Improvement in dairy profits unlikely this year, says accountant
Dairy farmer profits are unlikely to improve for at least a year as the aftermath of 2012 continues to hit margins, warns rural accountant Old Mill.
Figures released for the September 2012 financial year end show the average profit of Old Mill’s dairy farmer clients fell by 12.8% to around £65,000 a herd. This based on medium-sized family-owned herds (120-250 cows) and is profit before drawings, tax, reinvestment and any debt repayments.
“The potent cocktail of horrendous weather, milk prices suppressed by processors and retailers, and the devastating implications from escalating TB outbreaks mean only one thing for UK dairy farmers when it comes to assessing the financial prospects for 2012-13,” said senior partner Mike Butler.
Limited and poor quality forage stocks, rising input costs and a loss of volume production were probably the biggest influences on the downturn, added Mr Butler.
“Retailers and processors need to realise that without that financial incentive, milk supplies will simply drop off further.”
Mike Butler
With milk yields falling behind last year and processors showing little sign of raising prices to cover increased costs, many producers were likely to shelve any investment plans they had, he said.
“Retailers and processors need to realise that without that financial incentive, milk supplies will simply drop off further,” warned Mr Butler.
He advised producers to assess their financial situation and look at how variations in input costs, milk yields and milk prices would affect their businesses’ overall profiability and cash flow.
One area to make improvements was replacement rate costs, said Mr Butler. For example, with an average cow yielding 8,000 litres a year and net replacement costs of £1,200 a cow, averaging four lactations instead of two would cut replacement costs from 7.5p/litre to 3.75p/litre.
Producers should plan ahead and seek financial advice on issues such as reducing tax bill, claiming tax credits or arranging credit with the bank, he said.
Read more about the milk price crisis on our dedicated page.
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