Inside Liquidity Monitor
Liquidity dairy farming positive in the first quarter
Although the corona crisis is currently penetrating deeply into the dairy market, this is not yet reflected in the liquidity of dairy farms. This is shown by the liquidity monitor of ABN Amro, in collaboration with WUR. Liquidity improved by an average of €2020 in the first quarter of 14.500, which amounts to about €140 per cow.
The outcome of the monitor thus partly gives a distorted picture. This is because the price movement in the dairy market is reflected in farm prices with a delay. The extra costs and reduced yield, which now put farmers in a difficult position, have not yet been included in this.
Increase
The increase in liquidity is largely due to approximately €90 per cow in extra milk yields in January. The extra yield was formed by premium payments for sustainability and grazing, the yield of which increases annually. In addition, the milk volume and milk price in the first 3 months of 2020 increased by 4% and 1% respectively compared to the same months in 2019.
Outlook less rosy
Dairy prices are now under pressure. Prices for whole milk powder, skimmed milk powder and butter have fallen by 10, 22 and 25% respectively. Milk prices are also being trimmed on all sides, in March the milk price from the farm fell by an average of €0,30 per kilo and the decline is not stopping there yet. The milk price for the coming months will drop even further.
There are also logistical problems and the oil price has fallen sharply. It is not the production, it has increased by 4% compared to the first quarter of last year. Sales are a problem. Despite this, the Dutch dairy industry has so far been able to guarantee milk purchase and processing without major problems.
Although some dairy farmers make use of the suspension scheme that banks offer, ABN Amro still expects liquidity on dairy farms to decline in the coming months. Farmers can probably absorb the fall in the milk price with the scheme, since repayment and interest still claim about €0,08 to €0,09 of the milk price from the cost price per kilo of milk. Unfortunately, the negative effects on the market are probably too strong to compete with.
Sales of veal
It is not only the sale of milk and dairy prices that are a problem. The sale of calves that goes wrong and the increasing costs for manure and spring work also have the necessary negative effects. Due to a drop in demand, fewer calves are bought, which has caused the price to plummet.
Then the most expensive months at the moment knock on the door again, contractors have to be paid and the manure has to go onto the land. Dairy farmers are lucky that the grass grows, which reduces the cost of supplementary feed. But with the ongoing drought, the question is how long this will provide 'relief'.
Jorine Cosse
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