Sharp dairy price improvements ‘unlikely’ analysts warn

Picture: Tony Johnson
Picture: Tony Johnson
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Dairy farmers lost 2.71 pence per litre (ppl) in 2015/16 and are set to lose a further 2.81ppl in 2016/17, according to analysis by farm accountants Old Mill.

Despite a marginal increase in milk prices towards the end of 2016, extended low returns and higher production costs mean dairy farmers’ fortunes are not making the sharp improvement they would like.

Based on analysis of clients’ accounts with a March 2016 year-end, and working with the Farm Consultancy Group to predict future trends, Old Mill calculated that milk prices averaged 26.34ppl in 2015/16 and will only rise to 26.50ppl in 2016/17. That compares to a cost of production of 29.05ppl and 29.31ppl, respectively.

However, when non-milk income – from calf and cow sales, for example – is included, producers averaged a small profit of 0.99ppl in 2015/16, which is set to rise to 1.08ppl in 2016/17.

Andrew Vickery, head of rural services at Old Mill, said: “It’s important to bear in mind that these figures do not include the single payment, rent, interest charges, drawings or tax but do include depreciation and an imputed charge of £28,000 per person for unpaid labour.

And, the accountant added: “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.”

Following the prolonged period of low milk prices, cash flow is one of the most significant issues many producers are facing, Mr Vickery said.

According to Phil Cooper, partner at the Farm Consultancy Group, milk yields have dropped back as farmers have fed less concentrates over the summer, and they are likely to remain suppressed during the winter due to the lower energy silage.