Dairy farmers’ profit alert after volatility

Andrew Vickery said most dairy farmers had been hit by the falling prices.
Andrew Vickery said most dairy farmers had been hit by the falling prices.

Dairy farmers’ net profits fell by around 25% in the year to March 2016, and could fall further this year, according to farm accountant Old Mill.

Non-aligned milk prices dropped by around 4-6p/litre over the year, compared with 2014/15, meaning profits typically fell by more than 25%, says head of rural services Andrew Vickery.

He said: “However, profits have been extremely volatile and some producers will have suffered far greater losses.”

Supermarket-aligned suppliers fared rather better, with price cuts of between 1p and 4p/litre.

Even so, the average price on some supermarket- aligned contracts fell by more than the cost of production.

Mr Vickery added: “As a result, almost all producers – whoever they supply – have endured a large hole in profits and a steep drop in turnover, which in many cases has translated into serious cash flow problems.”

Although there are signs of an uplift in milk price, producers should not expect a rapid improvement in profitability in 2016/17, warns Mr Vickery. “At the start of the 2015/16 milk year prices were in the high 20s – even if they improve by 4p/litre the 2016/17 average may not look any better.

“And while cereal feed prices remain low, the weaker pound is making imports; particularly of proteins like soya, more expensive.”

That said, it’s not all doom and gloom. “Many people have survived the troughs and will come out with a leaner, more efficient business that will make good profits in the future,” Mr Vickery said.

“There has been a lot of belt-tightening, and the key is not to let costs of production rise again as the milk price improves.”