Farm debt

tismesoitis

What level of debt per cow would lads consider acceptable in the current economic climate. Would €2000 per/cow be outrageous?

Mooooo

Depends on profitability etc but that should be fairly manageable alright. Do out plans for milk price at low prices and see how you could manage repayments on those years.

mycro2013

Mooooo wrote: »

Depends on profitability etc but that should be fairly manageable alright. Do out plans for milk price at low prices and see how you could manage repayments on those years.

Financed over 20 years it equates to a 100 euro year before interest per cow. 10000 per annum from 100 cows seems manageable.

But everyone's circumstances are different. The Dutch and new Zealanders have mad levels of debt per cow.

Grueller

Currently I am at €4000 per cow. This will settle to €2k per cow next year or 2022 when I get to the full complement of cows. It will be frowned upon here but I do not draw a wage this year as my off farm income is quite good. From next year on I will be drawing wages and think I am comfortable enough at €2k.

Bass Reeves

With debt you have to factor in interest rate and payment period.mist debts may be in 2-3different subsections, capital stocking and machinery. In general capital and stocking may often be spread over 20years, and an interest rate of 4% machinery may be over 5-7years.
4k and an interest rate of 7%. If some one was borrowed at 4k/cow at a rate of 4% there repayments would be 280/cow,. While the amount borrowed might seem high if the structure was there to prevent further borrowing then while the tine frame is long it may be manageable.

On the other hand a lad with mixed borrowings maybe 2K/ borrowed on capital expenditures at 5%, 1k/cow in machinery loans at 7% and 1k/cow stocking at 5.5% and the terms over 50/5/10years respectively that would give repayments of nearly 500/cow. So debt is often more about structure than amount involved

pms7

There is a huge difference in levels of profit on farms so can't generalise

Bass Reeves

pms7 wrote: »

There is a huge difference in levels of profit on farms so can't generalise

Profitability is decided by costs, with dairying expansion and new startups repayments on lending will be a huge factor on profitability. Management and structure of debt will effect that. Wrong debt structure may effect cash flow negatively.

Fie instance a lad that decides to contract out a substantial section of the work, slurry, fencing, silage may have 100k less tied up in machinery and reduce workload by half a labour unit. Maybe decided to fertlizer and winter feeding as well. If he was saving 100+k on machinery costs of nbthe first 2-3 years it would effect his costs. But he may have transferred a large capital cost with a high interest rate into yearly variable cost. It may also effect the lifestyle and make it more manageable

Siamsa Sessions

Humour me - is debt per cow just worked out as follows: total investment costs divided by no. of cows?

So, 50k investment for 50 cows = 1k debt per cow?

Bass Reeves

Siamsa Sessions wrote: »

Humour me - is debt per cow just worked out as follows: total investment costs divided by no. of cows?

So, 50k investment for 50 cows = 1k debt per cow?

Yes

kevthegaff

What I see with land, stock and machinery, your increasing your assets
. I'm less prudent these days financing because of this...

Donald Trump

kevthegaff wrote: »

What I see with land, stock and machinery, your increasing your assets
. I'm less prudent these days financing because of this...

That's really nice for the Banks and finance companies too


If you don't meet your repayments you have loads of nice assets they can seize and firesale to recoup their money

Water John

For many onto the ,€280/cow/yr that Bass calculates you also have to add the €250/300 on the acre rental to feed the extra cow. That's about 1,650 litres/cow/yr.

kevthegaff

Donald Trump wrote: »

That's really nice for the Banks and finance companies too


If you don't meet your repayments you have loads of nice assets they can seize and firesale to recoup their money

I dont have any unnecessary machinery, luxury item here is a generator

Water John

A lot of the expanding guys found a generator a very necessary item, that they didn't have, during the last big storm.
It wasn't an essential item in the Teagasc Plan.

Grueller

Water John wrote: »

For many onto the ,€280/cow/yr that Bass calculates you also have to add the €250/300 on the acre rental to feed the extra cow. That's about 1,650 litres/cow/yr.

You are assuming that the land is rented though. My borrowings include repayments on bought land.

Bass Reeves

Water John wrote: »

For many onto the ,€280/cow/yr that Bass calculates you also have to add the €250/300 on the acre rental to feed the extra cow. That's about 1,650 litres/cow/yr.

TBH I imagine that someone that borrows 4K/cow is a change over from tillage or beef with a large land bank and has decided to get off the ground in one go. Lads renting in general are expanding. No bank will lend a newbie 4k/cow that is renting land and starting from zero cows. Even lads starting 2nd or third herd have other herds to fall back on. Generally these change overs will be 100 acre+ farms and starting at 60-100 cows. Often as well they will set up the farm so that they can expand further but want to feel there way into the industry. It also may make more sense to frontload the borrowing to access a cheaper rate and expand in 2-3 years without further borrowing.

The really high rents of 2015-2018 seemed to have ceased. Some of these also had BPS included for tax efficiency reasons. If there was a BPS of 350/HA this would take 140/acre off the land rental price. However the risks associated with falling BPS payments have made dairy farmers insert clauses regarding this due to some really long term leases. The quid quo pro is that the risk with the fixed PRSI and USC charge makes these clauses risky for land owner