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Dairy producers are facing a projected loss of 4.1p/litre in 2015-16, according to analysis by The Dairy Group.

The forecast is based on the company’s analysis of the actual accounts of about 90 dairy farms, with an average herd size of 239 cows, projected average milk price of 24.7p/litre and a estimated cost of 31.5p/litre.

The figure excludes BPS payments, any non-dairy income and the rental value of owned land. However, it does includes the value of unpaid family labour.

“The projection for 2015-16 is for a loss of 4.1p/litre, even with the average cost of production reducing by 1.6p/litre to 31.5p/litre, which is insufficient to offset the forecast milk price fall of 6.0p/litre,” said Ian Powell, managing director of The Dairy Group.

See also: Costed dairy herds show massive slump in margin

“It is very disappointing to report such a poor outlook for our average dairy farmer with milk sales of almost 2m litres, supplying some of the highest quality milk in the world to some of the richest consumers in the world.”

For the 2014-15 year, The Dairy Group calculated an average production cost for the farms of 33.1p/litre, with total receipts at 33.3p/litre.

This was based on an average milk price of 30.7p/litre.

Variable costs were down 1.4p/litre on the previous year, due to a decline in purchased feed costs. Overhead costs were higher due to a rise in wages and increases in rent and finance.

Mr Powell said some farmers would be unwilling or unable to sustain losses at such a level for very long.

A wide range in production costs showed there were opportunities to improve performance, but some changes would take time to implement and could require capital investment.

A change that could be made more quickly was to look at the costs of purchased feed, he said.

“There are opportunities to see where savings can be made, which should start with an assessment of forage quality and quantity to see what level of milk production the forage can support and then to look at how supplementary energy and protein can be bought cost effectively.”

Cost of milk production – The Dairy Group (p/litre)

Year end

2013-14

2014-15

2015-16*

Milk sales

32.0

30.7

24.7

Livestock sales

2.3

2.7

2.7

Total receipts

34.8

33.3

27.4

Feed

11.0

9.7

8.6

Forage

2.2

2.1

1.8

Other

3.6

3.5

3.5

Total variable costs

16.8

15.4

13.9

Gross margin

18.0

17.9

13.4

Total overhead costs

14.2

14.8

14.6

Profit before unpaid wages

3.8

3.1

-1.2

Profit after unpaid wages

0.6

0.2

-4.1

Total costs

34.2

33.1

31.5

*Projected

According to Defra, the average milk price in August 2015 was 23.26p/litre. However, given many producers are being paid considerably less for their milk and so their projected losses for 2015-16 are likely be far higher.

AHDB Dairy data suggests that over the past year dairy farmers have reduced production costs by at least 8%, but there is still a huge range in costs between farms.

It estimates that a typical cash production cost for the 12 months ending August 2015 was 22.5p/litre for the top 25% of herds and 29.3p/litre for the bottom 25%.

Once the value of any unpaid family labour, depreciation, rental value of owner-occupied land and imputed finance costs are added in, the costs rise to 25.6p/litre for the top 25% and 35p/litre for the bottom 25%.