Structure dairy farm businesses for tougher times

Dairy farms need to be structured to cope with more turbulent trading conditions, according to farm business consultants Andersons.

Lower milk prices in the current milk year to 31 March 2015 should be partially offset by reduced variable costs, but profits will still be back on a particularly strong previous 12 months, the outlook said.

The latest results from the 100ha Friesian Farm, Andersons’ model dairy enterprise, predict a business surplus of 5.6p/litre for this year, back from 6.5p/litre in 2013-14.

Cost of production is forecast to fall from 31.5p/litre to 30.7p/litre, helped by falling feed and fertiliser prices.

But the milk price is factored to drop from 33p/litre to 31.5p/litre, reflecting the cuts already seen this spring and others projected for the later in the year.

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Andersons’ Richard King said dairy farm profitability should stay robust in the next couple of years, despite recent falling prices.

“Faced with a less benign business environment, dairy farms need to be structured to provide sustainable returns for the medium and long term,” he said.

“If the market is less generous then producers need to look to their own management for profitability improvements.”

Further ahead, Andersons forecasts the milk market to recover late in 2016, slightly higher variable costs and falling support levels from 2015, as the Basic Payment Scheme replaces the current Single Payment Scheme.

“The result is another decline in profitability, although there remains a positive margin from production,” Mr King said.