Upturn in milk prices

Dairy farmers flocked to the Dairy Show held at the Bath and West Showground on 5th October and I was struck by how positive many of the attendees were despite the very difficult year that many have experienced.

This generally positive attitude is perhaps a reflection of the recent upturn in milk prices and the hope that there will be further more significant increases to come. However the picture painted by farm accountants Old Mill appears to be rather more gloomy than the mood at the show would indicate.

Based on analysis of both Old Mill and the Farm Consultancy Group clients’ accounts this showed that on average dairy farmers lost 2.71p/litre in 2015/16 and are set to lose a worrying 2.81p/litre in 2016/17.  However these figures exclude non-milk income such as calf and cow sales and when these are included this produces small profits of 0.99p/litre and 1.08p/litre respectively.

Even so, these are not huge profits but although they are average figures and what always astounds me is the huge variation in performance between the top and bottom 25% of dairy businesses and this was once again borne out by Old Mill’s analysis.

Their figures showed that production costs among the lower quartile were a hefty 33.87p/litre, against 22.84p/litre in the top 25%. The bottom 25% also received 2.29p/litre less for their milk, at 25.01p/litre. This meant they made a loss of 5.65p/litre in 2015/16 – including non-milk income - compared to the top quartile’s average profit of 8.75p/litre.

Andrew Vickery, head of rural services at Old Mill, commented that, “It’s encouraging to see that, even in these tough times, the UK’s top dairy farmers are still managing to make a profit,”  but he went on to add, “all producers have looked hard at their cost base and found ways to reduce expenditure. However, while many have improved efficiencies, there is now very little meat left on the bones for any further cost reductions.”

As a result, following a prolonged period of low milk prices, cash flow is a significant issue for many dairy farmers and so now more than ever it is important to look forward and plan ahead.  In this context having a clear understanding of one’s cost of production is vital according to Phil Cooper from the Farm Consultancy Group.

Phil commented, “Improved dairy commodity values are now starting to filter through to farm-gate milk values, so producers need to make sure their business is in the best possible shape going forward, he adds. Don’t make drastic changes in times of uncertainty, but do plan ahead. Take professional advice and understand your costs of production, so that when you make a decision to change you’ll know it’s the right one.”

So, after a challenging year it appears most dairy farmers are keen to hang on to fight another day which demonstrates to me the resilience of this very important part of our farming community here in the south west.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk