Written by Claire Sammon from Agriland
The profits of dairy farmers dropped significantly more than expected in 2024/2024, but rising milk prices mean the outlook is significantly brighter for the year ahead.
That’s according to the annual Milk Cost of Production report by Old Mill and the Farm Consultancy Group (FCG), which examined dairy client accounts with a March 31 year-end.
Unveiled at the Dairy Show, it showed that average income from milk in 2023/2024 was £2,910/cow – a drop of 19% year-on-year, due to lower milk prices.
The cost of production remained stubbornly high at £3,153/cow, leading to a shortfall of £243.
Head of rural services at Old Mill, Andrew Vickery
Head of rural services at Old Mill, Andrew Vickery, said: “It was only through selling stock that most businesses managed to remain profitable.”
After accounting for non-milk income, but excluding Basic Payment Scheme income, rent, interest, drawings, tax and capital expenditure (and including depreciation and a labour charge of £30,000/full-time partner or director), businesses averaged a profit of £152/cow.
Last year, that was £914/cow.
“The five-year profitability average is £478/cow, showing that milk prices have been notably low this year,” Vickery added.
The average herd size fell from 303 head to 295 head, while yields dropped from 7,906L to 7,256L/cow due to poor silage made last year.
Although feed costs dropped from their 2022 high, labour and machinery costs increased – particularly as many businesses bought new kit in early 2023 to offset looming large tax bills.
“These changes could be emblematic of a changing dairy industry. The ‘cost of doing work’, namely power, labour, contracting and machinery costs, are increasingly key to financial performance (rising 10.7% this year), whereas in the past, feed and other variable costs took the headlines,” Vickery outlined.
This cost of doing work is also the key differential between the top 10% of performers and the bottom 10%.
“Tellingly, there is a difference of 237 cows between the average herd size of our top performers (404 cows) and the smaller herds of our bottom 10% (167 cows),” the head of rural services added.
The top 10% had much higher yields, receiving £629/cow more for their milk, but the difference between costs of production widened markedly, year-on-year, from £163/cow to £1,752/cow.
“The bottom 10% were unable to cut their spend in this time of reduced prices, which led them to making a loss of 15.73p/L compared to a profit of 12.65p/L for the top 10%.
“However, there are a variety of farming systems in the bottom 10%, showing that farming efficiently relies on the farmer and not the system,” Vickery continued.
A particular difficulty over the past six to nine months has been cash flow, with many businesses paying large tax bills at a time of falling milk prices.
“Though we are forecasting a significant turnaround in profit for the year ending March 2025, it doesn’t feel like that looking at current cash flows,” said Gerard Finnan of the Farm Consultancy Group.
With milk prices now on the rise, the 2024/2025 milk year is expected to return a milk income of £3,308/cow against a cost of production of £3,122/cow. On average, profits are predicted to rise to £590/cow.
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That’s according to the annual Milk Cost of Production report by Old Mill and the Farm Consultancy Group (FCG), which examined dairy client accounts with a March 31 year-end.
Unveiled at the Dairy Show, it showed that average income from milk in 2023/2024 was £2,910/cow – a drop of 19% year-on-year, due to lower milk prices.
The cost of production remained stubbornly high at £3,153/cow, leading to a shortfall of £243.
Head of rural services at Old Mill, Andrew Vickery
Head of rural services at Old Mill, Andrew Vickery, said: “It was only through selling stock that most businesses managed to remain profitable.”
Dairy profits
After accounting for non-milk income, but excluding Basic Payment Scheme income, rent, interest, drawings, tax and capital expenditure (and including depreciation and a labour charge of £30,000/full-time partner or director), businesses averaged a profit of £152/cow.
Last year, that was £914/cow.
“The five-year profitability average is £478/cow, showing that milk prices have been notably low this year,” Vickery added.
The average herd size fell from 303 head to 295 head, while yields dropped from 7,906L to 7,256L/cow due to poor silage made last year.
Although feed costs dropped from their 2022 high, labour and machinery costs increased – particularly as many businesses bought new kit in early 2023 to offset looming large tax bills.
“These changes could be emblematic of a changing dairy industry. The ‘cost of doing work’, namely power, labour, contracting and machinery costs, are increasingly key to financial performance (rising 10.7% this year), whereas in the past, feed and other variable costs took the headlines,” Vickery outlined.
This cost of doing work is also the key differential between the top 10% of performers and the bottom 10%.
“Tellingly, there is a difference of 237 cows between the average herd size of our top performers (404 cows) and the smaller herds of our bottom 10% (167 cows),” the head of rural services added.
The top 10% had much higher yields, receiving £629/cow more for their milk, but the difference between costs of production widened markedly, year-on-year, from £163/cow to £1,752/cow.
“The bottom 10% were unable to cut their spend in this time of reduced prices, which led them to making a loss of 15.73p/L compared to a profit of 12.65p/L for the top 10%.
“However, there are a variety of farming systems in the bottom 10%, showing that farming efficiently relies on the farmer and not the system,” Vickery continued.
A particular difficulty over the past six to nine months has been cash flow, with many businesses paying large tax bills at a time of falling milk prices.
“Though we are forecasting a significant turnaround in profit for the year ending March 2025, it doesn’t feel like that looking at current cash flows,” said Gerard Finnan of the Farm Consultancy Group.
With milk prices now on the rise, the 2024/2025 milk year is expected to return a milk income of £3,308/cow against a cost of production of £3,122/cow. On average, profits are predicted to rise to £590/cow.
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The post Report: Dairy profits set to recover after dramatic fall appeared first on Agriland.co.uk.
Continue reading on the Agriland Website...
