Profits for dairy farms averaged £ 185 per cow in 2020/21 despite the cost of production exceeding milk revenues, according to an annual industry report.
The cost of producing milk report – written by rural accountant Old Mill and the Farm Consultancy Group – found average farm profits had risen from £ 233 / cow to £ 185 / cow last season.
This is due to falling milk prices, rising feed costs and straw prices to levels never seen before, they said in the report.
But it was the fourth year in a row that profits had remained stable above £ 100 per cow, with higher yields offsetting falling milk prices.
Average yields increased by 151 liters per cow due to a favorable milk-to-feed ratio and good quality forage.
However, the total cost of production – at £ 2,393 per cow – was on average higher than the dairy income of £ 2,321 per cow.
This loss was offset by a rebound in non-dairy income thanks to the improvement in the beef market. The herd size also declined – from 307 to 269 – after farmers slaughtered their less productive animals harder.
The top 10 percent of producers are still well above the bottom 10 percent, due to tighter cost controls, according to the report.
Dan Heal, Rural Councilor at Old Mill, said: “The poorest 10% hired an additional £ 1,097 / cow, spending an average of £ 2,954 / cow. “
This gap had widened from the 2019/20 average of £ 950 / cow, he added. “Although overall profitability has declined compared to last year, the gap between top performing and worst performing herds has widened considerably. “
The top 10% spent £ 320 / cow less on feed and £ 261 / cow less on labor than the bottom 10%, while the income brought in was £ 231 / cow higher.
This despite the fact that the top farms produce lower yields of 7,229 liters per year compared to the average of the bottom farms of 7,483 liters.
“There is a wide range of production levels in the top 10%; from 4,828 liters / cow to 9,711 liters / cow, showing that the focus on efficiency pays regardless of yield, ”said Mr. Heal. “Less efficient setups probably require an investment to change that. “
Although organic farmers are excluded from the top 10% versus bottom 10% statistics, their performance has been mixed, with some producing in the top 10% of conventional farms and others in the bottom 10%.
Overall, labor costs have increased by £ 27 per cow, compared to £ 458 per cow for the 2019-20 season.
This trend is expected to continue due to staff shortages and higher wages, according to Mark Yearsley of the Farm Consultancy Group.
Electricity and machinery costs have also increased, from £ 19 / cow to £ 543 / cow. “It’s no surprise when fuel and energy prices have gone up. This is reflected in silage costs, which jumped 42%.
In the 2021/22 season, labor, energy and machinery costs are expected to continue to rise, with profits expected to drop to £ 167 / cow, especially as marginal liters become unprofitable to produce, he said.
The cost of production is expected to be £ 2,354 / cow against an expected dairy income of £ 2,165 / cow, down from £ 66 / cow as yields decline due to higher feed prices.
However, non-dairy incomes are expected to rise again, by £ 365 / cow, in response to the dynamic livestock market.
“Compared to the roller coaster of 2020/21, the current season has been quite stable so far,” Heal said.
“The price of milk has been relatively stable and although costs have risen rapidly, fodder is plentiful – certainly in the southwest.
“All of this points to a winter where the focus needs to be on profitability rather than production, and making sure that all the extra liters produced actually pay off. “
Producers have started to realize they need to reassess their businesses and implement changes in management decisions, Yearsley said.
“Less reliance on subsidies means reducing costs where possible and improving efficiency to maintain agricultural profits. “
There is no magic bullet to being a successful milk producer – any system can thrive, Heal said.
“The common theme among successful producers is to focus on the big picture and use what is in their control to better manage what they cannot.”