Latest costings from The Dairy Group show the vulnerability of dairy businesses to milk price cuts.

Milk yield is up, milk price is up and margin over purchased feed is up in the latest results from the group, but with total milk production costs forecast at 30.1p/litre in the milk year to the end of March 2013, any milk price reduction will reduce wafer thin dairy profit margins, warns director Ian Powell

The figures show how milk prices are failing to keep up with cost of production increases – these herds were getting an average of 29.2p/litre in January compared with 25.5p/litre a year earlier.

Margin over purchased feed increased by £206 a cow between January 2011 and January 2012 to £1,662, on an average herd size of 194 cows (192 in January 2011).

“The latest MCi results for our average costed herd show an increase in technical performance with milk yield increasing to 8,209 litres per cow, with the feed rate down to 0.32 kg per litre,” said Mr Powell.

“Feed cost has increased by 17% from £511 per cow in January 2011 to £599 per cow in January 2012. Whilst the herd margin has increased by 14% to £1,662 per cow, the margin over purchased feed only accounts for around 25% of dairy input costs.”

The Dairy Group Mci costings – key features

• Average milk production cost of 29.1ppl in 2010/11

• Projection for 2011/12 is for milk production cost to increase by 0.9ppl to 30.0ppl

• Projection for 2012/13 is for milk production cost to increase by 0.1ppl to 30.1ppl

• Margin over purchased feed 20.3p/litre (18.2p/litre to end January 2011)

• Average feed cost up by 17% to £216/tonne, forecast to reduce by 2% in 2012/13

• Fertiliser cost down by 4% in 2011/12, projected to increase in 2012/13 due to higher oil prices

• Diesel price up 10% over past year and expected to increase in 2012/13

• Most other dairy costs expected to increase by at least inflation rate

• Milk yield from forage 2,257l (total yield 8,209)