Dairy profits set to fall after last year’s growth, says Old Mill
Dairy farmers’ profits increased only marginally last year, and the outlook for this year is even tighter, according to accountant Old Mill Rural Services.
It recently benchmarked South West dairy clients with a year end of March 2009, and found that average net profits rose by only 1%, excluding the Single Farm Payment, to £42,550 per herd. Even with the single payment included, net profit only increased by 3%, with a sharp increase in costs eroding better returns.
“Milk yields per cow actually fell by 4%, to 6,835 litres – probably on the back of poorer quality forage last winter,” said the firm’s Andrew Vickery. “However, this was more than compensated for by a rise in the average milk price, from 23.5p/litre in 2007/08 to 27.61p/litre in 2008/09, as well as a slight rise in herd size.”
Overall, the money generated by milk sales increased by an average of 13%, and non-milk turnover also grew, giving an average rise in income of 12%. “However, costs were also up, with feed prices soaring by 20% and contracting costs rising by 16%, which eroded farmers’ improved returns,” said Mr Vickery.
Looking ahead, the 2009/10 financial year could be considerably tighter. “The milk price has been weakening, oil-driven costs seem to be rising again, and despite the continuing low Bank of England base rates the cost of new borrowing has risen. On the positive side, forage quality should be better and the weaker sterling has ensured a higher yield from this year’s single payment.”
Farmers must budget carefully to accurately predict their financial performance before the end of the year, said Mr Vickery. “If the figures are not as good as last year, dairy producers could be in a position to show a loss and claim back some of the tax paid over the past two more profitable years. Early consultation with an accountant who understands farming issues is very much recommended.”