Improved market conditions and higher milk prices have bolstered incomes in the dairy sector over the past couple of years but, with overhead costs and fuel prices on the way up, producers have been warned this next year is unlikely to be as positive.

According to Nigel Davies, Promar's national consultancy manager, who works with more than 2000 dairy farms and several major processors and retailers throughout the UK, market conditions beyond producers control are likely to have an impact on the current year’s profit levels.

“The rolling milk price is likely to stabilise over the next few months, however overhead and other costs are likely to continue to increase at a faster rate in the financial year ending 2019," he told a press briefing.

“Oil prices have risen by 25% since March 2017, and this is likely to be sustained. The net impact of this is, that at this very early stage of the year, we would foresee that in 2019, profits may not reach the higher levels seen during the year ending March 2018, but they shouldn’t return to the lows seen in 2016 and 2017.

He said that figures from the company's farm business accounts for the year ending March 2018, revealed that an upturn in milk price coupled with improved technical performance was likely to contribute towards farm profits increasing by approximately £85,000 for the average farmer compared to the year ending March 2017.

“Although the fully audited results for the whole farm business account sample won’t be available until later this year, our Milkminder matched sample data for March 2018, shows that the rolling milk price has increased by 4.98p per litre over the period.

“This is significant and would mean that the average dairy farm in the sample would have generated an extra £83,789 of income in the last financial year, if the level of production remained the same as in the year ending 2017.

“Combined with the average Milkminder herd increasing yield per cow by 241 litres and keeping nearly five additional cows, these farms would add a further £26,263 to income if they replicate this increase in volume of milk produced.”

However, Mr Davies warned that the Milkminder matched sample indicated that average concentrate prices have increased year-on-year by £16/tonne, which along with feed rates increasing by 0.01 kg/litre up to March 2018, will have diluted margins by circa £10,400.

Farm overheads and other non-feed costs have also come under pressure in the 12 months to March 2018.

“If the average Retail Price Index (RPI) is applied to these costs in the FBA sample, then an additional average cost of £10,771 can be added for the financial y/e March 2018.”

As a result, he said accurate budgeting for March 2019 is important.

“Given that overhead costs are likely to increase this year, but milk prices should remain stable, one thing that producers could look to do differently, is to focus on their costs and associated actions first, rather than sales.

“Clearly understanding your current position in terms of cash and using up-to date and accurate data such as farm business accounts to forecast will be vital to reduce the potential impact of future market conditions," concluded Mr Davies.