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Farmers squeezed as feed suppliers' patience snaps

Farmers struggling to pay suppliers are coming under increasing pressure to meet payment deadlines as supply firms now face their own cashflow problems.
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Feed merchants have been coming under increasing pressure
Feed merchants have been coming under increasing pressure

Experts said the cashflow crisis had a rippling effect across the sector, however, the weak pound could offer some hope to farmers under pressure from low produce prices.

 

Roger Evans, dairy farmer and industry commentator, who chaired First Milk between 2003 and 2004, said merchants had taken all the slack they could and were putting increasing pressure on farmers to pay old debts.

 

“Merchants were sympathetic and supportive of cashflow problems 12 months ago, especially if you were with First Milk,” said Mr Evans.

“But their leniency and understanding is starting to impact on their own cashflow and they now experience difficulties of their own.

 

“I am told lots of farmers are refinancing machinery to raise money and that some seek to address cash flow problems by leasing extra cows, but the leasor keeps the passport.”

 

John Allen of Kite Consulting agreed. He said: “Most of the feed trade and the supply trade don’t have strong balance sheets as good as farmers who are owner occupiers, so it’s actually more expensive for them to borrow,” he said.

 

“They could get into factoring and selling on debt and that would cost them a lot of money since effective interest rates are high.”

 

“Many of the banks are tightening up on farmers and credit generally is tightening up, bringing about the sale of some herds. It’s symptomatic of an industry that’s going into serious crisis and this is part of how the crisis will play out.”

 

Rob Hitch, of Dodd and Co Chartered Accountants, said there had been a build-up of merchant credit as people had found it easier than borrowing from banks.

 

“Some merchants are getting nervous about some businesses and not advancing credit to them,” said Mr Hitch, adding there had been cases of merchants taking legal action, though he did not believe this was widespread.

 

 


Pound weakens

Senior director at Old Mill Accountants and Financial Planners, Mike Butler, said although grain, milk and meat values were all tracking well below last year’s levels, this could provide some respite.

 

“If the pound is 14 per cent weaker, that should make our exports to the eurozone 14 per cent more competitive,” he said, adding it also made imports including energy, new equipment or inputs such as fertiliser 14 per cent more costly.

 

 

The same is true for international trade, with the pound now about seven per cent weaker against the US dollar than in December.

 

“I’d hope that no wholesalers or traders are profiting by holding back some of the potentially lower export prices,” said Mr Butler.

 

“With milk and pig prices as low as they are, a 14 per cent increase is the difference between profit and loss for a lot of primary producers.

 

“Imported milk has been coming in from the continent, but that should have become less competitive. And most of our cull sows go to Germany so we’d expect export prices to start picking up.”

 

Another impact is on basic payments, which are converted from euros to sterling on 1 September each year. “In 2015 the conversion rate was €1.37, now it would be around €1.23,” he said.

 

“Across a 300ha farm that would be worth around an extra £4,000.”

 

In the past decade farmers have had mixed experience of locking into exchange rates. Although they may believe the pound could weaken further ahead of the June referendum on the EU, nobody knows what will happen.

 

“In a time of tremendous uncertainty, both in economic and commodity market terms, locking into some sort of security could be worth considering,” added Mr Butler. "But only after taking professional advice on your personal situation and your attitude to financial risk.”

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