Milk cost of production
survey 2013
Welcome to Old Mill’s first detailed
report on our dairy farming clients’
costs of production
One of the most important
points to make at the
outset is that we have
prepared these figures
primarily to assist our
clients in interpreting
Pat Tomlinson
and managing their
businesses – they are not
designed to be an influence on milk
prices although of course, we recognise
that they will inevitably add to the
wider debate and understanding of how
much it is costing UK dairy farmers to
produce milk.
In understanding and interpreting the results, it is
important to be clear about the basis upon which
these figures have been produced, specifically:
n The sample consists of all Old Mill’s clients who
derive more than 70% of their business income
from milk sales.
n The farms all have a March or April year end in
the relevant year.
n Only paid labour and private drawings actually
taken are included; no theoretical figure for any
unpaid labour is included.
n All livestock valuations are adjusted to realistic
market values.
n The total cost of production indicated therefore
include no allowance for a return on capital
invested by the owners.
n It should be noted that the average herd size in
both the 2013 and 2012 samples was substantially
higher than the national average.
To that end, we believe they are an extremely
effective business management tool. They are “clean”
figures representing a significant number of dairy
farmers, such that if any individual farmer or reader
of this report wishes to, they are free to adjust the
figures for any theoretical figures they may think
appropriate (i.e. rent of owned land, unpaid labour
and return on capital employed).
We hope they will be of value and would certainly
encourage debate and discussion on them as well
as their on-farm use on an individual basis.
n They are the actual costs those clients incurred
in the relevant years.
n Any clients with exceptional events in the year
are excluded from the sample.
n Rent and finance costs are only those that were
incurred; no figure is included for either a
theoretical rent of owned land, or a theoretical
return on capital employed.
There remains no simpler or clearer way of analysing
financial performance than comparing costs and
income in the same units (especially in an
unsubsidised market) – i.e. pence/litre and we hope
to stimulate the use of this format in as many
situations as possible. Finally, we welcome all
feedback on them!
Key findings
n
The average total cost of milk production in the year to March 2013 was
38.02p/litre – an increase of 3.69p/litre on 2012.
n
The average milk producer made a loss in 2013 of 1.12p/litre – compared to an
average profit in 2012 of 2.21p/litre.
n
Average yield per cow fell by 646 litres over the year and total production fell by
370,930 litres – both clearly attributable to the prolonged disastrous weather.
n
When comparing the identical group of farms year on year (as opposed to the
whole sample), total costs of production were 38.24p/litre in 2013, an increase
of 4.1p/litre with the average producer making a loss of 0.16p/litre compared,
to a profit in 2012 of 2.5p/litre.
n
The identical sample’s yield fell by 469 litres in 2013 to 7145 litres/cow and its milk
price increased by 0.62p/ to 29.67p/litre.
n
The difference between top and bottom 25%
producers’ total costs of production in 2013 was a
staggering 12.65p/litre – an increase from the still
substantial 9.8p/litre difference in 2012.
n
The top 25% dairy farms in 2013 had very different
physical characteristics than 2012 – average herd size
was 37 cows lower, yield per cow 977 litres lower and
total milk production 482,970 litres lower.
Whole sample – 2013 vs 2012
2013 (ppl)
2012 (ppl)
Difference
Herd size
182
215
(33)
Yield per cow (litres)
7137
7783
(646)
Total milk produced
1,302,084
1,673,015
(370,930)
Milk price
29.91
29.31
0.60
Non milk income
6.99
7.22
(0.24)
Feed costs
11.38
9.61
1.77
Other variable costs
6.73
5.54
1.19
Gross margin
18.79
21.38
(2.59)
Labour and power
11.24
11.27
(0.03)
Rent and finance
2.25
1.89
0.36
Other overheads
2.83
2.70
0.13
Drawings and tax
3.60
3.32
0.28
Retained profit
(1.12)
2.21
(3.33)
Total costs of production
38.02
34.33
3.69
How the income came and went (per litre)
40
35
Key
25
MILK PRICE 29.31p
10
Feed
TOTAL 36.53p
15
MILK PRICE 29.91p
20
TOTAL 36.9p
Pence Per Litre
30
5
0
-5
2013
2012
Key points
n Costs increased by 3.69p/litre.
n Milk price increased by 0.6p/litre.
n Feed and other variable costs represented the majority of cost increases.
n The average producer lost 1.12p/litre in 2013.
Other variable costs
Labour and power
Other overheads
Retained profit
Retained loss
Identical farms 2013 vs 2012
2013 (ppl)
2012 (ppl)
Difference
Herd size
197
195
2
Yield per cow (litres)
7145
7613
(469)
Total milk produced
1,410,544
1,482,837
(72,293)
Milk price
29.67
29.05
0.62
Non milk income
8.41
7.59
0.82
Feed costs
11.27
9.15
2.12
Other variable costs
6.77
6.32
0.45
Gross margin
20.04
21.17
(1.13)
Labour and power
11.56
11.08
0.48
Rent and finance
2.26
2.09
0.17
Other overheads
2.89
2.56
0.33
Drawings and tax
3.48
2.94
0.54
Retained profit
(0.16)
2.50
(2.66)
Total costs of production
38.24
34.14
4.10
How the income came and went (per litre)
40
35
Key
25
MILK PRICE 29.05p
10
Feed
TOTAL 36.64p
15
MILK PRICE 29.67p
20
TOTAL 38.08p
Pence Per Litre
30
5
0
-5
2013
2012
Key points
n Costs increased by 4.1p/litre.
n Milk price increased by 0.62p/litre.
n Feed costs increased by 2.12p/litre.
n Total overheads increased by 1.52p/litre – mostly a function of the reduced milk volume.
n The average producer lost 0.16p/litre compared to making a profit in 2012 of 2.5p.
Other variable costs
Labour and power
Other overheads
Retained profit
Retained loss
Top 25% by retained profit per litre vs bottom 25% – 2013
Top 25%
Bottom 25%
Difference
Herd size
184
167
17
Yield per cow (litres)
7168
6924
244
Total milk produced
1,316,495
1,153,942
162,553
Milk price
29.30
29.41
(0.11)
Non milk income
6.82
7.42
(0.60)
Feed costs
10.54
12.39
(1.85)
Other variable costs
4.61
8.93
(4.32)
Gross margin
20.96
15.51
5.45
Labour and power
10.15
12.63
(2.47)
Rent and finance
1.75
1.77
(0.02)
Other overheads
2.11
3.49
(1.38)
Drawings and tax
2.67
5.28
(2.61)
Retained profit
4.28
(7.65)
11.93
Total costs of production
31.84
44.48
(12.65)
Key
Top 25%
Bottom 25%
50
45
40
30
25
20
15
10
5
co
st
th
s
er
va
ria
bl
e
co
st
s
Gr
os
sm
ar
gi
La
n
bo
ur
an
d
po
w
er
Re
nt
an
d
fin
an
ce
O
th
er
ov
er
he
ad
Dr
s
aw
in
gs
an
d
ta
x
Re
ta
in
ed
To
ta
pr
lc
of
os
it
ts
of
pr
od
uc
tio
n
Fe
ed
O
No
n
m
ilk
ilk
pr
ice
in
co
m
e
0
M
Pence Per Litre
35
Key points
n There was a difference of 12.65p/litre in the costs of production for the top and bottom 25%.
n The top 25% had a slightly lower milk price – suggesting a focus on costs of production, not milk price.
n Livestock purchases net of valuation change were 3.42p/litre higher for the bottom 25%, probably indicative
of higher replacement rates.
n Rent and finance charges had no material impact on the difference.
n The top 25% retained a profit of 4.28p/litre and the bottom 25% lost 7.65p/litre.
Top 25% by retained profit per litre vs bottom 25% – 2012
Top 25%
Bottom 25%
Difference
Herd size
221
200
21
Yield per cow (litres)
8145
7923
222
Total milk produced
1,799,465
1,585,916
213,549
Milk price
29.40
29.02
0.38
Non milk income
6.25
7.29
(1.04)
Feed costs
8.96
10.66
(1.71)
Other variable costs
3.85
6.73
(2.88)
Gross margin
22.84
18.92
3.94
Labour and power
9.94
13.25
(3.31)
Rent and finance
1.54
2.10
(0.56)
Other overheads
2.30
3.08
(0.78)
Drawings and tax
2.51
3.08
(0.57)
Retained profit
6.55
(2.59)
9.14
Total costs of production
29.09
38.90
(9.80)
Key
Top 25%
Bottom 25%
45
40
30
25
20
15
10
5
co
st
th
s
er
va
ria
bl
e
co
st
s
Gr
os
sm
ar
gi
La
n
bo
ur
an
d
po
w
er
Re
nt
an
d
fin
an
ce
O
th
er
ov
er
he
ad
Dr
s
aw
in
gs
an
d
ta
x
Re
ta
in
ed
To
ta
pr
lc
of
os
it
ts
of
pr
od
uc
tio
n
Fe
ed
O
No
n
m
ilk
ilk
pr
ice
in
co
m
e
0
M
Pence Per Litre
35
Key points
n There was a difference of 9.80p/litre in the costs of production for the top and bottom 25%.
n The top 25% had a slightly higher milk price – but it accounted for only 4% of the performance difference.
n Livestock purchases net of valuation change were 2.22p/litre higher for the bottom 25%, probably indicative
of higher replacement rates.
n The top 25% retained a profit of 6.55p/litre and the bottom 25% lost 2.59p/litre.
Top 25% by retained profit per litre 2013 vs 2012
2013
2012
Difference
Herd size
184
221
(37)
Yield per cow (litres)
7168
8145
(977)
Total milk produced
1,316,495
1,799,465
(482,970)
Milk price
29.30
29.40
(0.10)
Non milk income
6.82
6.25
0.57
Feed costs
10.54
8.96
1.58
Other variable costs
4.61
3.85
0.76
Gross margin
20.96
22.84
(1.88)
Labour and power
10.15
9.94
0.21
Rent and finance
1.75
1.54
0.21
Other overheads
2.11
2.30
(0.19)
Drawings and tax
2.67
2.51
0.16
Retained profit
4.28
6.55
(2.27)
Total costs of production
31.84
29.09
2.74
Year on year difference in pence per litre
3
Pence Per Litre
2.5
2
1.5
1
0.5
th
er
in
co
m
e
Fe
ed
co
st
s
O
th
er
va
ria
bl
es
Gr
os
sm
ar
La
gi
bo
n
ur
an
d
po
w
Re
er
nt
an
d
fin
an
Dr
ce
aw
in
gs
an
d
ta
x
Re
ta
in
ed
pr
Co
of
st
it
so
fp
ro
du
Br
ct
ea
io
ke
n
ve
n
m
ilk
pr
ice
O
M
ilk
pr
ice
0
Key points
n The top 25% in 2013 received a lower milk price than the top 25% in 2012.
n The top 25% farms in 2013 had 37 less cows and a 977 litre lower yield per cow than the top farms in 2012 –
indicating more financial resilience to the poor 2013 weather from the lower output herds.
n Total costs of production increased by 2.74p/litre with feed costs accounting for nearly 60% of the total.
n The top 25% still managed to retained 4.28p/litre in 2013 – 2.18p/litre lower than 2012, but still a profit in spite
of the appalling weather.
Bottom 25% by retained profit per litre 2013 vs 2012
2013
2012
Difference
Herd size
167
200
(33)
Yield per cow (litres)
6924
7923
(999)
Total milk produced
1,153,942
1,585,916
(431,974)
Milk price
29.41
29.02
0.39
Non milk income
7.42
7.29
0.13
Feed costs
12.39
10.66
1.73
Other variable costs
8.93
6.73
2.20
Gross margin
15.51
18.92
(3.41)
Labour and power
12.63
13.25
(0.62)
Rent and finance
1.77
2.10
(0.33)
Other overheads
3.49
3.08
0.41
Drawings and tax
5.28
3.08
2.20
Retained profit
(7.65)
(2.59)
(5.06)
Total costs of production
44.48
38.90
5.58
Year on year difference in pence per litre
6
Pence Per Litre
5
4
3
2
1
th
er
in
co
m
e
Fe
ed
co
st
s
O
th
er
va
ria
bl
es
Gr
os
sm
ar
La
gi
bo
n
ur
an
d
po
w
Re
er
nt
an
d
fin
an
Dr
ce
aw
in
gs
an
d
ta
x
Re
ta
in
ed
pr
Co
of
st
it
so
fp
ro
du
Br
ct
ea
io
ke
n
ve
n
m
ilk
pr
ice
O
M
ilk
pr
ice
0
Key points
n The bottom 25% had 33 less cows on average with a yield per cow 999 litres lower than 2012.
n Total costs of production for this group rose by 5.58p/litre in 2013 to an apparently unsustainable 44.48p/litre.
Extra feed and other variable costs accounted for most of the increase and drawings per litre increased by
2.2p/litre – probably more a result of a fixed amount of drawings being needed from the lower volume of milk
production than simply more drawings being taken.
n The bottom 25% lost 7.65p/litre in 2013, compared to 2.59p/litre in 2012.
Dorchester
The Old Rectory, South Walks Road
Dorchester, Dorset DT1 1DT
Tel: 01305 268168
Fax: 01305 268688
Email: [email protected]
Melksham
4 Challeymead Business Park,
Melksham, Wiltshire SN12 8BU
Tel: 01225 701210
Fax: 01225 709817
Email: [email protected]
Exeter
Leeward House, Fitzroy Road,
Exeter Business Park,
Exeter, Devon EX1 3LJ
Tel: 01392 214635
Fax: 01392 214690
Email: [email protected]
Wells
Bishopbrook House,
Cathedral Avenue,
Wells, Somerset BA5 1FD
Tel: 01749 343366
Fax: 01749 344986
Email: [email protected]
Yeovil
Maltravers House, Petters Way
Yeovil, Somerset BA20 1SH
Tel: 01935 426181
Fax: 01935 431852
Email: [email protected]
The content of this newsletter is for general information only. It should not be relied on and action which could affect your business should
not be taken without appropriate professional advice. Please contact your usual Old Mill contact or local Old Mill office.
www.oldmillgroup.co.uk