Dairy farmers who are celebrating bumper profits from the past 12 months need to prepare for rising costs by paying down debt or investing in their business.
That’s the message from agricultural consultants Promar, who are warning input costs are forecast to rise in the next six months and are likely to eat into profit margins.
Figures released this morning show higher milk prices during the last financial year pushed up profits to an average of £125,000 for the farmers they analyse, up from an average of £43,000 the previous year.
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The figures are drawn from a sample of more than 200 dairy farmers spread across Britain with an average herd size of 203 cows.
Producers will also be cheered by the forecast the average rolling milk price to March 2019 should be maintained for at least the first half of the financial year.
But Nigel Davies, national consultancy manager with Promar, said farmers should make sure they are using the money to improve their business’s resilience to combat rising production costs and static milk prices.
He said farmers should analyse their books to have a firm understanding of where the additional income coming into their business is being deployed, and tangible assets which either cut costs or improve output should be top of the list for investments.
The cost of purchased concentrate feed has already risen by an average of £16/tonne in the year to March 2018, adding £10,400 to feed bills.
Additional pressure from inflation, variable costs and other overheads has also added £10,700 to the cost of production in the same period.
While farmers are price takers on many inputs, Tim Harper, senior consultant at Promar, said that they can maximise the value of feed by careful monitoring of cow performance, particularly during diet transition.
This means not just testing the quality of feedstuffs, such as silage, but also monitoring results of how cows are performing on it, particularly lower-yielding animals, which can get less attention than higher-yielding cattle.
A focus on paying down debt is also recommended with any available cash in order to prepare for tighter times ahead.
Promar figures reveal the average farmer in their sample has debts of £2,483 per cow which would equate to 2.5p/litre if paid off over 15 years at 3% interest.
Other farmers have debts of up to £5,000 per cow which would equate to 5p/litre on the same terms.
By: Andrew Meredith