Big slump in dairy margins

21 August 1998

Big slump in dairy margins

By Robert Harris

DAIRY margins have slumped to their lowest level since vesting day, according to Bibby Dairylink costings.

Despite achieving higher yields from fewer and cheaper concentrates, farmers were unable to counter the falling milk price, which was just over 1p/litre lower in June compared with October 1994, and almost 5p less than in September 1996.

Consequently, the margin over purchased feed fell to just 16.8p/litre in June. That is 0.2p/litre lower than in October 1994, and almost 4p/litre below the peak levels seen in September 1996, says costings manager Paul Horsnall. "These figures do not include inflation, which has eroded the spending power of the MOPF by 12.5%."

Allowing for inflation, as well as lower cull cow and calf values and higher fixed costs, the MOPF a litre would have had to have remained at its 20.6p high to bring profitability back to pre-vesting day levels, he says.

There is no simple answer to help producers claw back losses, says Mr Horsnall. Some targets include:

lMilking better cows which produce more milk from less feed.

lProducing more milk from forage.

lKeeping fitter cows, so reducing replacement costs.

lUsing labour and machinery more efficiently to cut fixed costs.

But for those producers looking to increase production to spread fixed costs, the price of leased quota should also be taken into account, says ADAS Milk Cheque manager, Ian Powell.

This turns the picture around – deducting leased quota (at 7.5p/litre for 4% butterfat) from the MOPF of 17.1p/litre for June leaves a margin of 9.6p/litre, over 1p more than last year and the highest level since deregulation, he points out.

"This does not mean that dairy farmers are better off. But it does have significant implications for the profitable production of additional litres, providing all other costs can be carefully controlled."

At a marginal feed rate of 1kg/litre, milk at 20.6p/litre and average feed price at £127/t there is little or no extra profit with leasing at 7.5p/litre. "But many producers will be at a lower marginal feed rate, and with the feed price falling that will give useful additional profit," says Mr Powell. &#42

Dairy costings

Year ending Oct 1994 Sept 1996 June 1998

Milk yield a cow (litre) 5,784 6,232 6,440

Milk price/litre (p) 21.534 25.188 20.435

Concs feed rate (kg/litre) 0.28 0.27 0.26

Concs cost a cow (£) 251 271 225

MOPF a cow (£) 986 1286 1082

MOPF/litre (p) 17 20.6 16.8

Source: Bibby Dairylink.

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