Dairy Cost of Production Review

Each year FCG Sherborne with Old Mill Accountants publish the annual Cost of Production to the end of March of that year.  This has just been published and launched at the Dairy Event on the 5th October.

Actuals to March 2022 - The gap between the top and bottom 10% of herds closed significantly but is still £693/cow lower in the top 10% of herds. Two thirds approximately of this difference is labour and machinery. Historically, irrespective of system there is a high degree of correlation between the lower costs of machinery and labour (Cost of Doing Work) and lower costs of production.

As can be seen in year to March 2022, the lower costs of production drive higher profits which is within the control of all dairy producers irrespective of the production system.

Budgeted dairy profits to March 2023 - These are expected to increase due to higher milk prices, and this will be seen with an improved cash position in the second half of the financial year to March 2023. Careful cashflow management will be required over the next 18 months, as this cash will be needed to cover:

Cost of capital investment in water quality compliance, slurry storage improvements to meet new legislation over the next 3 to 5 years.

• Increasing cost of inputs which haven’t fully filtered through as producers have forward bought 6 – 12 months ahead fixing prices of feed, fertiliser etc.  What will producers be paying in twelve months’ time especially if there is a fall in milk price which could happen as it’s outside one’s control.
• Higher Interest Rates on businesses exposed to high levels of variable interest rates.
• Taxation – higher shorter term profits mean a bigger tax bill therefore forward capital planning and advice is important.

On a positive note, the system of production doesn’t influence the levels of business profits. The attitude, motivation and the management ability of livestock, people and machinery which is all with the control of the producer have the biggest influences.

Click here to view Cost of production Report 2022 or for more information and a hard copy of the report contact Mark Yearsley on 07984 785190 or e-mail markyearsley@fcagric.com