Friesian Farm Update June 8, 2015 12:00 am Ahead of the Livestock Event on the 8th and 9th of July, Andersons have updated their Friesian Farm model. As might be expected, this shows meagre returns for the current milk year. Longer-term prospects are more positive however. This forecasts dairy farm profitability to remain reasonably robust for the next year or so, despite the recent milk price cuts. 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. An estimate is given for the current 2015/16 year, and a tentative budget for 2016/17. FRIESIAN FARM MODEL – Source: The Andersons Centre Pence per litre 2013/14 (Result) 2014/15 (Result) 2015/16 (Est.) 2016/17 (Budget) Milk 32.4 29.4 25.6 27.5 Culls & Calves 2.9 2.7 2.8 2.8 Output 35.3 32.1 28.4 30.3 Variable Costs 14.7 13.2 12.8 12.9 Overheads 11.3 11.0 10.8 10.9 Rent, Finance & Drawings 4.7 4.7 4.9 5.0 Cost of Production 30.7 28.9 28.5 28.9 Margin from Production 4.6 3.2 (0.1) 1.4 SPS/BPS (and ELS) 2.2 1.9 1.6 1.5 Business Surplus 6.8 5.1 1.5 2.9 The farm delivered good returns in the 2013/14 milk year as a result of good milk prices and falling costs. During the 2014/15 year the milk price has fallen sharply. However, because prices were good at the start of the year, the average for the whole of the year is not as bad as might be thought. Variable costs have declined thanks to cheaper feed and fertiliser. Overall, profits for 2014/15 are reasonable. It is the current milk year where the effect of the milk price crash is really seen. In 2015/16 the farm will be starting the year with a low milk price. Even if prices start to climb at the end of the year, the average is likely to be well down. There will also be changes in support payments with the move to the BPS, and the end of the ELS on this farm. The farm is in a position where it requires support payments to break even. At this point, any forecasts for the 2016/17 milk year can only be tentative. But it is believed that prices will be on an upwards trend (if only gradually) by this point. With low cost-inflation in the sector, this will return some degree of profitability to the sector. It should be pointed out that a model such as Friesian Farm cannot demonstrate the wide range of returns currently seen on British dairy farms. With a difference in farmgate milk prices of 10-12ppl, then the financial situation of individual businesses will be vastly different The low profits forecast for this year will place many businesses under cashflow pressure – especially if they have tax bills to pay from previous, better, years, or loan repayments to make after investing in their businesses. These cash requirements will be in addition to the trading costs outlined in the table above.
