Higher on-farm milk prices should improve year end figures to March 2018, for most dairy farmers, according to the latest data from Promar’s Farm Business Accounts (FBA).

In contrast to the year-ending March 2017, which saw the bottom line of many dairy farm businesses fall 20% to £43,404 due to depreciation, FBA has already seen good performance figures to date.

“The sustained milk price increases in the year to date are feeding through to notable improvements in gross profits so far into the year,” said Nigel Davies, Promar's national consultancy manger.

However, he warned that a comprehensive approach to financial performance and planning remains key, as gains this year are likely to be diluted by increased overheads and inflationary pressures. Post-March 2018, he said milk price volatility is likely to continue too.

Mr Davies also encouraged producers to review every aspect of their business to drive efficiencies and ultimately increase profitability.

“This is something that the top 25% practice continually and one that with help, the majority of farmers can also employ.

“The data identifies huge disparities in the performance of the top 25% of the sample. For instance, the operating profit per cow is more than double compared to the average, at £885 per cow. This amounts to a staggering difference of over £90,000 in resulting profit for an average sized business in the sample.”

Furthermore, he added that with the average herd size increasing by four cows, and farm land increasing by 2.4ha per holding, many producers are driving economies of scale.

“Scale is important, but critical to profitability is a need to continually improve technical efficiencies across the business. Interestingly, the top 25% of farms have eight fewer cows than the average, and their profitability is also not primarily linked to their milk price, which accounts for just £88 per cow.

“Yield helps, but not at all costs. Reviewing gross margins is key," said Mr Davies pointing out that the top 25% reported feed costs of 0.33ppl less than the average, and marginal improvements in herd fertility, culling rates and death.

It’s not all about focusing on the milking herd either as the data highlighted that management of grassland and forage crops gives the top 25% an £18 per cow advantage, while better youngstock management can add a significant £28 per cow advantage.

In addition, Mr Davies said overhead costs should not be viewed as ‘fixed’.

“A striking £216 operating profit per cow difference in the top 25% comes from efficient overhead cost management, which is the equivalent of 2.53ppl.

“Predominantly this difference is made in labour efficiency and machinery related costs, and all producers should be considering how they can improve these two areas.

With inflation currently at 3%, oil prices increasing and a shortage of quality labour, he forecast that overhead costs will rise rapidly into 2018, too and as a result, every enterprise should be carefully considering the dynamics of their own financial performance.