A tough year for dairy farmers ahead, say Andersons
The current milk year will still be testing for many dairy businesses despite solidarity and commitment in the SOS dairy campaign which has led to a reversal of some price cuts, according to consultant Andersons.
Figures for Andersons’ model dairy farm, Friesian Farm, revealed at Livestock 2012 show a forecasted loss in milk production of 1.2p/litre before subsidies in 2012/13, compared with a 0.7p/litre margin the year before. Fresian Farm is relying on support payments to leave a 1p/litre business surplus this milk year.
Even with support payments, the business surplus is at its lowest this year since the Friesian Farm model began in 2005.
Crucially, cost of production including drawings has increased from 28.8p/litre in 2010/11 to 30.7p/litre in 2011/12, and up to an estimated 31.5p/litre in 2012/13. This is largely due to variable cost increases, in particular feed, but fixed costs have also edged up.
“There’s no one size fits all approach to increasing margins, but farmers should look at the structure of their business and ensure they are making the most of forage, for example, to increase efficiency.”
Oliver Lee, Andersons
The 2013/14 milk year will see Friesian Farm break-even if the global cost of feed falls as predicted. “It’s looking slightly more positive after this milk year,” said Oliver Lee, senior consultant at Andersons.
“There are some dairy businesses that are profitable at the moment, but Friesian Farm is very much the middle of the road,” said Mr Lee.
“There’s no one size fits all approach to increasing margins, but farmers should look at the structure of their business and ensure they are making the most of forage, for example, to increase efficiency.”
Friesian Farm produces 1.125m litres from 150 cows and their replacements over 100ha. It is on a liquid milk contact but not a dedicated supermarket aligned contract and therefore one of the farms hit hardest by recent price cuts, according to Andersons.
| Andersons Friesian Farm – Source: Andersons The Farm Business Consultants | ||||
| Pence per litre 2010-11 (result) | 2011-12 (result) | 2012-13 (estimated) | 2013-14 (budget) | |
| Milk | 25.8 | 28.6 | 27.4 | 28.4 |
| Culls and calves | 2.5 | 2.8 | 2.9 | 2.8 |
| Output | 28.3 | 31.4 | 30.3 | 31.2 |
| Variable costs | 12.9 | 14.1 | 14.8 | 14.3 |
| Overheads | 10.7 | 11.2 | 11.4 | 11.5 |
| Drawings and tax | 3.7 | 3.9 | 3.9 | 3.9 |
| Rent and finance | 1.4 | 1.4 | 1.4 | 1.5 |
| Cost of production | 28.8 | 30.7 | 31.5 | 31.2 |
| Margin from production | (0.4) | 0.7 | (1.2) | 0.0 |
| SPS (and ELS) | 2.4 | 2.3 | 2.2 | 2.0 |
| Business Surplus | 2.0 | 3.0 | 1.0 | 2.0 |
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