News Liquidity monitor ABN Amro
Dairy farmer in the red due to corona
The liquidity of Dutch dairy farmers can no longer escape the corona crisis, according to ABN AMRO in its liquidity monitor. This was already in line with expectations, but was not reflected in the previous quarterly update. The improvement in the previous quarter has now been severely undermined.
The previous liquidity monitor, published in April, showed that the liquidity of Dutch dairy farmers had improved by an average of €14.500, which came down to €140 per cow. The tide has now completely turned and the bank reports in its second quarterly update, which it publishes in collaboration with Wageningen Economic Research (WUR), that liquidity fell by an average of €17.400, which comes out to about €170 per dairy cow. So that's €30 in the negative compared to last quarter.
Many influences
Corona also played a role during the previous quarterly update, but a distorted picture was created because the effect of the crisis would only be felt later. So the development continued into the second quarter, but there is still something that paints the wrong picture. This is because of the measures that have been taken at banks, among other things, to grant deferrals of payments for, for example, repayments and interest. Because these measures differed per bank and dairy farmers used them in different ways, March came out more positively than April. The latter month counts towards the second quarter, so it exerted a skewed influence.
In addition to the influence of the principal and interest payments, there are several aspects that influence the liquidity position. ABN, for example, emphasizes that the second quarter is traditionally marked with higher costs than revenues from spring work and the costs that this entails. In addition, the milk price in the second quarter was 7% lower than in the first. The increase in milk volume was unable to compensate for the low milk price. The yields of sober calves and broiler cows were also disappointing due to the disappearance of, among other things, the catering industry. Due to all influences, the current account decreased to an average of €3.400 negative, €12.000 lower than last year.
Pricing
The farm price of milk has fallen by about 3 to 4 cents in recent months after global dairy prices fell after mid-March due to the corona crisis. The milk price in the second quarter was 7% lower than in the first. This is clearly reflected in the liquidity figures. The price of dairy products also took a hit. The butter price, for example, was 16% lower than in the same period in 2019. However, butter and skimmed milk powder prices have recovered sharply from July. In addition, the cheese price also decreased in the first months of 2020, but there is more stability from May.
The prices of sober calves have not yet recovered. These are still about 30% below last year's level. A small bright spot is that the prices for raw materials for compound feeds are stable or even fall slightly. This after they had started an upward trend at the beginning of this year. In addition, the rain ensures that the yields of the land are less disappointing than initially expected. This also leads to lower costs for purchasing feed.
Outlook
The outlook is uncertain. The corona crisis is still holding the dairy market in its grip, despite some cautiously positive sounds. Dairy prices recovered sharply in July after a sharp decline in April, according to the Global Dairy Trade price index. When it comes to farm prices, it's best not to celebrate too early, but at least the bottom seems in sight. It remains to be seen how the pandemic will develop further, whether we can continue to build up again or whether we will actually have a relapse.
Jorine Cosse
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