Dairy producers set to make losses as milk prices drop

Dairy producers are set to make losses over the coming year as milk prices fall faster than costs, according to Kite Consulting.

As farmgate prices continued to drop back, “surviving the next six months” was the main talking point at Dairy-Tech’s keynote session “State of the Dairying Nation” on 1 February.

Edward Lott, managing consultant at Kite Consulting, said the industry had seen a big inflationary cycle, with the milk price nearly doubling in the past 12 months and costs going up by almost the same amount.

See also: Farmgate milk prices to tumble in February and March

“Going forward, we are going to see that balance change, because I don’t think costs are necessarily going to drop by the same amount as milk prices are, so that’s going to be the big challenge,” he said.

Mr Lott suggested the industry needs to think about where the margins need to be in the future to supply milk, adding that in the medium to long term, 2p/litre is going to be needed as an additional margin to achieve that.

Robert Craig, vice-chairman at the Royal Association Of British Dairy Farmers and a director at First Milk, said producers should embed a real financial discipline into everything they do.

“Producing cashflows, budgets, and analysis every month as a discipline, so you know exactly where you are and where you are heading, helps you spot any bumps in the road ahead. Survival is easy when you do that,” he added.

Mr Craig said there’s a chance we could get towards the end of 2023 with a milk price similar to where we were at the end of 2022, but there’s a bump in the road before that.

Adam White, head of agriculture at Barclays, urged farmers to have a plan for the farm business.

He said to decide whether you want to grow or shrink, consider what your succession plan is, and have an idea of where you want to go with the farm.

NFU deputy president Tom Bradshaw said: “We are not on our own and we are going to see huge volatility. We’ve seen that over the past 12 months and it is going to continue into the future. We are living in far from a settled world.

“I would just encourage every one of you, that if you are struggling, there are plenty of people out there to help you and, actually, we shouldn’t sit on our own and try to work through this. We are very guilty as farmers; we are sometimes too proud, and we need to reach out in times of difficulty. A problem shared is a problem halved.”

Judith Bryans, chief executive of Dairy UK, advised farmers to collaborate with others and reach out to organisations in the industry for support, while Lyndon Edwards, AHDB board member and sector chairman, said to look around the farm to see what’s good, what’s bad and outline target areas to improve.

He also suggested considering some of the work being done around regenerative practices, as it can support the bottom line and help provide some easy wins to boost profitability overall.