Kite Consulting says that dairy farmers will lose money in the coming year because milk prices will fall faster than their costs.
As farmgate prices continued to fall, the main topic of discussion at Dairy-“State Tech’s of the Dairying Nation” keynote session on February 1 was “surviving the next six months.”
Edward Lott, the managing consultant at Kite Consulting, said that the industry had gone through a big inflationary cycle, with the price of milk almost doubling in the past year and costs going up by almost the same amount.
See also: Milk prices at the farm gate will drop in February and March
“In the future, that balance will change, because I don’t think costs will always go down by the same amount as milk prices,” he said. “That will be the big challenge.”
Mr. Lott said that the industry needs to think about where the margins need to be in the future so that milk can be sold. He also said that in the medium to long term, an extra 2p/litre margin will be needed to do this.
Robert Craig, vice-chairman of the Royal Association of British Dairy Farmers and a director at First Milk, said that producers should build real financial discipline into everything they do.
“As a discipline, you should make cashflows, budgets, and analysis every month so you know exactly where you are and where you want to go. This will help you see any bumps in the road ahead. When you do that, it’s easy to stay alive,” he said.
Mr. Craig said that by the end of 2023, milk prices could be about the same as they were at the end of 2022, but there’s a bump in the road before that.
Adam White, who is in charge of agriculture at Barclays, told farmers that they should have a plan for their farms.
He said to decide if you want to grow or shrink, think about your plan for the farm’s future, and know where you want to take it.
Tom Bradshaw, the vice president of the NFU, said, “We are not alone, and there will be a lot of change.” We’ve seen this over the past year, and it’s going to keep happening. We don’t live in a world that is at all stable.
“I just want to tell everyone that if they are having trouble, there are lots of people who can help them, and we shouldn’t just sit around and try to figure this out on our own. As farmers, we have a lot to answer for. Sometimes we are too proud, and when things are hard, we need to help each other. A problem shared is half a problem.”
The head of Dairy UK, Judith Bryans, told farmers to work together and ask organisations in the industry for help. Lyndon Edwards, an AHDB board member and sector chairman, told farmers to look around the farm to see what’s good and what’s bad and to make a list of things they want to change.
He also said to think about some of the work being done on regenerative practises, which can help the bottom line and give some easy ways to make the business more profitable overall.
Profitability
Kite Consulting listed the most important things for dairy businesses to pay attention to over the next few months:
Make a plan for gathering food. High-quality forage will help cut down on feed costs, and the first cut will start in about 75–80 days.
Hedge risks Make sure you have a plan and a budget. Being able to buy the things you need to meet your plan is a great way to know where your money stands.
Increasing the price of milk New programmes, like Arla’s sustainability programme, offer bonuses for meeting requirements, and farm businesses need to start thinking about how they will do this right away.
Keep a positive attitude.
Investment Long-term resilience needs investments, and in the next few months, farmers need to think strategically about what is best for the long run.
Dr. Matt Utt, a senior dairy product analyst at the global animal health company Zoetis, said that investment on the farm is important and that sometimes you have to “spend money to make money.”
