2013 outlook: Dairy

What does 2013 hold for UK farming? Farmers Weekly and farm business consultant Andersons have teamed up to provide an outlook. Today we look at dairy. 

Many producers will be rethinking their business strategies after one of the toughest years in memory.

The full effects of 2012 are becoming apparent as poor-quality silage and high purchased feed costs contribute to an expensive winter, says Andersons Midlands partner Mike Houghton.

“The wider supply chain needs to recognise the pressures farmers are under to ensure an adequate supply of raw material. In October 2012 milk supply was 6.5% less than the same time last year.”

Three issues have dominated the year – weather, feed costs and milk prices, says Mr Houghton. That has made it an expensive summer and many producers are going into the winter with low stocks of poor-quality silage.

Replacing the shortfall with purchased feed will be costly, due to high cereal and protein prices. “An increase in concentrate costs of £60-80/t adds about 2.5-3p/litre to producers’ costs and an increase in feed rate of 0.04kg/litre would add at least another penny. It is not only concentrates – the costs of by-products have surged, too.”

Cost of production remains key, and capital employed must be consistent with business output. Benchmarking is essential to ensure the business is performing as it should, says Mr Houghton.

Faced with current cost levels and poor milk prices, many businesses are reappraising their systems to maximise milk from forage, he notes.

Key points and management advice

Tighter milk supply will work in producers’ favour

Scope for added value but building brands takes time

Benchmark cost of production

Examine ways to increase milk from forage

Reassess forage systems and dependence on maize

“It is well within the bounds of most dairy farms to expect 3,000 litres/cow from forage. But the average is about 2,400 litres. It’s all about getting the nutrition right – we have seen a move away from TMR and back to in-parlour feeders among producers who feel cow genetics are not close enough, or who cannot split the herd into enough groups, to accurately meet individual cows’ needs.”

Many farms will also need to reassess their forage systems, he believes. “Over the past 15-20 years maize has never failed. This year, many crops have been a disaster.”

For some businesses, the crop makes up 70-80% of forage supply. “Buffering some of that demand with grass or whole-crop cereals would seem to make sense.”

Global milk commodity prices appear to have turned a corner this autumn and there is hope that this will continue to feed through to farmgate prices through 2013, says Mr Houghton.

“Over 40% of GB milk goes into manufactured products. Our industry has to be globally competitive. There may be scope for increasing added-value products rather than competing in the basic commodity market, but it takes time to build brands and consumer demand.”

Another factor in producers’ favour will be a shortage of milk. “The weather, cost and price issues outlined above have meant farmers have seen little incentive to chase output.”

Commentary based on Andersons’ Outlook 2013

More on this topic

Keep up to date with the latest Business news

See more