Rising Milk Prices Brighten Profit Outlook for UK Dairy Farmers in 2024/25
The report, based on the accounts of dairy clients with a year-end of March 31, highlights the ongoing pressure from high production costs. Average profits fell to £152 per cow, a significant drop from £914 in the previous year, illustrating the impact of lower milk prices. This figure also falls below the five-year profitability average of £478 per cow, emphasizing the sector's financial struggles.
In 2023, herd sizes slightly decreased from 303 to 295 cows, and yields dropped from 7,906 to 7,256 litres per cow due to poor silage. While feed costs saw some relief, the cost of labour and machinery rose, with many farms investing in new equipment in early 2023 to offset substantial tax liabilities.
“This year’s report indicates a shifting focus in dairy operations,” said Andrew Vickery, Head of Rural Services at Old Mill. “In the past, variable costs like feed dominated financial discussions, but now, the cost of essential operational work has become a primary driver of profitability.” The report also reveals significant disparities between the top 10% and bottom 10% of performers. Top producers managed to earn £629 more per cow from milk, with yields and herd sizes considerably larger, averaging 404 cows compared to 167 for the bottom 10%. The bottom group faced a substantial loss of 15.73p/litre, while the top producers made a profit of 12.65p/litre.
Cash flow remains a pressing concern, particularly after substantial tax payments during a period of reduced milk prices. Gerard Finnan of FCG noted, “Despite forecasts of improved profitability by March 2025, current cash flows suggest that many businesses are still feeling the squeeze. Managing the distinction between profit and cash flow is essential, and benchmarking performance against industry peers can help farms focus on strategic areas for improvement.”
Looking ahead, the report forecasts a more promising year for dairy farmers, with milk income expected to reach £3,308 per cow in 2024/25, against an estimated cost of production of £3,122 per cow. This turnaround in milk prices could see profits rebounding to an average of £590 per cow, bringing much-needed relief to the sector after a challenging year.
