Farming cashflow – preparing to take the strain

Graham Sanders looks at how weather and disease has affected the key farming sectors and what farmers and diversified businesses should do now to prepare for pressures on cashflow.

Farming has faced some challenging weather in the last eight months. During autumn 2019 and winter 2019/2020 we had the worst rainfall for over 200 years resulting in flooding and the inability to get on the land to plant crops.

A significant dry spell followed in spring and early summer – including the driest May on record. Whilst some areas have had rain in recent weeks, the dry spell could affect crop, forage and farming output this season.

On top of this we have had the COVID-19 pandemic which could result in the worst recession this country has known for at least 300 years, Brexit and a potential trade deal that will do no favour to UK farmers.

Arable

Many arable units could not establish winter crops in the autumn. Instead, they planted spring crops and are already disadvantaged with potential for reduced yields. The spring drought conditions have affected establishment and crop growth, which will impact on harvest income and bring cashflow challenges if conditions don’t improve.

Farmers should look at their budgets now and be ready to alert their bank manager of potential cashflow issues. The sooner they can do this, the better the outcome will be.

Dairy

The wet winter resulted in a greater reliance on fodder to feed the herd and youngstock. With the dry spring conditions, there are reports that in some parts of the country there is little grass growing. Silage yields said to be at only a third of last year’s crop and we are already hearing reports of forthcoming straw and feed shortages.

The pandemic and losing the food service markets has severely affected dairy farmers. AHDB reports that over half of GB dairy farmers have suffered a milk price reduction of 0.5ppl to 4ppl and higher.

Many farms have had milk collections cancelled and have had payments deferred. The Government Dairy Farmer support scheme, Bounce Back Loans and Coronavirus Business Interruption Loan Scheme (CBILS) have helped in some instances, but sadly we are hearing of dairy farmers planning on exiting the industry.

Again, we cannot express the importance of good budgeting and cashflow forecasts. They are critical if a dairy farmer wants to sit the troubles out with the support of their existing lender or elsewhere.

Beef & sheep

As with dairy farming, grazing land is under pressure. Enterprises have adjusted feeding and silage making regimes. In some areas, buffer feeding is being reported, which will affect the condition of the animal and the market price. Home-grown forage, feed and straw shortages will clearly impact cashflow, but the real threat to this sector remains a no deal Brexit.

Pigs & poultry

Feed prices are increasing and margins narrowing, which will put some pressure on the intensive units. A no deal Brexit could be disastrous for these sectors.

Fruit & horticulture

The labour gap for harvesting fruit has been widely reported but the easing of restrictions on foreign seasonal worker travel has been welcomed. We must wait and see if these labour numbers are enough and if gaps can be filled by furloughed UK workers – or if some crops must be left unharvested.

It has been encouraging to see some Pick Your Own (PYO) enterprises opening under Government guidelines and social distancing, but how PYO enterprises will fare is unknown at this stage

Diversified business

Many diversified businesses will have been affected by the COVID-19 pandemic. Retail, accommodation and office lets in particular. As with other business types, they’ll need to critically assess cashflow, and plan and adapt for the future.

What should farmers do now?

The Government support schemes have helped ease financial pressure on many farming and diversified businesses, but cashflow will still be an issue for many businesses. A good agricultural bank manager will be aware of the pressures on overdraft facilities - but with managers being exceptionally busy themselves as they help deal with CBILS and Bounce Back loans, any requests for additional finance need to be well-planned.

To help your cashflow situation we say:

• Plan ahead. Identify the areas of concern and put the plans in place now to address them. If you leave it late, it will be harder to change or to put measures in place to correct the problems.
• Revise cashflow plans and budgets for the next 12 months. Using up-to-date figures and adding in some sensitivity for future price reductions will help highlight where there may be shortfalls. We have a farming cashflow forecast template to help you. 
• Ask for additional facilities in good time. Overdraft arrangements need to be robust and well-planned; professional advice and support from your bank will be crucial.
• Consult with third-party professionals to help with business planning and decision making. By pulling together a plan with consultants or advisers, you can inform your lenders about the future direction of the business. Not only will the advisers help you through the current position, but they can help you to safeguard your business for the long-term.
• Maintain a close dialogue with your bank manager and keep them informed about what is happening in the business. Failure to meet servicing or repayments could result in special measures being put on the business or lending facilities being withdrawn.

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If your bank doesn't understand your current farming pressures, you need some help with your business finance planning or you are seeking alternative sources of farm or rural finance, please don’t hesitate to contact R&BS.

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