Dairy farmer earnings halved in 2018/19 and were only set to marginally recover in the coming year, with the key difference in the most profitable herds the cost of production.
According to a survey of Old Mill and Farm Consultancy Group clients, unveiled on Wednesday (October 2), farm profits fell from 5.9ppl to 2.69ppl in the year to March 31 on the back of the dry summer, which pushed costs of production up from £2,186 per cow to £2,411/cow.
Head of rural services at Old Mill, Andrew Vickery, said higher milk prices had been offset by a drop in production leaving the average farm making only a marginal profit after non-milk income.
Those in the top 10 per cent had larger herds but lower yields than the bottom 10 per cent, with milk income per cow £83 lower than those in the bottom 10 per cent. But it was their focus on expenditure which stood out.
Mr Vickery said: “The average comparable farm profit for the top 10 per cent was 12.13ppl compared to a loss of 6.46ppl for the bottom 10 per cent.
“They spent £285 less on concentrates, and £34 more on forage, indicating a choice to plug the gap in home-produced forage with purchased forage rather than higher cost concentrates.”
Looking ahead to the 2019/20 milk year, likely higher yields and lower feed costs were expected to boost profits by 0.71ppl.
“But given Brexit, there are arguably more uncertainties over profitability now than at the same point last year,” Mr Vickery said.
He said a weaker pound will prop up prices to some extent but its impact on imported inputs was only partly being offset by lower domestic grain prices.
Phil Cooper at the Farm Consultancy Group added many of the cost increases last year were down to drought and were expected to be reversed this year.
“It has been a challenging year, many farms are sitting around the break-even point, with a need to rebuild profitability next year,” he said, adding producers should have enough information to budget for the next six months and needed to ‘act quickly’ to put their business on a sound footing.