Dairy producers are at long last enjoying some much needed increase in demand and prices, with the average milk value of 29p per litre for 2017/18, going some way at least, to offset the huge losses made the previous year.
Scottish figures from David Keiley, senior dairy specialist at Kite Consulting, show that while the end of the milk crisis saw average dairy businesses with debts in the region of £800 per cow, based on loses of 3-5p per litre, such figures have been reduced to nearer £500-£600 due to increased ex-farm milk values. 
Add to that a much more a positive outlook for the industry with further small increments in milk prices expected and many dairy farmers are at long last able to re-invest in their units.
“Don’t underestimate last year’s milk crisis – some balance sheets were severely eroded, but there are dairy farmers out there now making good profits and looking to invest in the future by increasing production. Farmers are nevertheless more cautious and want to make positive decisions for the next round of milk price volatility and are therefore also seeking to improve levels of efficiency,” he said.
While many Scottish dairy herds in the South-west, Lanarkshire and the remote areas of Campbeltown and the islands, suffered the lowest UK milk prices during the downturn, Mr Keiley said the saviour of many in Scotland, was non-dairy livestock sales. 
Compared to dairy farms in the south, which traditionally would serve all their cows to a dairy sire, Scottish milk producers generate 5-6ppl more gross output from having a shed full of store cattle from their herd to sell, which provided much needed cash at a difficult trading time. 
While volatility is unlikely to be removed from the market, Mr Keiley added that minimum price models and recent developments in futures market trading have nevertheless provided producers much needed stability.
“We are currently experiencing a period of good milk prices with parity between the aligned and non-aligned producers. The Milk price:Feed Price ratio is now around 1.35, indicating that dairy farmers can see an economic incentive to feed and therefore increase output at current milk prices.”
Consequently, he said continued focus on efficiency and ‘making hay’ during this period is critical. 
Despite the current appalling weather, Mr Keiley also pointed out that some first cut silages have been exceptional this year, with most early cut forages resulting in good silage. 
Hence, in the current accounting year, the best 25% of producers are likely to achieve breakeven milk prices of 21-23p per litre with good forage quality, well forward purchased feed and economies of scale. 
Typically, average producers will be around the 27-28ppl break-even mark as they are experiencing increased interest rate burdens as a result of more debt, overdue creditor repayments, deferred property repairs, machinery replacement and inflationary increases.  
With an upsurge in the butter market expected to continue through the winter period before milk prices have the potential to weaken on the spring flush, Mr Keiley advised average producers to focus on improving efficiency to become more resilient. 
“Key strategic investment to improve systems in a good milk price environment will pay dividends in the longer term,” he concluded.
South of the Border, figures from accountants, Old Mill, reveal that dairy farmers lost an average of 3.49p/litre in 2016/17, based on an average milk price of 25.71p compared to average costs of production to the year end March, 2017, at 29.20p. 
“That was well below our forecast profit of 1.08p/litre this time last year,” explained Mike Butler, chairman of the board at Old Mill. “And it is purely down to the extended period of low milk prices. Farmers cut expenditure as far as possible, in areas like property repairs and variable costs, but there was only so much they could do to offset the catastrophic milk price.”
But, with milk prices predicted to average 29p/litre in the 2017/2018 year and non-milk income pegged at 3.3p/litre, he said efficient businesses should be able to generate a profit of around 3p/litre, with the more efficient operators sitting above 5p/litre. 
Costs of production are set to remain virtually unchanged at 29.19p/litre (including imputed costs of £30,000 for unpaid labour), with feed and fertiliser prices dropping back while other areas increase. 
“We would expect to see increases in vet and medicine costs as more businesses start vaccinating stock – although some of this should be offset by a reduction in dry cow therapy as milk buyers encourage selective dry cow treatments,” said Mr Butler. “Silage costs are expected to increase due to the good grass growing year. And depreciation could rise slightly as renewed confidence leads to increased investment.”
Analysis of the top and bottom 10% of producers shows that feed, labour and machinery costs are the main areas on which to focus. Perhaps surprisingly, the bottom 10% of producers received 0.77p/litre more for their milk price than the top 10%, at 25.76p/litre in 2016/17. Although their herd size was smaller, their yield per cow was higher – but at a steep cost, with expenditure on purchased feed more than double that of the top 10%, at 8.73p/litre. Overall, the top 10% managed a comparable farm profit of 8.94p/litre last year, against a loss of 13.06p/litre among the bottom 10%.
Mr Butler added: “It is encouraging to see that the top producers can continue to make a profit at times of low milk prices. 
“And there is a much brighter outlook ahead, with the average 2m litre producer likely to see profits rise from £5600 to £62,200 in 2017/18. However, it will take months, if not years of trading at this level to repair depleted balance sheets – and we would like to see profits rise further, not least through greater efficiency gains. Farmers need to plan carefully to retain as much profit in the business, with one eye to investing for the future in the most tax-efficient manner possible.”