Dairy profitability

As the 2014/15 milk year draws to a close, the latest figures from Friesian Farm show that the coming 12 months look set to be tough for dairy farmers. 

To recap, Friesian Farm is a notional 150 cow business in the English Midlands with a non-aligned liquid milk contract.  The table below shows the farm’s performance for the previous two milk years, based on actual returns and costs.  A provisional figure is given for the current 2014/15 year, and a forecast budget for 2015/16

The 2013/14 year saw this business make some very good returns – in marked contrast to the previous year where it was loss-making before the Single Payment and ELS money.  The reason for the massive turnaround was a much-improved milk price, pushed up by booming world markets, and reduced costs.

The 2014/15 year just ending sees milk prices falling by 3.4p.  The final average for the year of 29.8p may look quite high.  But it should be remembered that milk prices started the year at record levels before starting to fall only from late summer onwards.  Thus the average for the year is not as low as current prevailing prices.  Costs have also reduced.  Partly this isdue to cheaper feed and fertiliser.  But reductions on a penceper litre basis have also occurred as yields have been higher. 

Looking to 2015/16 milk prices obviously start the year at depressed levels.  There is a possibility that some farmgate price rises could occur later in the year – from the summer onwards if we are being optimistic.  But even then, they are likely to be modest.  Therefore the average price for the coming milk year looks pretty poor.

With costs down only slightly, margins come under pressure, and the farm is forecast to be loss-making from production.  With decline in support under the CAP, overall business returns move sharply downwards.