Stress test budget plan at low milk price when converting to dairy – Teagasc

Considering dairying?

According to Teagasc’s Padraig French, detailed planning and management are key when establishing a new dairy farm.

The Head of Livestock Systems Department & Dairy Enterprise Leader advises those considering entering dairy to develop, analyse and stress-test any plans that they develop.

Here are his top tips:

• Develop a physical plan for the farm to include milking and grazing infrastructure, animal housing and slurry storage;
• Develop a capital budget for the farm to quantify the total cost of converting to an operational dairy farm;
• Construct an operational budget for the farm to quantify the total costs and total income generated annually;
• Develop a timescale plan for the conversion of the farm;
• Managing the conversion phase.

Develop a physical plan:

• Cow numbers: Consider farm size and grass growth potential;
• Infrastructure: Design winter housing facility, milking facility and grazing infrastructure. Consider the number of cows planned and the farm;
• Operational plan: Management and employees.

Capital budget

• Estimate the cost of each item;
• Speak to other farmers;
• Develop a stock budget based on total number of stock;
• Consider costs: Transport, vaccines, disease testing costs – TB;
• Managing the conversion – who will be over?

Operational budget to quantity total costs and total income generated annually;

• Use Teagasc’s six-year budgeting tool to forecast cash inputs and outputs and profitability;
• Net profit plus opportunity cost of unpaid labour or land minus debt repayments divided by the total capital investment will give the return on capital;
• A target return on capital by year 5 should be >10%, assuming an average milk price;
• Stress test budget plan at a low milk price, particuarly in the early years after conversion.

Develop a timescale plan for the conversion

• Apply for planning for any development needed – allow six months;
• Meet the bank with the plan to secure any funding requirements – allow six months;
• When applying for grant aid for development, factor in time schedules;
• Aim to construct grazing infrastructure and farmyard facilities during the summer months when ground conditions are usually more suitable allow six months for construction;
• Ideally, install milking facilities before the winter to avoid peak workflow for suppliers;
• Plan the arrival/first calving of stock to match the timeframe of the farm development.

Managing the conversion phase.

• Provide contractors with a plan of what you require. Request a written quotation before the commencement of any work. Discuss some cost implications.
• Regularly monitor the costs relative to budget – you may need to make adjustments e to plans to ensure the project stays within budget. Target scarce funds to essential investment. You can add extras when funds allow;
• If you have inadequate experience or expertise in the supervision of construction of farm infrastructure, then seek help and, for large projects, a project manager could be a worthwhile investment.
• Ensure you adequately manage any stock during the conversion phase and are on target to meet their production requirement.

Other news articles on That’s Farming:

• Good dry cow management