Dairy cost of production is unlikely to fall from 33p/litre in 2013 as farmers face the hangover of 2012, The Dairy Group has warned.

“There are too many problems stored up from 2012, and if we have another rotten season it will compound the issue,” said managing director Ian Powell.

“Most farmers will be very short on forage by the end of the winter. They will be buffer feeding come the summer period and there are going to be extra costs in replenishing stocks.”

Principal consultant Nick Holt-Martyn added: “Having chosen cost of production as the main price-setting marker, retailers and processors are now learning the effects of such a difficult summer with production costs soaring as feed costs feed into farm accounts.”

As a result of rising costs, further COP-driven farmgate milk price rises looked inevitable. However, the industry needed to develop a standard practice for calculating dairy production costs, he said.

“Production cost measurements that discount single farm payments or environmental income or fail to account for all the resources used in milk production are underestimating the real cost of producing milk,” he added.

“With so many contracts becoming linked to COP an agreed standard is urgently required. Modifications thereafter for a particular milk price agreement are possible, but this must not be confused with the actual cost of production.”

Production costs would continue to dominate dairy discussions in 2013 against a backdrop of a widely recognised COP of 33p/litre and the face winter milk supply was running 6% below 2012, he said.

Global supply was stable, indicating little or no price movement over the next six months. This meant domestic supply would determine UK prices which, coupled with high COP, should leave average farmgate milk prices above 30p/litre by April, he said.

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