Cash planning and management advice as dairy profits yo-yo

Dairy farms costed by accountant Old Mill and the Farm Consultancy Group made a profit of 12.43p/litre in the year ended 31 March 2026 on last year’s high milk prices.

However, they look set to make less than a third of that in the current year and many will not cover the cost of production.

The 2025-26 profit figure is just over double the five-year average, which is perhaps a better standard to measure against, suggest the report’s authors.  

See also: How focus on cost of doing work lifts dairy efficiency

The averages mask a huge range in technical and financial performance between farms and systems.

The figures are calculated on a comparable farm profit basis, which includes charges for land rental, machinery depreciation and unpaid family labour.

Key numbers and insights from the report include:

• Cost of production averaged 42.38p/litre
• Total income 54.81p/litre
• Non-milk income 8.43p/litre – mainly cull cow and calf sales
• The cost of doing work has increased dramatically in the past five years, driven primarily by labour costs
• Spring calving systems were best suited to 2025-26, but this may not be the case in 2026-27
• Milk yields are not always the best indicator of the profitability/litre of a dairy business, nor is herd size

With a firm beef market, the standout feature in the figures is the increasing importance of livestock sales on the bottom line of dairy businesses, says author Allaster Dallas of the Farm Consultancy Group.

“On smaller farms, many are keeping calves until six to 10 months to sell as stores. It can be harder for the larger units to do this,” he says.

Uncertainty over the Sustainable Farming Incentive, TB, inheritance tax and increasing environmental regulation are all affecting dairy farming businesses and are reflected in the mix in different ways across the figures, generally adding costs.

The report says there is no clear relationship between profitability and operating systems, nor between profitability a litre and herd size, so it is possible to run a profitable enterprise without pushing yields to extremely high levels and running a huge herd.

In the current year, aside from poor milk prices, higher energy costs along with higher energy use are eating into profits, whether that is additional energy needed for cooling milk or cows, or spent on fuel in collecting additional feed such as wholecrop or straw for caustic treatment.

Accountant Bradley Causey, an adviser in Old Mill’s rural division and co-author of the report, highlights the dramatic rise in the cost of doing work (CODW) over the past five years.

CODW is the total cost of labour, machinery and labour contracting, machinery running and depreciation costs, electricity and other power costs. This has risen by about 5p/litre in the past five years.

He urges milk producers to plan for the tax bills due in January 2027, when cashflow is likely to be challenged.

While milk prices grab the headlines, increasing compliance requirements when it comes to the Environment Agency, Red Tractor, carbon and employment legislation are putting pressure on dairy farmers, says Bradley.  

Looking ahead

Many farms have bought wholecrop or straw for supplementary feeding, says Allaster Dallas.

The Orion Farming Group co-op, which operates mainly across Oxfordshire, Berkshire and Buckinghamshire, but also in a much wider area, is seeing member farms already into winter feedstocks.

As a result of the prolonged dry period and a significant lack of grass, some farmer orders for August delivery of straights such as rapemeal and rapeseed expeller have been called off early as producers in certain instances have had to no alternative but to start to feed silage set aside for winter rations. Other producers are looking for alternatives such as Trafford Gold or brewers grains to clamp so they have something in reserve.

There has also been an increase in the demand for either sodawheat or caustic prills as producers look to augment their feedstocks, says the buying group’s feed and livestock manager Joe Cobb.    

“They are also looking for molasses for straw feeding,” he says. “Bigger dairy producers are starting to feed total mixed rations much earlier than usual, which would normally be around September, as calving is by then well underway. I think a lot of members are holding out for a good maize crop to bulk out their TMR.”

Charlie Cooper-Harding, senior dairy specialist at farm supply and services business Wynnstay Group, says most grazing based herds are already supplementing forage with silage, bales or a combinatioin of both.

“Probably 80% of “traditional” herds are grazing by day and buffer feeding at night, where they would normally only be grazing,” he says.

By products such as brewers’ grains have become more expensive due to increased weather-driven demand, rising from £45-£50/t to £80-£90/t. Working on a 25-30% dry matter basis, that makes them expensive compared with a blend at about £250/t which also has the benefit of added minerals, he says.

Charlie is seeing herds feeding concentrate at £260-300/t to youngstock. He is also seeing a trend to slightly harder culling decisions in dairy herds.

The recently volatile wheat market, with delivered prices ranging from £180 to £230/t, saw a fair tonnage booked by dairy producers at the lower end of that range. Meanwhile, higher oil prices on continued US-Iran tensions have pushed up rapeseed and soya product prices.

“Fibre is looking expensive, while protein and energy feeds are a better buy just now,” says Charlie.

“The important thing is to make sure you’re buying what suits your farming business and herd, rather than what you have done in the past.

“Concentrates, as long as they are costing less per kilo than the milk price per litre, are generally worth the money.”