Early planning is key to ‘future proof’ dairy businesses

01 Nov 2018

Producers must take early action and develop strategies to successfully navigate several challenges, which will affect financial returns during the next few years.

So says Promar International, which announced the latest results from its Farm Business Accounts (FBA) service – the most comprehensive analysis of actual dairy farm financial performance available in the UK.

Key actions

The company’s Nigel Davies warns that although the year to March 2018 showed improved profits, the prospects for 2019 and 2020 are less positive and there are a few key actions that all producers need to consider.

“The results to March 2018 show a profit after depreciation of £96,318, significantly up from the £53,130 recorded to March 2017,” he says. “As a barometer of volatility, this profit was more than 30% above the average achieved during the past five years, only surpassed by the 2013/2014 results.

Milk output

“Total variable and overhead costs increased by 6.9% and 5.6%, respectively. But critically, as far as driving profits were concerned, the average producer in the sample increased total milk output by 74,009 litres, keeping four more cows and producing an extra 188 litres per cow, without increasing feed usage,” he explains. 

“This, in conjunction with an average milk price increase of 2.86ppl, diluted the impact of cost increases, resulting in profit after depreciation per litre rising from 3.09ppl to 5.38ppl.”

Challenging weather

Mr Davies adds that the projected profit for the year ending March 2019 is influenced by the challenging weather in 2018 and a number of deteriorating market factors. Consequently, he forecasts that profits for the current financial year will be lower than the five-year average and also less than half the average profit to March 2018.

“While we have seen what is, essentially, a level milk price across the year so far and a continued increase in herd size and yield per cow, rises in feed costs due to increased usage and higher prices coupled with increased overheads will impact materially on profit and the balance sheet.

Plan now

“We anticipate profits will remain under greater pressure in the year to March 2020 and believe that producers need to start planning now to minimise the impact of several major pinch points.”