A simple tool that can be used by farmers to assess the impact of low milk prices on their farm is to calculate the breakeven point, writes Patrick Gowing, Teagasc.
In any downturn on milk price, some farms may experience cash flow difficulties. It is important for each farm to establish the impact of low milk prices on their farm.
A simple tool that can be used is calculating the farms Breakeven Point. This will help identify at what point the farm may have cash flow issues.
What is the breakeven milk point?
The breakeven milk point is the base milk price (milk price at 3.3% protein and 3.6% fat) your farm requires to be in a neutral cash position for the year.
That is where the cash out and cash in for the farm business including family drawings, bank commitments and taxation are equal.
If your breakeven milk price is above what you expect milk price to be in 2020 (using a conservative estimate) there is a requirement to take action immediately within the business.
If it is below the expected milk price, there is less urgent action needed.
Breakeven milk point calculator
The breakeven milk point calculator helps farmers to establish their breakeven point for their farm each year. This will help indicate at what price their farm may have cash flow issues.
To calculate your breakeven milk price download the Breakeven Calculator
View video below for an example of how to use the calculator
Video source: Teagasc YouTube