Dear Money Mentor,

I am sick of hearing all about how well dairy farmers are doing. My husband is a dairy farmer and we are not doing well. We have increased numbers in recent years to get to the 100 cows that the farm has the potential to do. He is working every hour and yet we still don’t seem to be making progress. Recently, we have people coming to the door looking for money. Quite often, I am the one at home that has to deal with them. I can see that my husband is stressed. I work off-farm so have a break from it. Now he says that we need to take out a loan from the credit union to pay off the supplies from the last job we did in the yard. He is looking for me to guarantee the loan and help pay it back. If dairy farming is doing so well, why are we in this situation? More importantly, what can we do to get out of it?

Yours sincerely,

Stressed Dairy Farmer’s Wife

The better prices and good weather so far in 2017 have certainly improved dairy farmers’ finances. There is much more positivity compared with last year. However, I am conscious that not every dairy farmer is doing well. So I went out to see Jane and her husband, David. When we sat down at the kitchen table it was obvious that David was not comfortable that I was there.

After getting the niceties out of the way, I asked if we can talk about finances. I always start by listing what assets and debts the farm has. Very often the family does not realise the value of land, stock and machinery they have. Then we go into the debts. This can often be uncomfortable, as the farmer has to reveal more debts, especially merchant debts that his wife did not realise had built up.

David immediately started giving out that the real problem was that the co-op has taken control of his milk cheque. Of the €20,000 that had been supplied in May, he only got paid out €1,000. How can I manage my finances with that? He asked. “If I could only get the co-op bill cleared,” he said, “we would be in a better position”. This simple solution raised alarm bells for me. Firstly, co-ops do not start taking money directly from milk cheques unless there has been issues and discussions.

I asked David is the co-op the main money owed. He initially said yes, there was no other merchants. However, when I started asking him about the vet, the accountant and contractors – a different picture started to appear. When David was prompted, he remembered other bills of €2,000 to €6,000 owed here and there. As the money was added up, it quickly became obvious that there was just as much money owed to other creditors. He was genuinely surprised, as he had not realised this.

So I wanted to dig deeper on the issue of the co-op. I believe that farmers should not allow the co-op to take control of their milk cheque. Looking at the May statement, the co-op had taken money off the milk cheque, but there was also other money deducted. The AI bill of nearly €6,000 had also come off it that month. There was also a large amount taken off for health insurance. David was again surprised, as he had not really looked.

So there was a problem with how David managed his finances. However, there were other obvious problems outside of the farm that were restricting his profits.

The farm has 100 acres of good land that is easily capable of growing grass. You could see his target of 100 cows was achievable. How are the cows milking, I asked David. His quick reply was 22 litres. He showed me the latest text on his phone and the solids were also impressive. How much meal being fed? Just 1kg. They were impressive figures that could be achieved with good grassland management. However, the grass I had seen on the drive did not tally up.

How much was in the last milk collection, I asked. When I got him to work out how many cows were milking into the tank for the two days, the actual figure came out at 16.5l/cow. It was an interesting exercise.

Too often farmers know the right answer to give to questions, as they have read what the best farmers are doing in the Irish Farmers Journal, or seen someone tweet their highlights to impress others.

We worked out some other key figures. How much meal did you feed last year? About a tonne per cow. Do you measure grass? I have started this year David told me and I should have started years ago, he added. We agreed that with good grassland management, he should be able to feed just 500kg/year to cows. Halving the meal bill and getting a better price for ration by shopping around came up with a saving of nearly €15,000 on meal alone.

It suddenly dawned on him the profit potential that he is losing out by not focusing on the basics. David had clearly been only thinking that expansion was key. Teagasc has a mantra of ‘better before bigger’ that he should have started to chant first.

Looking at the overall picture of longer-term debts, it was actually not that bad. There was no overdraft and long-term debt was low. He had fallen into the common traps of:

  • • Too much machinery, as David used to do contracting.
  • • Too much expansion done out of cashflow.
  • • No overdraft facility – probably because the current account was not manged properly in the past.
  • • Not focusing on the key basics of the grass-based system.
  • So how can things be improved? I will look at the answer to this question more closely in next week’s Irish Country Living, as there are strong lessons to be learned from this family – and not just for dairy farmers. CL