Despite soaring costs of production for feed and fertiliser, dairy farm profits averaged £185 per cow in 2020/21 according to a new report.

The Milk Cost of Production report – conducted by rural accountant Old Mill and the Farm Consultancy Group – found that average farm profits fell from £233 per cow in 2020/21 to £185/cow last season.

“This is on the back of a falling milk price, rising feed costs and straw prices at levels not seen before, so maintaining profits to this level is all the more credit to the dairy industry,” said Dan Heal, rural adviser at Old Mill.

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This is the fourth consecutive year that profits have remained above the £100 per cow bracket, as increased yields offset the fall in milk price. Average yields rose by 151 litres/cow due to a favourable milk to feed ratio and good quality forage. However, the total cost of production – at £2393/cow – averaged more than the milk income of £2321/cow.

This loss was offset by a recovery in non-milk income due to the improved beef market. Herd size has also shrunk – from 307 to 269 – as farmers culled their less productive animals harder.

The top 10% of producers still far outperformed the bottom 10%, due to tighter control on costs too, with the bottom 10% incurring £1097/cow more costs, spending an average of £2954/cow. This gap had widened on the 2019/20 average of £950/cow.

“Though overall profitability has declined from last year, the gap between the top and bottom performing herds has significantly widened,” added Mr Heal.

The top 10% spent £320/cow less on feed and £261/cow less on labour than the bottom 10%, whilst income brought in was £231/cow higher. This is despite the top farms producing lower yields of 7229 litres per year against the bottom farms’ average of 7483 litres.

“There is a huge range of production level within the top 10% – from 4828 litres/cow to 9711 litres/cow, showing that a focus on efficiency pays whatever the yield. Less efficient setups likely require investment to change this.”

Though organic farmers are excluded from the top versus bottom 10% statistics, their performance has been variable, with some producing within the top 10% of conventional farms and others in the bottom 10%.

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Overall, labour costs have increased by £27/cow, up from £458/cow in the 2019/20 season. Power and machinery costs also rose, by £19/cow to £543/cow.

In the 2021/22 season, labour, energy and machinery costs are expected to continue to rise, so profits are predicted to fall to £167/cow, especially as the marginal litres become uneconomical to produce, explains Mr Heal. The cost of production is projected to be £2354/cow against a predicted milk income of £2165/cow, down £66/cow as yields decline due to higher feed prices.

However, non-milk income is forecast to rise again, by £365/cow, in response to the buoyant livestock market.