PROFITABILITY
D
airy farm profits averaged £185/cow in 2020/21, despite the cost of production outstripping milk income, according to Old Mill’s annual dairy report. The milk cost of production report, conducted by rural accountant Old Mill and the Farm Consultancy Group, found that average farm profits fell from £233/cow in 2019/20 to £185/cow last season. Dan Heal, rural adviser at Old Mill, says: “This is on the back of a falling milk price, rising feed costs and straw prices at levels not seen before. So maintaining profits to this level is all the more credit to the dairy industry.” It was the fourth year in a row that profits remained stable above £100/cow, as increased yields offset the fall in milk price. Average yields rose by 151 litres/cow, due to a favourable milk to feed ratio and good quality forage. However, the total cost of production, at £2,393/ cow, averaged more than the milk income of £2,321/cow.
Recovery This loss was offset by a recovery in non-milk income due to the improved beef market. Herd size has also shrunk – from 307 to 269 – after farmers culled their less productive animals harder. The top 10% of producers still far outperformed the bottom 10%, due to tighter control on costs, says Mr Heal. He says: “The bottom 10% incurred £1,097/cow
Profits down but farmers fight back with efficiency
The gap between the top- and bottomperforming herds has significantly widened.
more costs, spending an average of £2,954/cow.” This gap had widened on the 2019/20 average of £950/cow. “Although overall profitability has declined from last year, the gap between the top-performing and bottom-performing herds has significantly widened.” The top 10% spent £320/cow less on feed and £261/cow less on labour than the bottom 10%, while income brought in was £231/cow higher. This is despite the top farms producing lower yields of 7,229 litres per year against the bottom farms’ average of 7,483 litres. Mr Heal says: “There is a huge range of production level within the top 10%; from 4,828 litres/cow to 9,711 litres/cow, showing a focus on efficiency
pays whatever the yield. Less efficient setups likely require investment to change this.” Overall, labour costs have increased by £27/cow, up from £458/cow in the 2019/20 season. This trend is likely to continue due to staff shortages and higher wages, according to Mark Yearsley, of the Farm Consultancy Group. Power and machinery costs also rose, by £19/cow to £543/cow. Mr Yearsley says: “This is no surprise when fuel and energy prices have increased. This is reflected in the silage costs, which have jumped by 42%.” In the 2021/22 season, labour, energy and machinery costs are expected to continue to rise, so profits are predicted to fall to £167/cow, especially as the
Comfortably Clean
marginal litres become uneconomical to produce, says Mr Heal. The cost of production is projected to be £2,354/cow against a predicted milk income of £2,165/ cow, down £66/cow as yields decline due to higher feed prices. However, non-milk income is forecast to rise again, by £365/ cow, in response to the buoyant livestock market. Mr Heal says: “Compared to the rollercoaster of 2020/21, the current season has felt quite stable up to now. The milk price has been relatively static and, although costs have risen rapidly, forage is in plentiful supply – particularly within the south west of England. Focus “All of this points to a winter where the focus needs to be on profitability rather than production and to ensure any extra litres produced do indeed pay their way.” Producers have started to realise they have to re-evaluate their businesses and implement change in management decisions, says Mr Yearsley. “Less reliance on subsidies means reducing costs where possible and improving efficiencies to maintain farm profits.”
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