Expansion and risk management - The Greenfield Dairy Programme

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Teagasc New Entrants
Training
Abigail Ryan
Teagasc Moorepark
Overview
• Why?
• Money in
• Money out
• Investments
• Personal
• Cash flow
• Why?
• Money in
• Money out
• Investments
• Personal
• Cash flow
Why? – because it will cost a lot of money
Existing farmers
• 2020 Vision – 50% increase in volumes
• ICBF Projections on Cow Numbers - +100k in Glanbia??
Possible Cost of on-farm Investment
• €2,000/cow = €200m
• €4,000/cow = €400m
New Entrants
• 50% are currently beef farmers
• Average investment €160,000 approx.
• Target a yield of 385kg (1,100 gallons) per cow + 10 c/litre profit
• Why?
• Money in
• Money out
• Investments
• Personal
• Cash flow
Average Producer Milk Prices
32
30
28
26
c/ litre
24
2 c/litre
22
20
18
'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
Average Producer Milk Prices
36
34
32
 6 c/litre
30
28
c/ litre
26
2 c/litre
24
22
20
18
'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Monthly Milk Prices (vat incl.)
Average milk price : 2008 : 33.2 c/litre ; 2007 : 33.5 c/litre
45
cent per litre
40
35
30
25
20
Jan Feb Mar Apr May Jun
2008
Jul
Aug Sep Oct Nov Dec
2007
Source: CSO
Monthly Milk Prices (vat incl.)
16
14
12
10
45
40
35
Aut 07
8
6
4
2
0
Spr 08
30
25
20
Jan
Mar
May
Supply
Jul
2008 Price
Sep
Nov
2007
Source: CSO
cent per litre
% of production
Average milk price 2008 33.2 c/litre : 2007 33.5 c/litre
Milk price variation vs milk sales
Milk price
Milk receipts
(€/100 cows)
22 c/litre
€110,000
28 c/litre
€140,000
34 c/litre
€170,000
• Why?
• Money in
• Money out
• Investments
• Personal
• Cash flow
Range in Physical & Financial
Performance 2010
Top
1/3
Middle
1/3
Bottom
1/3
Concentrate (kg/cow)
728
961
1194
Days at grass
234
230
217
€1,016
€1,131
€1,300
Money Out
Costs (€/cow)
Variation €28,400 per 100 cows
Range in Physical & Financial
Performance 2010
Top
1/3
Middle
1/3
Bottom
1/3
Milk Yield (litres/cow)
5,003
5,051
4,729
Milk Solids (kg/cow)
355
355
322
€1,631
€1,556
€1,390
Money In
Output (€/cow)
Variation €24,100 per 100 cows
Range in Financial Performance 2010
Top
1/3
Middle
1/3
Bottom
1/3
€1,631
€1,556
€1,390
€1,016
€1,131
€1,300
€615
€424
€90
Money In
Gross output (€/cow)
Money Out
Costs (€/cow)
Residual cash (€/cow)
Variation €52,500 per 100 cows
+
Residual cash(€/cow)
- left to pay yourself, taxation and repay the investments
Money In
Top
1/3
Top 1/3
Money
Out
Middle
1/3
Bottom
1/3
Middle
1/3
Bottom
1/3
€615
€424
€90
Residual cash (€/cow)
- left to pay yourself, taxation and repay the investments
Money In
Money
Out
Top
1/3
Middle
1/3
Bottom
1/3
Top 1/3
€615
€540
€374
Middle
1/3
Bottom
1/3
€482
€424
€259
€331
€256
€90
• Why?
• Money in
• Money out
• Investments
• Personal
• Cash flow
‘Average’ investment costs
Stock
Milking facilities
Paddocks, Roadways
Soil fertility / reseeding
Slurry storage
Winter accommodation
Machinery / other housing
Total
€/cow
€1,400
€1,000
€500
€300
€200
€350
€250
€4,000
Possible investment costs
Stock
Milking facilities
Paddocks, Roadways
Soil fertility / reseeding
Low
cost
€1,000
€250
-
Slurry storage €200
Winter accommodation €300
Machinery / other housing €250
Total
€2,000
Average
High
cost
€1,400
€1,000
€500
€300
€1,400
€1,500
€500
€300
€200
€350
€250
€4,000
€1,000
€800
€500
€6,000
Possible investment costs
Low
Cost
(€/cow)
Total Investment costs
Average
(€/cow)
High
cost
(€/cow)
€2,000 €4,000 €6,000
Assumptions
10 year repayment period
6% interest rate
Annual repayment/cow
€274 €548 €822
Residual cash (€/extra cow)
- left to pay yourself and for taxation
Investment costs
€2,000
€4,000 €6,000
per cow per cow per cow
Residual
cash
High
profit
€341
Average
€208
- €124 - €563
Low
profit
€57
- €292 - €732
€67
- €448
Expansion – a case study
End of year no’s
‘06
‘07
‘08
‘09
’10
‘11
Dairy Cows
48
65
77
95
104
110
Repl. (0-1)
24
32
27
55
46
50
Repl. (1-2)
28
24
32
23
30
46
Cattle (LU)
25.3
21.3
2.4
4.2
0
0
St. rate (LU/ha)
1.81
1.94
1.89
2.25
2.6
2.7
MP SR
(1.81)
(2.14)
(2.68)
(3.18)
(3.55)
(3.68)
249
345
416
477
480
592
Milk quota
(‘000 litres)
Case study – the investments made
(€‘000’s) ’06/’07
‘08
‘09
’10/’11 Total
Quota
14.7
16.6
12.2
16.8
60.3
Buildings
19.0
16.5
12.2
80.3
128.0
Machinery
9.4
-
1.8
27.7
38.9
-
3.7
-
-
3.7
43.1
36.8
26.2
124.8
230.9
Infrastructure
Total
Case study – the investments made
(€‘000’s) ’06/’07
Quota
Buildings
‘08
Investments made
14.7
19.0
16.6
16.5
‘09
’10/’11 Total
€140
12.2
€120
€100
12.2
16.8
60.3
80.3
128.0
27.7
38.9
-
3.7
€80
Machinery
9.4
-
1.8
€60
€40
Infrastructure
-
3.7
-
€20
€0
pre 2008
Total
43.1
36.8
26.2
2008
124.8
2009
2010 on
230.9
Expansion costs €3,700/cow
Case study – the profit generated
2006
2007
2008
2009
2010
Milk price
c/litre
28.6
38.0
36.1
25.4
33.3
Common Cost
€/cow
892
781
757
688
788
Common Profit
€/cow
629
1,215
940
548
981
€/farm (‘000’s)
30
79
72
52
102
Lessons from Case Study
Efficient dairy farms …
• Can deliver a ‘good’ income independent of SFP
• Can increase income through expansion
• But are affected by low milk price
• Why?
• Money in
• Money out
• Investments
• Personal
• Cash flow
Living Expenses for Farm Families
A consumption unit needs €11,400
• A consumption unit = 13+ years
• Less than 13 years = ½ unit
2 adults and 2 children = €34,200
Average farm family (in 2000) 3.56 persons or 3.2 units (€36,400)
What is the figure for your family?
• Why?
• Money in
• Money out
• Investments
• Personal
• Cash flow
The transition to 2015 - Cash flow
Pre-2015
• Cost of rearing extra heifers
• The milk quota issue
• Timing of the investment
Post-2015
• Increasing cow number on milk receipts
Dairy cow Suppliers per county
County
Suppliers with Deliveries
County
Suppliers with Deliveries
Carlow
181
Longford
165
Cavan
765
Louth
199
Clare
682
Mayo
430
Cork
4293
Meath
697
Monaghan
680
Offaly
367
Roscommon
113
Sligo
188
Donegal
238
Dublin
32
Galway
601
Kerry
1707
Tipperary
1896
Kildare
158
Waterford
780
Kilkenny
916
Westmeath
323
Laois
443
Wexford
798
54
Wicklow
231
Leitrim
Limerick
1611
Total
18548
Compound annual growth in
milk output %
What % of live heifers calve at 22-26 months?
Number % Total
1. Total number of dairy heifers born in 2007
249,126 100%
2. Number that have calved at least once at this stage.
191,760 77.0%
- Of these, how many calved at the target 22-26 mths 119,278 47.9%
- Of these, how many calved at <22 months.
2,753
1.1%
- Of these, how many calved at 27-30 months
22,363
9.0%
- Of these, how many calved at 30 months+
47,366
19.0%
3. Number that have not calved or did not calve.
57,366
23.0%
- Of these, how many are still on farm un-calved.
16,557
6.6%
- Of these, how many died/culled at 1-28 days
9,585
3.8%
- Of these, how many died/culled at 1-12 mths
7,893
3.2%
- Of these, how many died/culled at 12-24 mths
5,796
2.3%
- Of these, how many died/culled at 24 mths+
14,649
5.9%
- Of these, how many not calved and exported
2,886
1.2%
Cash flow – keeping extra heifers
Cost €/calf
Calf retained on farm (vs calf sold)
150
Cash cost of retaining the calf
500
Estimate of direct cash costs
650
€65 per cow - 10% more heifers
Cow numbers ('000's)
Cash flow - The milk quota issue
1030
1040
1020
1000
980
960
940
920
992
Milk
+10% + 30% + 50%
price
954 961
929
900
880
860
2008
2010
% over quota
2012
34
c/l
31.4
27.4
24.4
28
c/l
25.4
21.4
18.4
22
c/l
19.4
15.4
12.4
Cash flow - Milk quota options
Milk yield effect
Cull 10% on 1st September
100 litres  per cow
Reduce meals 500 kg / cow
250 litres  per cow
30 day earlier dry off
300 litres  per cow
Sell 10% of herd next spring
500 litres  per cow
Once a day all next year
800 litres  per cow
Buy quota
?
Cash flow – timing of the investment
2012 2013 2014 2015
Stock




Milking facilities

Paddocks, Roadways


Soil fertility / reseeding



Slurry storage

Winter accommodation

Machinery
?
Cash flow – effect of expansion on milk yield per cow
Average cow number
120
106
100
80
60
40
20
37
0
03
04
05
06
07
08
09
Cow no
Source: CSO
10
Cash flow – effect of expansion on milk yield per cow
Average milk yield
6500
6331
6000
5359
5500
5000
4500
Herd
maturing
More heifers
Herd getting younger
4000
03
04
05
06
07
08
09
Milk yield
Source: CSO
10
Average cow number
120
6331
106
100
6000
80
5359
60
5000
40
20
37
0
4000
03
04
05
06
Cow no
07
08
09
10
Milk yield
Source: CSO
Milk yield (litres per cow)
Cash flow – effect of expansion on milk yield per cow
Cash flow – ongoing investment costs
Cost €/ha
Cash reseeding costs
650
Cash cost of retaining the calf
500
Estimate of direct cash costs
650
€65 per cow - 10% more heifers
Successful farmers – the team approach
•
•
•
•
•
•
•
•
Adviser
AI technician
Banker
Contractor
Co-op person
Family
Milking machine technician
Vet
Risk analysis
Issue
Milk price
Cost of
production
Level of
investment
Quota /
super levy
Likelihood
Impact
Score
(Chance of it happening)
(Effect on your business)
(Effect on your business)
Risk analysis – example farm
Issue
Likelihood
Impact
Score
(Chance of it happening)
(Effect on your business)
(Likelihood X Impact)
Milk price
4
Cost of
production
2
Level of
investment
2
Quota /
super levy
2
Risk analysis – example farm
Likelihood
Impact
Score
(Chance of it happening)
(Effect on your business)
(Likelihood X Impact)
Milk price
4
5
Cost of
production
2
4
Level of
investment
2
3
Quota /
super levy
2
5
Issue
Risk analysis – example farm
Likelihood
Impact
Score
(Chance of it happening)
(Effect on your business)
(Likelihood X Impact)
Milk price
4
5
20
Cost of
production
2
4
8
Level of
investment
2
3
6
Quota /
super levy
2
5
10
Issue
Risk analysis – example farm
Likelihood
Impact
Score
(Chance of it happening)
(Effect on your business)
(Likelihood X Impact)
Milk price
4
5
20
Cost of
production
2
4
8
Level of
investment
2
3
6
Quota /
super levy
2
5
10
Issue
Your next steps …
• Establish your position
– Profit Monitor
• Complete the worksheet
• Update your 5 year plan
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