Milk Matters
By Christine Pedersen Senior Dairy Business Consultant The Dairy Group
christine.pedersen@
thedairygroup.co.uk www.thedairygroup.co.uk
UK average daily milk production follows a very clear, annual pattern with daily production peaking in the Spring then tailing off to the trough in the Autumn:
The headline news is that the average cost of production fell
by 1.1ppl to 33.7 ppl mainly due to a reduction in feed costs of 1.2 ppl. Over the same period the average milk price fell by 1.4 ppl to 29.0 ppl resulting in a loss after unpaid family wages of 2.1ppl. How do dairy farms continue in business if the average farm is making a loss? Because other sources of income (including BPS, Stewardship, rental income, etc) subsidise the loss-making enterprise and/or family labour.
Our Top 25% cost of production is 4.5ppl below the average at UK production for 2020/21 is following the typical pattern although
September production at 1166 M litres was 0.8% or 9 M litres higher than the same month in 2019/20. Wet October weather forced herds inside curtailing autumn grazing and our milk production forecast for October onwards is: October 1212 M litres (+1.7% compared to 2019/20), November 1184 M litres (+ 1.7%) and December 1250 M litres (+2.0%). As I write this, we have just entered Lockdown 2.0 in England,
which should have a more muted effect on dairy markets than the Spring lockdown due to the lower seasonal milk supply base and a better understanding of consumer behaviours by the retailers. Whilst the forecast increases in monthly production compared with 2019/20 may seem modest, the milk market is very finely balanced so with supply in late autumn and winter forecast to be high by seasonal standards, some adverse effect on milk prices should be expected. Our latest cost of production data demonstrates how the last
2 years have been financially challenging and will continue to be challenging for the foreseeable future. Our average farm in the following table is 217 cows selling 1.98 million litres per annum, so well above the UK average. It is important to note that we report total cost of production including all the costs to the business. This includes rent and finance (excluded from ‘comparable farm profit’) and unpaid family labour. We do not deduct non-milk income and call this ‘net cost of production’ which is used by some milk buyers. These results are in line with other published cost of production datasets.
PAGE 16 NOVEMBER/DECEMBER 2020 FEED COMPOUNDER
29.2 ppl mainly due to 1.3ppl lower feed costs, 1.2ppl less spent on paid wages and 0.7ppl less power and machinery costs. Average milk price for this dataset was 27.8 ppl which resulted in a profit of 1.1 ppl after unpaid family wages. Whilst there may be a temptation for producers to look at
alternative systems in a bid to improve business efficiency, there is a danger that the key factors reducing the efficiency of the current system are not addressed. These factors could include nutrition, genetics, cow health, soil health, forage quality, staff management, business control, etc. Any change of system needs to be carefully planned to ensure that the change delivers the expected results and also covers the cost of change In recent years there has been renewed interest in organic dairying
with the attraction of higher milk prices. Organic farming was identified as one of eight factors that led to both higher agricultural and overall business performance in a recent DEFRA report, the higher milk price given as the primary reason. Recent trends in organic milk prices and feed costs have placed profits for organic dairy farms under increasing pressure. Our analysis of accounts for 2019/20 gives the average price for organic milk 30% higher than the conventional average, although the range in annual average milk price varies by 7 ppl from 33 to 40 ppl. At the same time, total costs are 33% higher than the conventional average.
Whether organic or conventional, feed costs are generally the
single highest cost area and an excellent starting point for review. The average price paid for organic milk by the three main buyers in the UK over the last 5 years is shown in the following graph together with the
Comment section is sponsored by Compound Feed Engineering Ltd
www.cfegroup.com
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