the figures to back it up, that will always help your case,” he added.
McKervey acknowledged that some farmers might be concerned that their benchmarking figures show that the business is operating below average, but he argued that it could instead support a case to invest in a certain area to improve performance.
Reducing debt risk
On managing farm debt, McKervey maintained that overdrafts should only be used to fund essential inputs such as fertiliser, feed and fuel with the balance cleared annually.
Overdrafts should not be used to fund capital expenditure projects such as housing facilities, which instead should be put on a long-term loan. “Whatever debt is on the farm, is it in the right place?” asked McKervey.
He emphasised the importance of ensuring that whatever investments are made will ultimately benefit the business and lead to higher returns.
“Be careful that you are not taking on debt to fund losses – that is a dangerous predicament to be in,” he said.
However, in some cases, such as a bovine TB breakdown, cashflow may come under pressure, so it may be necessary to extend an overdraft limit to cover a period until cattle are sold.
“If there is a need to get that overdraft increased, ask for it – in most issues it will be given,” he said.
In the situation where a new entrant or an existing farmer is diversifying into a new enterprise, McKervey maintained that the lack of a trading history is not a barrier to securing financial support.
In particular, contracts with processors in the likes of poultry, pig finishing or calf rearing, share the risk and significantly help in the approval of a loan application.
“If it is a contract system, you know roughly the income, the costs, therefore you know the margin the farmer can work with,” he said.
Looking to the future, McKervey sees more lending products geared towards smaller-scale green energy projects, where the energy is utilised on farm, or sold into the grid.
“We will see much more investment in that area, without a shadow of a doubt,” he predicted.
He also urged farmers to have a succession plan in place, and continues to be a strong advocate for long-term leasing of land as opposed to conacre.
Ideally, McKervey said that a farmer seeking bank funding should own at least half the land they are farming, with the remainder secured over a longer period.
“Where a farmer comes to us who is reliant on conacre, it is virtually impossible to lend to that farmer,” he suggested.
But ultimately, when it comes to lending on beef and sheep farms, direct payments remain “absolutely crucial”.
In the past, McKervey said that the bank would do projections based on a 10% reduction to payments, to allow for any changes in exchange rates.
However, at present it is a 15% reduction, which reflects a higher level of uncertainty around payments into the future.