Dairy farmers’ profits dropped more sharply than many expected over the last year, but rising milk prices mean the outlook is brighter for the year ahead.
That’s according to the annual Milk Cost of Production report by Old Mill and the Farm Consultancy Group (FCG), which examined dairy farmers' accounts over 2023-2024.
It showed that average income from milk in 2023/24 was £2,910 per cow – a drop of 19% year-on-year, due to lower milk prices.
The cost of production remained stubbornly high at £3,153 per cow, leading to a shortfall of £243.
After accounting for non-milk income, but excluding Basic Payment Scheme income, rent, interest, drawings, tax and capital expenditure, businesses averaged a profit of £152/cow. Last year that was £914/cow.
Andrew Vickery, head of rural services at Old Mill, explained it was only through selling stock that most businesses managed to remain profitable.
“The five-year profitability average is £478/cow, showing that milk prices have been notably low this year,” he said.
The average herd size fell from 303 head to 295 head, while yields dropped from 7,906 litres to 7,256 litres/cow due to poor silage made last year.
Although feed costs dropped from their 2022 high, labour and machinery costs increased – particularly as many businesses bought new kit in early 2023 to offset looming large tax bills.
These changes could be emblematic of a changing dairy industry, Mr Vickery warned. “The ‘cost of doing work’, namely power, labour, contracting and machinery costs, are increasingly key to financial performance (rising 10.7% this year), whereas in the past, feed and other variable costs took the headlines.”
This cost of doing work is also the key differential between the top 10% of performers and the bottom 10%. Given that these costs are often fixed, it shows that life for the smaller herds shows no sign of becoming easier.
Tellingly, there is a difference of 237 cows between the average herd size of our top performers (404 cows) and the smaller herds of our bottom 10% (167 cows).
The top 10% had much higher yields, receiving £629/cow more for their milk, but the difference between costs of production widened markedly, year-on-year, from £163/cow to £1,752/cow.
Mr Vickery explained: “The bottom 10% were unable to cut their spend in this time of reduced prices, which led them to making a loss of 15.73p/litre compared to a profit of 12.65p/litre for the top 10%.
“However, there are a variety of farming systems in the bottom 10%, showing that farming efficiently relies on the farmer and not the system.”
A particular difficulty over the past six to nine months has been cash flow, with many businesses paying large tax bills at a time of falling milk prices.
Gerard Finnan, at the Farm Consultancy Group, said although a big turnaround in profit for the year ending March 2025 was forecast, "it doesn’t feel like that looking at current cash flows".
"Knowing the difference between profit and cash flow – and managing both – is vital," he added.
With milk prices now on the rise, the 2024-2025 milk year is expected to return a milk income of £3,308/cow against a cost of production of £3,122/cow.
On average, profits are predicted to rise to £590 per cow.
