Managing a farm business requires decisions to be made in both the medium and long-term, writes CAFRE’s Martin Reel.
Volatility arising from events outside the control of the business, such as poor weather, TB outbreaks and market disruptions caused by the Covid-19 pandemic can all impact on the financial well-being of farms.
When trying to make savings in the business, it is important not to put the core business at risk.
Know your costs
As cash flow remains tight on farms due to lower prices, knowing your costs is crucial. Do you know your cost of production per litre?
If not, add up all the costs listed in your year end accounts and divide the total by the number of litres produced. This will give you an estimate of your cash production cost per litre.
Similarly, for a beef/sheep enterprise, do you know how much profit was made for every kilogramme of carcase sold?
Review expenditure
It makes sense to analyse all expenditure to ensure it is both absolutely necessary and good value for money.
A good starting point is to look at your farm bank statements. Take a fresh look at each direct debit.
Are you paying for a service you don’t use? If the answer is yes, then consider cancelling, but check first in case there is a notice period required and/or cancellation fee.
If you do make use of the service, make sure it is a net benefit to your business by either adding value or saving you more than it costs.
If you’re not the book-keeper in the family, take some time to review invoices to keep up to date with current input costs.
Are you getting value for money? Have you priced around? Could you reduce the quantities purchased?
On dairy farms, for example, CAFRE benchmarking figures show that concentrate per cow represents approximately 40% of the total cost of milk production.
Similarly, the most efficient suckler beef farms feed 42% less concentrates than the bottom 25%. A focus on improved feeding efficiency will reduce costs more than focusing on any other input.
Fertility and veterinary costs
Herd health plans should be maintained with vaccination programmes continued, along with regular foot trimming and pregnancy scanning.
Short-term savings achieved by cutting back on these essential costs can have long term negative impacts due to reduced milk yields, lameness, more involuntary culling and increased vet bills.
Farm insurance
Not having valid public and employer’s liability or machinery insurance could have serious implications for a business if a mishap occurs and a claim against the business is made.
Young stock
Do you have surplus heifers each year? Keeping more stock than required ties up money and time. Selling surplus stock will bring cash into the business.
Calving heifers at the target age of 23-24 months reduces the number of young stock carried on the farm and, therefore, the amount of feed and other inputs required. Significant savings can be made if the age of first calving is reduced from 30 to 24 months.
Machinery
Do you have all the machinery in the yard but pay a contractor to carry out the work? If the machinery is already there, it may be more economical to pay a tractor driver, rather than a contractor using his own equipment.
Alternatively, is it more economical in the longer term to employ a contractor and not have the running costs associated with maintaining machinery?
Benchmarking data shows that machinery costs are the largest component of fixed costs for all farm enterprises.
Finance
Finally, consider postponing major expenditure until prices improve. High interest charges and finance costs just add to the strain in difficult times.
Know your overdraft situation and talk to your bank manager early if you are likely to exceed your limit. The earlier financial issues are discussed, the more options there are to help resolve them.
