BETTER MILK prices and rising yields boosted average dairy herd margins by more than £20,000 last milk year on farms surveyed by compound manufacturer Pye Bibby Feeds.

Paul Horsnall, technical services manager, said the results were good news for many dairy farmers.

“An improvement was essential to restore confidence in the industry before the changes that the CAP reform will bring,” he said.

“I am not pessimistic about the future. While there will be pressure, I do not believe milk prices will fall like some people are forecasting.

“We are not self-sufficient in milk, and if farmers leave at the rate some suggest, processors will have to pay more to secure supplies.”

Mr Horsnall said the next few years would be challenging, but offered “enormous opportunities” to those who want to expand.

But they would need to tackle problem areas like labour, power and machinery costs.

“Labour costs are now higher than feed costs, often over 4p/litre, with power and machinery costs rising rapidly. Future profitability will depend on either raising output or reducing costs.”

And the cost of quota was likely to fall sharply after 2005, he added. “This will remove one of the major costs of expansion and increase the profitability of additional production.”

Analysis of more than 600 farms by Kingshay showed the average costed herd increased its margin in the 2003/04 milk year to over £147,000.

This was driven by a higher milk price, up by 1.32p/litre on the previous year, better yield per cow, up by 282 litres, and a slight increase in herd size.