Farm accountant Old Mill warned they could fall further this year
Dairy farmers’ net profits fell by about 25 per cent in the year to March 2016, and could fall further this year, according to farm accountant Old Mill.
The figures highlighted the disparity between non-aligned and supermarket aligned suppliers. Non-aligned prices dropped by about 4-6ppl, but supermarket aligned prices fell by between 1-4ppl.
Andrew Vickery, head of rural services at Old Mill, said some of this was offset by lower costs of production but the average price on some supermarket-aligned contracts still fell further than costs.
"As a result, almost all producers – whoever they supply – have endured a large hole in profits and a steep drop in turnover, which in many cases has translated into serious cashflow problems," he said.
Cashflow is likely to be the ’greatest challenge’ in the short-term, even if the business has remained in profit.
Small capital items, such as building extensions, are usually paid for out of cashflow so Mr Vickery warned some businesses will need to carefully ’identify where to rein in and where to invest’.
Despite this, he suggested there will be some positives for dairy farmers following the fall in profits.
"Many people have survived the troughs and will come out with a leaner, more efficient business which will make good profits in the future," he said.
"There has been a lot of belt-tightening, and the key is not to let costs of production rise again as the milk price improves.
"There could be the inclination to start spending fairly quickly, and it is easy to let costs creep back in."
He also warned the recent uplift in prices might not have a huge impact on profits.
"At the start of the milk year prices were in the high 20s. Even if they improve by 4ppl the average may not look any better."