UK Dairy Day: Fix variable costs now, dairy farmers advise

Dairy producers are advised to set fertilizer and feed prices as winter approaches.

Many dairy farmers are reluctant to enter into contracts because they fear milk prices will fall, said John Allen, managing partner at Kite Consulting.

“There is a reluctance to manage risk. Farmers are hesitant about milk prices and think they will go down, and if they are fixated on fertilizer and feed, they will have higher feed and fertilizer prices and higher milk price down.

See also: Farmer groups slam business energy support scheme

Talk to weekly farmers on UK Dairy Day, Mr Allen said he could not ‘guarantee the price of the milk and guarantee’ it would stay as good as it is today.

But he suggested it was unlikely to fall significantly, with Kite’s mid-term analysis showing it would remain relatively stable next year.

He said drought in Europe and environmental policy constraints had led to lower milk production, which would further support prices.

Overall, average daily deliveries for the EU-27 fell by 0.4%, or the equivalent of 43.8 million liters for June, according to the AHDB.

Energy prices are expected to jump 250-350% from their current level of 1.3p/litre this autumn as contracts expire.

Wait for more information

Currently, Mr Allen is advising growers to wait until the industry hears more about the government’s business support package.

“There are more upside risks on feed and fertilizers than downside risks. Fertilizers are likely to rise with gasoline prices and plant closures,” he predicted.

“Take shelter [on these]. Reduce your company’s exposure. Have a risk management strategy. One thing is certain in life is that you will never get everything you need; you just need to make the best decision possible at the time.

Kathryn Rowlands, senior manager of agricultural services at Kingshay, echoed that sentiment. “Farmers can do more to achieve marginal gains and lower costs, where possible,” she said.

Figures from the Kinsghay Costs Report for July show the average milk price was 45.90p/litre, 2-3p/litre lower than figures of 48-49p/litre quoted by milk buyers for the same month .

She stressed that farmers need to make the most of their dairy contract and focus on any leaks in their system.

“The easy wins will have already been made. The challenge will be to further improve efficiency – a key area to focus on is health and fertility, as this can affect loss of milk production and cow slaughter,” said Ms Rowlands, pointing out that the cost of these inefficiencies becomes more pronounced as milk prices rise. .

Kingshay’s Richard Simpson said fodder stocks would be a major concern for many, particularly in the South West, and encouraged those affected by the drought to assess the options.

He said if buying fodder was not an option, farmers should consider reducing inventory by selling slaughter animals or slaughtering inefficient animals.

“A lot of people said the corn would be better than expected. Some harvests are terrible, but many early harvest reports are better than expected. If the cob is decent, it should be a decent crop,” he added.

But the two reiterated that the focus should be on keeping production going to help spread costs.

In numbers

  • 61% Percentage of producers who have negative forage stocks, according to the August 2022 Kite quarterly report
  • 250-350% Expected increase in electricity contracts this fall

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