The current account balance of dairy farmers fell by more than €30 per cow in the past quarter, according to the Liquidity Monitor of ABN AMRO and Wageningen Economic Research (WUR). Milk prices phosphate legislation and in some cases the drought are to blame for this.
In total, the current account decreased by €3 to €3.300 over the past 4.100 months. This means that the position is 1.100 euros higher compared to a year earlier.
Milk yields
ABN AMRO and WUR calculate the development of the current account every quarter (the difference between credits and debits). The situation seemed positive with a milk price rising 5% compared to the second quarter, but the supplementary payment 2017 was also paid to many farms in the second quarter. Compared to the third quarter of last year, milk yields were almost 4 cents per kilo lower.
More investments
Dairy farmers took out fewer loans in the past 3 months and built up more savings, the monitor shows. 'Wage costs were higher. Silage often shifted from summer to autumn and VAT on contract work went from 6% to 21%. The VAT will be returned, so that effect is temporary. More was also invested. For example, some of the companies bought phosphate rights, often from their own resources', according to the researchers.
Drought
The drought led to extra costs for irrigation and sometimes to a decrease in production due to heat stress, but this has not yet had a major impact on the liquidity position. 'However, that will change this winter if extra roughage and concentrates are purchased to make up for shortages. This influence is strongest for drought-sensitive and intensive farms', according to the monitor.
Nevertheless, the influence on the liquidity position is still limited, say ABN AMRO and WUR. 'In the winter/early spring it will become clear to what extent there will be a shortage of roughage and what costs this entails in the form of roughage and concentrate purchases. Fortunately, many companies still had an above-average stock of roughage from 2017 onwards.'
Phosphate
The phosphate legislation also contributes significantly when it comes to liquidity on dairy farms. According to the researchers, it is still difficult to estimate what the consequences will be for the coming quarter. 'The time to bring the livestock in balance with the amount of phosphate rights is becoming shorter and shorter. The purchase or lease of phosphate rights maintains the turnover from milk production, but also increases the cost price and liquidity pressure.
Improvement coming
A number of annually recurring payments will be made in the fourth quarter. The rent will be paid, the payment entitlements and the grazing premiums will be received. Added together, we expect the liquidity position to improve in the coming quarter.
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