Dairy Farm Profitability June 4, 2013 12:00 am The figures for Andersons’ Friesian Farm model dairy business have been updated ahead of the Livestock Show. These indicate that the 2012/13 milk year was very tough for producers, but that the prospects for the current year are much improved. To recap, Friesian Farm produces 1.125 million litres from 150 cows and their replacements. It operates a year-round calving system. It is on a liquid contract, but not a dedicated supermarket aligned contract. The holding runs to 100 hectares (of which 40 hectares are rented on an FBT). The proprietor provides labour along with one full time worker (plus casual/relief). The table below shows the farm’sperformance for the previous two milk years, based on actual returns and costs. An estimate is given for the current 2013-14 year, and a forecast budget for 2014-15. ANDERSONS FRIESIAN FARM – Source: Andersons The Farm Business Consultants Pence per litre 2011-2012 (Result) 2012-2013 (Result) 2013-2014 (Estimated) 2014-2015 (Budget) Milk 28.6 28.8 31.5 30.6 Culls & Calves 2.7 3.0 3.1 3.1 Output 31.3 31.8 34.6 33.7 Variable Costs 14.1 16.7 14.4 14.0 Overheads 11.3 11.5 11.8 11.9 Drawings & Tax 3.9 3.9 4.0 4.0 Rent & Finance 1.4 1.5 1.6 1.8 Cost of Production 30.8 33.6 31.8 31.7 Margin from Production 0.6 (1.8) 2.8 2.1 SPS (and ELS) 2.3 2.2 2.1 2.0 Business Surplus 2.9 0.4 4.9 4.1 The farm made a margin before support payments in 2011-12 (which has not always been the case in previous years). The 2012-13 which has recently ended showed a severe reversal in fortunes though. The average milk price for the year was actually slightly up on the previous 12-months as the cuts of summer 2012 were quickly rescinded thanks to the SOSDairy campaign and further increases come through. However profitability was adversely affected by costs. This was both higher cost of purchased feed, but also crucially, higher volumes required as a result of the wet weather affecting grass and forage quality. The model keeps milk output unchanged but many businesses will have seen sharp drops in production resulting from the adverse weather The situation for the current 2013-14 milk year shows an improving situation. Firstly, the milk prices rises already seen will mean the average milk price will be higher than last year. Some further increases are also factored in for later in 2013 as firming world markets and limited GB supplies combine to lift prices. Budgeted variable costs abate for 2013-14 too. This is largely due to a forecast fall in feed usage and slightly lower prices. This, of course, is dependent on a more ‘normal’ weather year. Although overheads and other costs tend to drift upwards the farm gets back to a position where it is making money from milk production again. However, the value of the Single Payment is forecast to fall for 2013. This is due to the Euro value of payments reducing by at least 5% and possibly more for 2013. This is a result of the EU Budget settlement agreed by European leaders in February. Looking further ahead, the issue of CAP reform may well see support fall further. It is believed that milk prices may start to weaken by the 2014-15 year as producers (both domestically and globally) respond to higher prices by increasing output. Feed costs may fall further if cereal prices continue to fall from their current highs. Other costs continue to edge upwards. Overall, this means that profitability falls somewhat. The outlook may therefore look brighter for the immediate future, but businesses need to be structured to provide sustainable returns for the medium and long term. Therefore producers need to look to their own management, as well as the market, for profitability improvements. Andersons will be available in the Business Management section (stand BM-160) at Livestock 2013 to discuss how dairy businesses can prosper now and in the future.
