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Debt level per cow

  • 10-01-2015 11:59PM
    #1
    Feckthis
    Closed Accounts Posts: 504 ✭✭✭


    There was a thread on this before but can't find it. Whats an acceptable debt level per cow on dairy farms?


«13

Comments

  • #2
    kowtow
    Registered Users, Registered Users 2 Posts: 6,135 ✭✭✭kowtow


    Feckthis wrote: »
    There was a thread on this before but can't find it. Whats an acceptable debt level per cow on dairy farms?

    Since 1st January I refuse to lend my cows any money at all, no matter what they want it for.

    I have done so in the past, but despite promises they never pay it back, just chew it and throw it around in the yard. To add insult to injury I have to pick up what is left of it and put it in the recycling.


  • #3
    Feckthis
    Closed Accounts Posts: 504 ✭✭✭Feckthis


    kowtow wrote: »
    Since 1st January I refuse to lend my cows any money at all, no matter what they want it for.

    I have done so in the past, but despite promises they never pay it back, just chew it and throw it around in the yard. To add insult to injury I have to pick up what is left of it and put it in the recycling.

    Thanks very helpfull


  • #4
    darragh_haven
    Closed Accounts Posts: 3,433 ✭✭✭darragh_haven


    Feckthis wrote: »
    There was a thread on this before but can't find it. Whats an acceptable debt level per cow on dairy farms?

    Its all relative. I think I remember GG saying that they had over 5k per cow when they lost animals to tb. But I would look at my upper limt of 3k per cow if I was going back into dairy. All repayments have to be maintained in a bad year as well as the good.
    Every guy or girl on this forum will have a different answer for you.


  • #5
    blue5000
    Moderators, Society & Culture Moderators Posts: 13,083 Mod ✭✭✭✭blue5000


    OP are you going to 'sweat some assets'? Lot depends on interest rate and what you are actually comfortable with. Some lads wouldn't be able to sleep at night if it was at 2k, others with low drawings and expanding would still be comfortable at 5k.

    If the seat's wet, sit on yer hat, a cool head is better than a wet ar5e.



  • #6
    just do it
    Registered Users, Registered Users 2 Posts: 5,422 ✭✭✭just do it


    I remember that discussion but I think it might be in the general dairy thread. €3.5k was the upper limit iirc. You'd want to have brass balls, good management and good land to carry that leave of debt though.


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  • #7
    mahoney_j
    Registered Users, Registered Users 2 Posts: 12,172 ✭✭✭✭mahoney_j


    just do it wrote: »
    I remember that discussion but I think it might be in the general dairy thread. €3.5k was the upper limit iirc. You'd want to have brass balls, good management and good land to carry that leave of debt though.

    3.5 k per cow is manageable In the right hands know a few guys at 5 k plus not a bother on them.look at somewhere line Holland where a lot of lads would have 30/40 k per cow borrowed.its all relative.some lads would **** themselves with any sort of borrowings and more will put the head down and plough on and progress at 4/5 k plus .


  • #8
    Kovu
    Closed Accounts Posts: 14,241 ✭✭✭✭Kovu


    Yup, original discussion started in general thread here. :)


  • #9
    kowtow
    Registered Users, Registered Users 2 Posts: 6,135 ✭✭✭kowtow


    mahoney_j wrote: »
    3.5 k per cow is manageable In the right hands know a few guys at 5 k plus not a bother on them.look at somewhere line Holland where a lot of lads would have 30/40 k per cow borrowed.its all relative.some lads would **** themselves with any sort of borrowings and more will put the head down and plough on and progress at 4/5 k plus .

    Many would consider between 2 and 4 x EBITDA a safe debt level in business. Banks covenants often stipulate 5x as an absolute ceiling, and they may not be prepared to lend to anywhere near that level.

    So the question would be, what would EBITDA per cow be? what milk price to use? I think you'd have to start by calculating EBITDA for a year at 20c / 28c & 36c perhaps, add them together, and divide by 3.

    Difficult with a cyclical industry where there is no track record post-quota, even more difficult where a country depends on exports.


  • #10
    Brown Podzol
    Registered Users, Registered Users 2 Posts: 1,847 ✭✭✭Brown Podzol


    just do it wrote: »
    I remember that discussion but I think it might be in the general dairy thread. €3.5k was the upper limit iirc. You'd want to have brass balls, good management and good land to carry that leave of debt though.

    You could carry considerably more in a company structure depending on your circumstances.


  • #11
    mahoney_j
    Registered Users, Registered Users 2 Posts: 12,172 ✭✭✭✭mahoney_j


    kowtow wrote: »
    Many would consider between 2 and 4 x EBITDA a safe debt level in business. Banks covenants often stipulate 5x as an absolute ceiling, and they may not be prepared to lend to anywhere near that level.

    So the question would be, what would EBITDA per cow be? what milk price to use? I think you'd have to start by calculating EBITDA for a year at 20c / 28c & 36c perhaps, add them together, and divide by 3.

    Difficult with a cyclical industry where there is no track record post-quota, even more difficult where a country depends on exports.

    Just over 3.5 k per cow borrowed here for last few years and projections done on 28 c per litre milk price.have further small scale building to do but will move cow nos up by 45% from now once milk is fully stocked and quota shackles are off.


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  • #12
    kowtow
    Registered Users, Registered Users 2 Posts: 6,135 ✭✭✭kowtow


    Brown Podzol wrote: »
    You could carry considerably more in a company structure depending on your circumstances.

    What do you reckon the capital investment per cow is?

    Since we have the "most expensive farm land in the world" - surely at 10K+ / acre it must be becoming unusual to have much less than €15K per cow invested?


  • #13
    Greengrass1
    Closed Accounts Posts: 9,493 ✭✭✭Greengrass1


    When lads say debt level per cow I'm often dubious about wether that inc bought land and infrastructure or just infrastructure?

    While we owe more than would be recommended /cow here more so due to the fact of only having half the cow numbers than we had intended its is still very manageable what we owe.
    What we pay/ac every yrs on mortgage isn't too much more than what some lads are paying to lease land.
    That's why we often say here it does work out better to buy land at a reasonable intrest rate.
    If you can stock it up to max from day one and have a lot of infrastructure in place to cope with extra numbers it definitely does pay
    But that's never the case on any farm.
    Any farmer will tell you he did things as big as je could at the time but after a few yrs it wasn't adequate any more


  • #14
    jaymla627
    Registered Users, Registered Users 2 Posts: 7,596 ✭✭✭jaymla627


    Greengrass1 wrote: »
    When lads say debt level per cow I'm often dubious about wether that inc bought land and infrastructure or just infrastructure?

    While we owe more than would be recommended /cow here more so due to the fact of only having half the cow numbers than we had intended its is still very manageable what we owe.
    What we pay/ac every yrs on mortgage isn't too much more than what some lads are paying to lease land.
    That's why we often say here it does work out better to buy land at a reasonable intrest rate.
    If you can stock it up to max from day one and have a lot of infrastructure in place to cope with extra numbers it definitely does pay
    But that's never the case on any farm.
    Any farmer will tell you he did things as big as je could at the time but after a few yrs it wasn't adequate any more

    Unless milk shoots back up to 40 plus cent it really doesn't, say a 100 acres comes up beside you and you give a million quid for it at 4% interest fixed over 20 years you looking at 72,000 grand a year repayments, say you tag on 120 extra cows onto this ground and they average 4,500 litres a year of milk from grazed grass alone it's costing you 13 c/l a year for 20 years just to cover the repayments on this ground that's before anything else is accounted for....the same ground rented at 250 an acre comes in at around 5c/l and is fully tax deductible


  • #15
    mf240
    Registered Users, Registered Users 2 Posts: 4,928 ✭✭✭mf240


    During the celtic tiger the phrase under-borrowed was starting to get bandied about .


  • #16
    Greengrass1
    Closed Accounts Posts: 9,493 ✭✭✭Greengrass1


    jaymla627 wrote: »
    Unless milk shoots back up to 40 plus cent it really doesn't, say a 100 acres comes up beside you and you give a million quid for it at 4% interest fixed over 20 years you looking at 72,000 grand a year repayments, say you tag on 120 extra cows onto this ground and they average 4,500 litres a year of milk from grazed grass alone it's costing you 13 c/l a year for 20 years just to cover the repayments on this ground that's before anything else is accounted for....the same ground rented at 250 an acre comes in at around 5c/l and is fully tax deductible

    Yes that doesn't make sense because that's a colosel amount of money. But a smaller amount 20-40 ac were you would have the replacements to bang on 30-50 extra cows in one yr.
    What made our land cheap was selling the other land if we hadn't if done that it would be very tough to repay


  • #17
    Brown Podzol
    Registered Users, Registered Users 2 Posts: 1,847 ✭✭✭Brown Podzol


    kowtow wrote: »
    What do you reckon the capital investment per cow is?

    Since we have the "most expensive farm land in the world" - surely at 10K+ / acre it must be becoming unusual to have much less than €15K per cow invested?
    I agree, 15k total investment seems reasonable. Land, infrastructure and cow. Is there any commodity producing enterprise in the world that could start from scratch with 100% borrowed money and make a success of it?


  • #18
    jaymla627
    Registered Users, Registered Users 2 Posts: 7,596 ✭✭✭jaymla627


    Greengrass1 wrote: »
    Yes that doesn't make sense because that's a colosel amount of money. But a smaller amount 20-40 ac were you would have the replacements to bang on 30-50 extra cows in one yr.
    What made our land cheap was selling the other land if we hadn't if done that it would be very tough to repay

    The figure of 13c/l still remains though, it's handy to say sure an extra 50 cows but with that comes another 50 cubicle spaces, probably going to have to upgrade the parlour, then another odd 30,000 plus to paddock,roadway,reseed, and water for this 50 acres, the thing is we all know lads that have went bought dairy farms lots of land quota and doubled/tripled cow numbers, but a lot of this was done on the back of selling development land, it was never viable in real terms and where milk price is heading even renting ground beside the milking block is questionable.


  • #19
    stanflt
    Registered Users, Registered Users 2 Posts: 4,954 ✭✭✭stanflt


    i wouldnt worry about getting caught up in debt per cow

    i know a farm that 7years ago had nearly 3k borrow per cow-same farm today is at around 200euro incl all machine finances

    now i will say that this farmers tractors are 10year old and he just spent 7k on an engine overhaul out of cashflow


  • #20
    Brown Podzol
    Registered Users, Registered Users 2 Posts: 1,847 ✭✭✭Brown Podzol


    stanflt wrote: »
    i wouldnt worry about getting caught up in debt per cow

    i know a farm that 7years ago had nearly 3k borrow per cow-same farm today is at around 200euro incl all machine finances

    now i will say that this farmers tractors are 10year old and he just spent 7k on an engine overhaul out of cashflow

    I also know a farm having no problem paying down debt at the rate of €450 per cow per year. Average SFP for a dairy farm and no off farm income.


  • #21
    Coonagh
    Registered Users, Registered Users 2 Posts: 249 ✭✭Coonagh


    stanflt wrote: »
    i wouldnt worry about getting caught up in debt per cow

    i know a farm that 7years ago had nearly 3k borrow per cow-same farm today is at around 200euro incl all machine finances

    now i will say that this farmers tractors are 10year old and he just spent 7k on an engine overhaul out of cashflow

    He should of got rid of that tractor!!!


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  • #22
    kowtow
    Registered Users, Registered Users 2 Posts: 6,135 ✭✭✭kowtow


    jaymla627 wrote: »
    a million quid for it at 4% interest fixed over 20 years you looking at 72,000 grand a year repayments,

    Completely agree with your post above but apart from that could you actually fix 4% for 20 years in the high street today?


  • #23
    kowtow
    Registered Users, Registered Users 2 Posts: 6,135 ✭✭✭kowtow


    stanflt wrote: »
    i wouldnt worry about getting caught up in debt per cow

    i know a farm that 7years ago had nearly 3k borrow per cow-same farm today is at around 200euro incl all machine finances

    now i will say that this farmers tractors are 10year old and he just spent 7k on an engine overhaul out of cashflow

    I think that is a good point - perhaps more so in a good milk price year if you are able / prepared to cut things to the bone there are plenty of examples of businesses which borrow hard to start and pay back very quickly. It is, however, a serious increase in risk which may ultimately be beyond the farmers control (ie. milk price). Not a long term plan.

    If I had to borrow in those circumstances I'd stick to assets with teats rather than grease nipples.


  • #24
    jaymla627
    Registered Users, Registered Users 2 Posts: 7,596 ✭✭✭jaymla627


    kowtow wrote: »
    Completely agree with your post above but apart from that could you actually fix 4% for 20 years in the high street today?

    Not a clue was just using 4% as an example in relation to green grass comment about low interest rates, even at 4% your paying 400,000 plus over the 20 years...


  • #25
    keep going
    Closed Accounts Posts: 3,551 ✭✭✭keep going


    Spoke to accountant a few weeks ago and he told me of 2 cases, one a fella milking 80 cows on 95 acres and some silage bought turning 100k in profit every year and a other milking 160 has only a profit of 54k.using simple guides can be useful but it comes down to ability to produce cash, just as you know some people always have money and some are always broke.banks in general balk at going over 4k but as one manager said to me its often harder to get money off the fella that borrows a little than alot


  • #26
    milkprofit
    Registered Users, Registered Users 2 Posts: 1,169 ✭✭✭milkprofit


    jaymla627 wrote: »
    Unless milk shoots back up to 40 plus cent it really doesn't, say a 100 acres comes up beside you and you give a million quid for it at 4% interest fixed over 20 years you looking at 72,000 grand a year repayments, say you tag on 120 extra cows onto this ground and they average 4,500 litres a year of milk from grazed grass alone it's costing you 13 c/l a year for 20 years just to cover the repayments on this ground that's before anything else is accounted for....the same ground rented at 250 an acre comes in at around 5c/l and is fully tax deductible

    u forgot to add in the tax u would pay on capital repayments


  • #27
    Greengrass1
    Closed Accounts Posts: 9,493 ✭✭✭Greengrass1


    keep going wrote: »
    Spoke to accountant a few weeks ago and he told me of 2 cases, one a fella milking 80 cows on 95 acres and some silage bought turning 100k in profit every year and a other milking 160 has only a profit of 54k.using simple guides can be useful but it comes down to ability to produce cash, just as you know some people always have money and some are always broke.banks in general balk at going over 4k but as one manager said to me its often harder to get money off the fella that borrows a little than alot
    Is that gross or net?


  • #28
    Buford T. Justice XIX
    Closed Accounts Posts: 20,621 ✭✭✭✭Buford T. Justice XIX


    milkprofit wrote: »
    u forgot to add in the tax u would pay on capital repayments

    Yeah, add 36k to the 72k repayments if you are paying at the marginal rate. And with 72k repayments you will definately be in the top bracket.

    I wouldn't get too tied up with overall debt levels, although they are important. The repayments per cow is an important measure too.

    1k debt per cow with a 3 year repayment is approx 400/cow/year but 1k debt/cow is 'only' approx 200/cow/year over 7years, a much more manageable figure even if the risk exposure is bigger by going longer.


  • #29
    Timmaay
    Registered Users, Registered Users 2 Posts: 11,391 ✭✭✭✭Timmaay


    Stan you must love the tractor if you spent that much on the engine!


  • #30
    Brown Podzol
    Registered Users, Registered Users 2 Posts: 1,847 ✭✭✭Brown Podzol


    Timmaay wrote: »
    Stan you must love the tractor if you spent that much on the engine!

    Spent 8k on complete overhaul of engine and front axel of a 390t this year. 'Twas worth fook all otherwise.


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  • #31
    kowtow
    Registered Users, Registered Users 2 Posts: 6,135 ✭✭✭kowtow


    jaymla627 wrote: »
    Not a clue was just using 4% as an example in relation to green grass comment about low interest rates, even at 4% your paying 400,000 plus over the 20 years...

    Absolutely.

    always comes back to overpriced, fragmented land.


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