Milk production costs set to continue above farmgate prices

Milk production costs look set to outstrip farmgate prices in the current milk year, according to figures from The Dairy Group consultancy.

Rising feed and other costs are set to add more than 2p/litre to the cost of milk production, it said, forecasting a 32.5p/litre milk production cost as the new milk year begins.

This is backed up by evidence from its MCi costings series showing feed costs this spring about 20% higher than last year as milk price increases have largely stalled or reversed in the latest announcements.

See also: Guide to Defra’s growth programme diversification grants

Results for the 2016 calendar year show a rolling concentrate feed cost of £191/t, but in December alone, the price had risen to £200/t.

“Compared with 12 months ago, our group feed price has risen by 19% and the cost of the key straight feeds has increased significantly, with soya up 19%, rapeseed meal 27%, and wheat 34%,” said The Dairy Group director Ian Powell.

“We forecast the increased feed cost will add 1.7p/litre to cost of production in the next 12 months.” A rise of 49% in red diesel prices compared with a year ago would add another 0.25p/litre and increase contractor costs too.

“While the average milk price for January has risen to 27p/litre, it is the rolling revenue which impacts on the dairy business and at 23.1p/litre this is simply too low to be sustainable, which should result in the exit rate from dairying increasing.”

However the exit rate 1.4% of producers leaving in the 12 months to March 2017 was well below the normal 4% rate.