Dairy Farm Profits Expected to Decline Amid Rising Costs
According to the annual Milk Cost of Production report by Old Mill accountants and the Farm Consultancy Group, dairy farm profits are anticipated to decrease sharply. In the year to March 31, 2026, profits were recorded at 12.43p per litre. However, projections for 2026/27 suggest a decline to just 3.96p per litre due to falling milk prices and increasing production costs.
The report indicates that average income per litre reached 54.81p, while production costs were 42.38p over the same period. The forecasted profit drop is attributed to weaker market conditions, including drought and forage shortages, which have compounded production challenges.
Bradley Causey, a rural accountant at Old Mill, noted that spring-calving herds thrived under the conditions of 2025/26, but might be less competitive in 2026/27. This is due to predicted lower milk prices in the upcoming spring.
Despite an increase in average milk income to 46.38p per litre and non-milk income from livestock sales to 8.43p, major input costs, including feed, exceeded the five-year average. The report highlighted that the milk-to-feed-price ratio had encouraged farmers to enhance yield, despite shortages.
Analysis showed that larger herd sizes or higher milk yields did not automatically equate to increased profitability. The top 10% of farms combined lower costs with superior technical performance, achieving a total income of 60.87p per litre, compared to 50.19p in the bottom 10%. Their costs were significantly lower at 36.56p per litre, resulting in a profit of 24.31p per litre, unlike the lower group, which faced a loss of 2.56p per litre.
Allaster Dallas from the Farm Consultancy Group emphasized the importance of cost management, processor demands, and strategic planning as key factors in adapting to evolving market conditions. He stated, “It is not enough to focus solely on production, as cost structure can be key to success.”
The report also cautioned that milk-price volatility was not the sole concern, as dairy producers are increasingly dealing with regulatory compliance, political uncertainties, and economic instability. However, investments in energy-saving technologies and improved genetics are beginning to yield benefits in efficiency and finances. Sales of dairy and beef animals are assisting farms in diversifying their income streams.
Mr. Dallas expressed optimism, noting, “There is some light at the end of the tunnel, and the UK remains a competitive place to produce milk.” Farmers are advised to reassess their costs, cash flow, and tax liabilities as profit margins are expected to weaken, particularly with impending tax payments due in January 2027 based on previously stronger earnings.
