Dairy farm profitability is set to recover this financial year but producers have been warned to buckle up for further tough times as price volatility continued.
According to the latest Promar Farm Business Accounts, farm profit slumped by half in the fiscal period to April this year following the earlier collapse in milk prices.
National consultancy manager Nigel Davies said: “The profitability net of grants and subsidies was down to £13,000 compared with £26,000 in the year before.”
But he expected projected net profits this year to far exceed those of recent years, bolstered by the much improved margins stemming from the higher milk prices last autumn and continued into this financial year.
Speaking at a London press briefing, he said: “I think this year will show a marked change and I am pleased to say for the better. I would expect this to be in excess of £40,000 higher than the comparable figure for the average last year.”
He said while the better milk price was the overriding influence, this will be helped this year by stable feed prices, better support payments owing to the exchange rate last September, and a slight increase in the volume of milk produced.
But he warned producers not to expect the milk price to continue at this level beyond next spring.
“We are on the cusp of a change in the milk price and we expect this change to kick in at farm level sometime before the end of the financial year in 2018, although to what extent remains to be seen,” Mr Davies added.
“It will undoubtedly be a more challenging landscape and, in the year to March 2019, I would not expect people to be achieving anywhere near what they should be achieving in the year to March 2018.”
He said the key thing was for producers to prepare themselves for the competitive future by using the current improved income wisely, either to reduce debt levels or to invest to improve efficiency.
Average farm debt for the 200 costed GB dairy farms to March 2017 stood at £570,000, of which £66,000 was for trade creditors, but this figure had risen from £547,000 at the end of March 2016.
This was equivalent to £2,812 per cow, up from £2,752 per cow.
Mr Davies said there was now a chance to bring the figure down this year with the enhanced income.
Of the £570,000 average debt last year, he said £365,000 was from high street banks.
Some producers may have been granted repayment holidays in the tough times and they would have to be reconciled this year as such postponements caught up with borrowers, and this was yet to come out of this year’s projected profit of £50,000.