Agricultural Consultant and managing director at Brady Group: Agricultural Consultants & Land Agents. The Lodge, Lee Road, Cork.
Tel: 021- 45 45 120 email: email@example.com
1st Published in The Farming Independent 05 May 2020
Most of the main milk processors announced a milk price drop for March milk, this means less money in dairy farmers pockets at the end of April.
The 2 cents per litre drop in milk price and the 2-kilometre travel limit are combining to cause dairy farmers to rethink their plans for 2020.
The banks report no slowdown in loan applications from dairy farmers for building projects and the purchase of land, but telephone calls to consultants / advisors indicate farmers are weighing up the pros and cons before they splash the cash this year.
Many have decided to put building plans on ice, while others are driving on as normal, who is right or wrong?
The question is, will the fall in the price of milk be a short-term or long-term? More importantly should it affect dairy farmer development plans?
Milk price has fallen before, 2009 and 2016 being the years farmers remember most. It is usually the year after a milk price drop which proves difficult financially, as farmers try to repay increased creditors from the poor year.
Form my examination of CSO milk price data over a 15 year period, we have never recorded two years in a row of low milk prices in Ireland, in fact 2017, 2018 & 2019 has seen the best combined 3 year period of milk prices in that 15 year time period. So one could ask, are we due a period of low price?
For the glass half-full people, they cite the oil price drop and the expected post-COVID-19 recession, combining to depress dairy markets and force the milk price further down and for a longer period of time.
On the other hand, the glass half-full viewpoint is that a period of low milk price will ultimately benefit Irish Dairy producers as we know our European milk producing neighbours and American dairy farmer cousins cannot survive for long with milk prices below 30 cent per litre. They usually react by culling cows to cut costs and provide cashflow, this will result in a deficit of milk in the market and the milk price will rebound strongly and quickly.
In my experience of low milk price years, Irish Dairy farmers don’t lose money, they just make less of it.
In times of crisis like the present COVID-19 induced market pressure, yes, milk price might fall quickly, but on the upside the price can recover even more quickly when business reverts to something approaching normal. As previously discussed, the constant negative news-stream infiltrates the mind of many farmers and raises doubts and concerns, many of which are outside of their control and realistically should not concern them in the first place.
The advice for dairy farmers is simple; if you are of a nervous disposition or your gut feeling is telling you hold off on a large capital investment project because of the crisis, make the decision and postpone it for a year, don’t procrastinate. Do a farm plan or budget with a lower milk price for your business to see do your sums add up. If they don’t, contact your bank and put your loans on interest only or get a moratorium on loan repayments whichever works best for your business. Deal with it and do not waste your time and energy on what may or may not happen.
If you are in the positive mindset camp and you are confident about the financial strength of your farm business and of the wider Irish dairy industry, drive on and take your chances, buy that land or invest in the dairy unit as planned, I believe you will have no regrets.
I don’t believe this crisis will negatively affect Irish dairy farming, in fact I believe it will strengthen it. In times of lower milk price there is clear evidence that the cost of production of milk falls, as farmers critically look at their expenditure in an effort to maximise profitability. I predict that farming and non-farming businesses who survive this COVID-19 crisis will rebound leaner and meaner when the new normality returns.
Many non-farming businesses clearly have much bigger challenges than farm businesses because of COVID-19. However, farmers and farm businesses by their nature are robust and resilient, they are well experienced in dealing with crises such as drought, excessive rain, floods, disease, price drops, labour issues, loosing rented land etc just to mention a few. They will cope and see the other side of this crisis.
I expect a new normality will soon become apparent in all countries, regardless of where they are on the now famous curve.
Social distancing and testing for the virus will become part of our everyday lives. The burden of the lockdown will be removed for most as the 2km distance limit is lifted, but unfortunately the burden will remain for the elderly and those in the most-at-risk groups as they figure out how best to protect themselves into the future.
When relaxing of the rules happens, the global economy will swing back into action, demand for dairy products will rise and so the cycle begins again.