Allaster Dallas (FCG Midwest)

It is easy to forget that a year ago, the same article said, “make volatility your friend”. Milk prices have continued to rise this year as the market responds to increased demand and pressures on global production. In the budget as we advance into this winter and spring, I have highlighted that milk prices are softening on the back of high current prices. Milk production systems must be able to adapt to static or falling milk prices in the future.

In contrast, the global production of proteins and cereals is at an all-time high, forcing feed prices down. The price of grain is not in line with the costs of production in many countries and will only be held up by arable businesses borrowing more money, increased subsidies or a reduction in output. With the political pressure leaning to the right, I would suggest there is little appetite for intervention, and the market will have to adjust accordingly.

In the sample group, some farms have not taken up the SFI in the last two years. With the rumours of a much smaller payment in the future, this is unlikely to persuade those who have had to purchase forage this year to take part in the future, if they see production affected and not adequately reimbursed. There is a lot of work to be done on pasture management after a very wet year, followed by an arid year. The tighter options may mean farmers avoid the scheme to allow repairs.

Looking at milk prices in the future, the recent global milk trade has seen a drop in commodity prices and more pressure on prices looks likely as we enter the winter. This has been reflected in the budget price running to 31 March 2026.

The increase in concentrate feeding seen through the summer looks set to continue into the winter with tight forage stocks.  This has resulted in increased UK milk production and improved milk solids.  The higher milk solids have and should continue to help offset any price drop seen through the rest of the year.

The pressures on cattle numbers and demand look set to continue. Although the price point at which the consumer buys looks fragile.

There has been a jump in stock sales as the red meat market hoovers up calves and cull cows coming out of the dairy sector. With calf registrations down, this is likely to be maintained. The trend for more output per cow will continue as sexed semen and genomics is starting to deliver milk output. Our budget is based on high calf and high cull prices continuing into the new year.

Valuation is maintained at a similar level in the future, having jumped up this year. TB continues to take a toll on stock numbers, forcing producers to factor in more youngstock or replace stock at higher prices.

The cost per tonne of concentrate has continued to fall, favouring high-production livestock systems. More concentrates have been fed, and more livestock have been kept on the farm, trying to capitalise on the high prices.  In the data we analysed, there is a considerable variation between farms and the margin over purchased feed. There is no sign in the short to medium term to suggest an increase in feed prices apart from maybe some haulage and processing costs. This is reflected in our budget by increasing feed rates but holding the price per tonne.

There are small increases in variable costs, notably fertiliser and bedding, adding 1 ppl to the costs between them, despite weakening oil prices.

Power and machinery costs will continue to increase. The cost of doing work shows one of the most significant increases between last year and this year, going up £72 a cow, and is predicted in the budget to rise further by £152 cow. These increases relate to extra machinery on farms, higher repair costs due to the complexity of machinery and a decline in available skilled labour, leading to a rise in wages.

The most significant factor that stands out among the figures is the human element. There are optimistic, strong agriculturally minded performers who can technically achieve and run stable, profitable businesses. There has been considerable uncertainty, and as a result, farmers will incur short-term to medium-term costs associated with investment, planning and future-proofing their assets. There will be opportunities for producers who can control their costs and maintain the required output, considering the increased fixed costs.

Summary

If you want to discuss further or get more detail on individual systems profitability for 2024-25, contact Allaster at allasterdallas@fcgagric.com

View the full report below