Dairy farmers’ earnings dropped sharply in 2018/19 and are only set to recover marginally in the coming year, according to a report by UK South West accountancy firm, Old Mill & The Farm Consultancy Group.

The report, The Milk Cost of Production Survey for 2019, revealed that comparable farm profits fell from 5.9p/litre (£383/cow) to 2.69p/litre (£141/cow) in the year to 31 March 2019.

This was mainly attributable to the very dry summer, which hampered milk production and required producers to buy in extra feed, pushing costs of production up from £2,186/cow to £2,411/cow.

Higher milk prices partially offset a drop in milk production, bringing milk income to £2,267/cow, compared to £2,272 in the previous year. That left the average farm making a marginal profit only after accounting for non-milk income.

Although any production system could make a profit or a loss, year-round calving herds tended to be towards the lower end of the scale, with spring-calving herds likely to make more on a per-litre basis, said Mr Cox, Director at Old Mill. ‘This is due to their ability to produce cheap milk, which insulates them against lower milk prices.

‘However, spring calving herds had lower than average yields: As yields climb, a lower margin is needed to maintain profit per cow. The best farms carefully monitor the costs of producing marginal litres, to pre-empt those margins getting squeezed.’

Looking ahead to the 2019/20 milk year, the better summer, likely higher yields and lower feed costs should help boost profits by 0.71p/litre, to 3.4p/litre or £269/cow. ‘But given Brexit, there are arguably more uncertainties over profitability now than at the same point last year,’ warned Mr Cox. ‘Although the weakening value of sterling will prop up milk prices to some extent, its impact on imported inputs is only partly being offset by lower domestic grain prices from the good 2019 UK harvest.’

Last year’s increase in costs were mostly due to the drought, said Phil Cooper at The Farm Consultancy Group. ‘Most of these costs are budgeted to be reversed this year, but it still leaves only £76,400 for the average 2.1 million litre dairy farm to cover rent, debt finance and repayment and taxation on a 30p/litre milk price.

‘It has been a challenging year, and many farms are sitting around the break-even point, with a need to rebuild profitability next year,’ he added. ‘Producers should now have enough information to budget accurately for the coming six months, and must act quickly to put their businesses on a sound footing no matter what Brexit throws at them.’