Shropshire Star

Some encouraging news for dairy farms on profits

Early consideration of the outcome for Promar’s national sample of farm business accounts for the year ending March 2018 suggests that an upturn in milk price and improved technical performance is likely to contribute towards farm profits increasing by approximately £85,000 for the average farmer compared to the previous year.

Published
Nigel Davies is Promar’s national consultancy manager,

This figure reinforces the effect positive market conditions can have on profits.

Last autumn, we predicted an increase in profit for the average dairy farm for y/e March 2018 of in excess of £50,000 over and above the £43,404 reported as achieved by the average in the sample in 2017.

Although the fully audited results for the whole FBA sample won’t be available until later this year, our Milkminder matched sample data for March 2018 shows that the rolling milk price has increased by 4.98ppl over the period.

This is significant and would mean that the average dairy farm in the sample would have generated an extra £83,789 of income in the last financial year, if the level of production remained the same as y/e 2017.

Combined with the average Milkminder herd increasing yield per cow by 241 litres and keeping nearly five additional cows, these FBA farms would add a further £26,263 to income if they replicate this increase in volume of milk produced.

However it has not all been positive news.

The Milkminder matched sample indicates that average concentrate prices have increased year-on-year by £16/tonne. This along with feed rates increasing by 0.01 kg/litre up to March 2018 will have diluted margins by circa £10,400.

Farm overheads and other non-feed costs have also come under pressure in the 12 months to March 2018.

If the average Retail Price Index is applied to these costs in the FBA sample, then an additional average cost of £10,771 can be added for the financial y/e March 2018.

Despite the expected improvement in profit of £85,000, this forecast outcome follows two relatively poor years in 2016 and 2017, which farmers will no doubt still be feeling the effects of.

Additionally, the total cash requirement of these businesses in 2017 for loan commitments, capital expenditure and drawings was £168,616 which far exceeds the expected increase in profit, so although producers should have something to show for this increase, it will not be enough to meet these ongoing commitments.

Nigel Davies is Promar’s national consultancy manager,