Once again our office has jointly prepared Cost of Production survey with Old Mill Accountants for the year ending 31st March 2016 for the Wessex Region.  The figures cover a broad range of dairy farm type, milk yield and milk contract, including an even mix of aligned and non-aligned suppliers.

The headline figures show:

• Average cost of production for the year was 29.05 ppl compared to an average milk price of 26.34 ppl.  Without other income, the average farm was losing 2.71 ppl.
• The top 25% had a cost of production of 22.84 ppl, which is 11.03 ppl lower than the bottom 25%.
• There is a difference of 14.40 ppl in comparable profits between the top and bottom 25%.

This last point clearly shows that there are a high proportion of farms that can still make massive improvements to their business performance, if they focus on cost control.  The greatest areas of difference between the top and bottom 25% are in feed costs, labour and power and machinery, which account for 76% of the difference.  These are the three areas you need to focus on to improve your business’s performance.  Examples of this could be:

• Improve the utilisation of forage to lower feed costs.
• Simplify your system to reduce labour costs.
• Are you over using contractors, e.g. hauling silage back over long distances or hauling slurry away from the farm?
• Are you buying your inputs well?  Would a buying group enable you to get better value for money?

Looking forward, the report shows the budgeted position for the average farm business to the 31st March 2017.  We do not expect much change in profit with costs increasing due to exchange rates, e.g. protein up £50 per tonne, fuel increasing and fertiliser rising by over £50 per tonne.  Whilst the milk price is on the increase we do not expect the average price for the year to be much different as the first six months of the year saw prices below 20 ppl.  The price would need to get over 28 ppl for the later part of the year for the average price to rise year on year.

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If you would like a copy of the report or to discuss its findings further, please contact Phil at pcooper@fcgagric.com