Cows & Money: January 2016

Dodd & Co Dairy Bulletin

Welcome to this latest edition of Cows & Money.  The New Year doesn’t seem to be bringing much good news to the dairy sector. Having attended the Semex conference earlier this month the messages were fairly blunt. In fact a very down to earth first morning focused on the volatility of milk prices, their current lows and no foreseeable rise to come in the future.

 

 

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A paper from Sophie Hélaine of the European Commission suggested that milk prices would gradually increase to €34c over the next five years. This is predicated on no changes to milk consumption and production trends. It can only be hoped El Niño may upset these plans!

The fact that this last week we have seen price cuts from many milk purchases only underlines the fact that markets are showing no sign of improvement. The only crumb of comfort this week has been from the weakening of sterling, dropping to a 52 week low.

But can these low prices persist?

A recent report suggested German farmers need €44c to survive long term, and when I questioned Glanbia’s Sean Molloy at Semex about Irish production he suggested a price of €34c is needed for a viable Irish dairy industry.

I still stick by my assumption that a sensible long term milk price will have to be in the region of €35c. As I write this equates to 26.5ppl, but only last November it would only have been 2ppl less, only underlining the importance of currency to UK dairy’s position in the world.

What does this mean for UK milk production?

For those lucky enough to have cost of production based contracts, mainly supplying liquid, movement in milk prices on a world stage and currency will be a minor distraction. Unfortunately as the liquid market has now been cornered by two major processors, those supplying the cheese and powder markets are increasingly under more competition from our EU neighbours.

Dodd & Co’s dairy figures for 2014/15 suggested that dairy farmers needed 28ppl to break even, before any return on capital! Falling commodity prices will lead to lower feed costs, and we expect farm repair costs and depreciation to fall after several years of high investment. I don’t expect average production costs to drop below 25ppl or €32.5c (at €1.3/£).

As I have publicly stated before, farmers without access to the liquid milk market will have to aim to keep costs of production at 25ppl or less. This will be no easy task, as last year’s average figures show.

Rob Hitch

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AgriHive

So with all this turmoil what is the way forward for dairy in the UK?agrihive-logo-large

If you have any thoughts on what farmers can do differently or what changes could help the UK dairy sector thrive why not have a look at the Agrihive competition? Using a case study of a typical family dairy farm, with all the usual issues, current financial performance, succession etc., we have asked several questions about what you think the industry can do to improve its fortunes.

Top prize is a trip to Australia, certainly something to take your mind off the recent weather we’ve had! So if you’ve got ideas, why not take a look at the case study and let the Agrihive team know what you would do.

To find out more visit the Agrihive website or for the case study click here.

 

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Have you made arrangements to spread your tax bill?

Many farm businesses are facing substantial tax bills at the end of the week following good 2014/15 profits. HMRC also ask for payments on account for the following year based on last year’s figures.22801064_s

For many, reducing payments on account to nil is a sensible option which have already done on behalf of many clients. If tax is due then interest will be payable at the rate of 3%. Be aware HMRC reserve the right to charge penalties (though we have never seen it) if you ‘negligently’ reduce them too far without a reason.

Spreading the total tax payment is also possible but action needs to be taken before the 31st January. We have had clients successfully arrange payments over six equal monthly instalments, with one even managing to agree eight instalments. This will be a significant cashflow boost to many businesses.

To arrange a time to pay structure call the number below, open weekdays 8am to 8pm, and 8am to 4pm at the weekend. You need to have your Unique Tax Reference (UTR) and know the amount of tax due.

0300 200 3835               HMRC information can be found here

You should prepare for questions about your cash position as you will be asked if you have approached the bank or family members for loans, or if you have any assets to sell. They will also want to know how much you can pay now and over how long you wish to spread the payments.

Make sure you have answers! I suggest you go for six equal instalments, and you will need to set up a direct debit in order that HMRC can collect the payments as agreed.

Take note though, if at first you don’t succeed, try again! Last week one of our clients struggled with one HMRC agent. On our advice he tried again and got someone else who was happy to agree the time to pay request over six equal monthly instalments!

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14969151_sDon’t do anything drastic

There have been a couple of articles doing the rounds about raising cash by cashing pensions or selling land or dairy youngstock. Please make sure you speak to your accountant, even if it’s not us, before any of the above to ensure you understand the tax consequences. The last thing you will want to do with cash raised from asset sales is give even more to HMRC!

 

For further help and advice on any of the issues raised above please contact Rob Hitch or Andrew Sims.

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