Dairy farmers 'face another tough year'
Plummeting dairy profits in the last farming year may well be repeated, according to a leading Westcountry consultant.
Loss of production and falling milk yields look set to continue, said Mike Butler, senior partner at Old Mill Accountants, based in Somerset.
While the fortunes of dairying last year were well documented, with national protests at the prospect of dairies slashing milk payments to producers, atrocious weather and the threat of diseases, the prognosis for the current farming year is little better, he said.
Dairy farmers' profitability fell by almost 13% in the year to September 2012, he explained. Lower milk prices, falling production and soaring input costs all combined to slash incomes, said Mr Butler.
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"The potent cocktail of horrendous weather, milk prices suppressed by processors and retailers, and the devastating implications from escalating bovine TB outbreaks mean only one thing for UK dairy farmers when it comes to assessing the financial prospects for 2012/2013."
Last year's wet summer meant grazing and forage stocks were limited, leaving farmers having to supplement rations with expensive concentrate feeds, said Mr Butler. "But the drop in profits is only partly due to falling milk price and rising costs. Loss of volume production is possibly the biggest influence on the downturn. Milk yields are falling well behind last year, making it increasingly difficult to cover overheads."
With most processors showing little sign of raising milk prices to cover such increased costs, dairy producers were likely to shelve any investment plans until they could identify better returns, he added. "Retailers and processors need to realise that, without that financial incentive, milk supplies will simply drop off further.
"In the meantime, the most important thing that dairy farmers can do is assess exactly how variations in input costs, milk yields and milk prices will affect their businesses' overall profitability and cashflow."
One of the biggest elements affecting costs is the replacement rate, so anything producers could do to reduce that would go straight on to the bottom line, said Mr Butler.