Much has been written about the prospects for dairy farming in the future and we have seen considerable numbers of larger units leaving the Dairy Industry in the last year. The following paragraphs will discuss the more positive aspects of dairying.
- Changes to the CAP and the singe farm payment. The changes to intervention price are quoted as being equivalent to 4ppl. At present most prices are similar or slightly lower than last year. An English farmer with 1 million litres of quota will receive almost £27000 in 2006 and almost £26000 in 2007. Despite the publicity these are similar to a Welsh dairy farmer. Many commentators are suggesting that this income should not be included in the farm income as it is decoupled. However it is viewed, this represents income coming in to the farmer, whether it is used to reduce borrowings or finance development.
- Quota is becoming much less of a constraint. Last January saw purchase prices over 30 pence per Litre. Current prices are 12ppl and after SFP (Single Farm Payment), have a net cost of 5ppl. This equates to an overall financial repayment of 1.25ppl for five years. The gamblers amongst you may not even bother to get additional quota and still increase output.
- Concentrate prices are likely to continue to fall. Soya reached over £210 per tonne last January and forward prices for summer and next winter are closer to £127/ tonne x store. The Forward price for wheat in September is £74/ tonne. Very little is heard of the milk: concentrate price ratio these days. For many years it was 1:1. Today 1 litre of milk will buy 1.5Kg of quality compound feed. Forage quality and forage stocks are high on farms with surplus left at the end of the year. First cut silages this year have not delivered the promise they showed when harvested in perfect conditions mid - May.
- The OTMS (over thirty months scheme) is scheduled to change in mid summer. This may lead to an improvement in cull prices, especially for larger dairy cows. The effect on the beef calf market is difficult to judge and dairy bulls have dropped back to a low value.
- This year compared to last has shown an improvement in cow health especially fertility. Maybe it's just a coincidence that most of the farms that we see are clients of GP Feeds. You may have read David Beever in British Dairying suggesting that cow diets should be lower in crude proteins. You heard it here first. Remember the Atkins Diet slogan?
- Butterfats have also recovered and some GP Feeds clients are maximising their payments by making use of extra payments for butterfats. Butterfats over 4% are becoming more common with the 'white water' producer with fats at 3.6% looking to improve those levels.
- Even allowing for the changes to the CAP, World market prices for cheese and SMP (skimmed milk price) are high with commodities in short supply. The USA dairy farmer has been receiving prices close to 22ppl, which is almost double historic prices. It is very hard to accept price cuts by the dairy companies as justified given the present situation regarding world milk production. When we look at costings on farms we see price differences of over 4ppl for milk of similar quality and profile. Producers receiving close to 22ppl are making a reasonable if not acceptable return. Producers receiving less than 18ppl cannot make up this 4ppl even if they have exceptional technical efficiency. We now have two large farmer owned dairy co-ops with links to processing facilities. Lets hope that they are able to increase the value of the milk sent by their members.
- Will milk get in short supply? As mentioned earlier, there have been a lot of herds giving up production and more will go out later next year. Professor Coleman is due to publish a report about the future. His previous report suggested milk would have to fall to less than 14ppl after quota costs, before production suffered. The SFP and a lack of confidence in the industry would suggest that 18ppl is nearer the mark. Many farmers tell us it is a good thing that we are well below quota this year and are not interested in getting the last drop from their cows. We are aware that in parts of the county, local dairies are worried about the future milk supply. The liquid market is about 60% in this country and this is still the product that commands top prices. If 10-15% less milk was produced, especially outside the spring flush, then we believe this would increase prices by 2-3 ppl.
In summary, there is some good news and prospects in the dairy industry. Expansion will be easier with extra quota and land more readily available. However, the margins will be higher and the management of health and nutrition needs to be first class. GP Feeds will continue to provide quality feeds and fixed formulations to assist the farmers wishing to push ahead and benefit from higher returns and healthier animals. To make decent returns in the future, the farm business must develop a successful working relationship between themselves, a competent nutritionist and their vet.