Dairy Farm Profitability

With rising milk prices and falling feed and fertiliser costs, the outlook for the dairy sector is look far more positive than it has done for some time.  This is the conclusion of the latest update of the Friesian Farm figures.

Friesian Farm model is a notional 150 cow business in the Midlands with a non-aligned liquid milk contract.  The table below shows four years’ figures – the previous two, then current and future milk years.  The farm just about made a margin before support payments in 2011/12 (which has not always been the case in previous years).  The 2012/13 year was hit by a combination of high costs and low output which saw this business making a significant loss in terms of its milk production. 

The past few months have seen rising farmgate milk prices.  There is no reason to believe that current price levels cannot be at least maintained until the end of Frieisan Farm’s current financial year in March.  This would give an average for the year some 3.7ppl higher than in 2012/13.  At the same time Frieisan Farm should face a cheaper winter than last year.  Like many dairy farms, forage supplies are good meaning a lower volume of purchased feed should be required in 2013/14.  Concentrate feed prices have also reduced from their very high levels of 12 months ago.  This results in a sharp turnaround in profitability with a positive margin from production and a good overall business surplus. 

Looking to 2014/15 we expect milk prices to ease.  However, this is accompanied by a further reduction in variable costs.  Feed prices are budgeted to fall slightly as the drop in grain prices fully works through into ration costs, and fertiliser looks set to be cheaper next year.  Overheads drift up slightly, and rent, finance and drawings rise.  The latter is partly due to an increase in rental costs.  Frieisan Farm is part-tenanted on an FBT and this is due for renewal in spring 2014.  The current rent level of £250 per Ha (£100 per acre) is forecast to rise to £300 per Ha (£120 per acre).  Some of this rise is due to better profits in the dairy sector, but rents are also being driven up by a spill-over from competing uses, be it arable rents or letting land to grow maize for AD plants.

Overall, Friesian Farm profitability will be down from the budgeted highs of 2013/14, but is still good in historic terms.  Hopefully, if these figures prove correct and are truly representative of the wider industry, then a couple of years of decent returns will give the industry some confidence to invest for the future.