2021 Dairy Farming Outlook 

The key question following on from our review of the 2020 benchmark results is what will happen in this coming year?

Milk prices at present 

Current average milk prices excluding supermarket aligned contracts: 

Pence Per Litre 
Average non-aligned prices 2020 29.45
5 year rolling average 27

                                                                                                                                       (Source: AHDB)

There are continued incentives for autumn milk to reduce the volumes produced in the spring, for which there is no strong market. In recognition of the demand for manufacturing, there are increased incentives for milk solids. 

Milk price league tables are published in many journals including British Dairying and on the AHDB website. 

Outlook For The Liquid Market 

The dysfunctional liquid market and high levels of production are likely to keep a lid on prices in the spring and beyond. In the liquid market, supply and demand continues to rule and the value of milk on the relatively small volume spot market had a disproportionate impact on contract values. 

Strong levels of production into the spring will inevitably depress returns. This seasonality is factored into many contracts already, although contracts with milk supply balancers are very vulnerable to low spring prices. 

The range of liquid prices in the last 12 months is between 26ppl and 32ppl, depending on the strength of the purchaser and the percentage of aligned milk they produce. Scope to move milk buyer is extremely limited. 

Outlook for milk manufacturing 

Manufacturing contracts are delivering above liquid values generally, especially for those with production systems geared for high solids milk. 

Despite uncertainty around BREXIT, manufacturing prices have been relatively stable. AHDB report an AMPE price (an indicator of the value of milk used in butter and skimmed milk powder manufacture) of 29ppl and MCVE (an indicator of the value of milk used in cheese manufacture) of 31ppl. 

Internationally global dairy trade prices continue to firm despite COVID related issues. The BREXIT deal announced in December is expected to facilitate cheese exports. However, the UK is a net importer of dairy products and the impact of BREXIT on dairy commodity prices is far from clear. 

Future Prices 

For milk contracts linked to market returns (i.e. AMPE and MCVE), AHDB project stability for the next three months. This is very encouraging given that this period coincides with the spring flush. Liquid prices will inevitably be more volatile. 

Outlook for Feed Costs

You will be all too aware of the large increases in concentrate and straight costs impacting on the industry. The degree to which you are affected will depend on how well and how far forward you have contracted feed requirements. 

Average Concentrate Cost Table 

HE-18% Compound
Oct 19  232
Dec 20 249
March 21 (Expected) 275
There has been a sustained increase for sometime but since Autumn 2020 costs have been increasing dramatically. This is fuelled by poor harvest yields and supply difficulties. Whilst energy prices can be expected to return to 'normal' after harvest 2021, there is concern over protein prices, particularly sources of DUP (undegradable protein). 

Protein Price Trends

Spot and future Soya prices are extremely high @ £456/t for February and £417/t for September rending it uneconomic to feed in the majority of circumstances. This fact, plus the poor environmental tract record of South American Soya means we will not be feeding sufficient quantities in future, at least until supply and demand come back into balance. 
Protein Price Trends  Hipro Soya (£/t) Rape Seed Meal (£/t) Distillers Maize (£/t)
Sept 17 298 162
Sept 18  323 220
Sept 19  308 177
Sept 20  343 250
Feb 21 456 304 281
Sept 21 418 223 281
Sept 21 £/% CP 8.36 5.5 10

Key points

  • Rapeseed meal will remain the key protein and prices for summer/autumn 2021 look attractive @ £221/t. 
  • Soya has been the key source of quality, undegradable protein for many years but the search for alternatives is on. (Unfortunately, on a cost per % protein for products of similar protein quality if it is still competitive). The response will be to feed less DUP but care is needed here especially for high yielding herds. 
  • Maize distillers is a key product, one that feeds very well with rape. Experience with those who cannot feed soya due to their milk contract have done well with maize distillers. Overall diet costs £7/t cheaper overall. 
  • Novapro is offered by KW as a soya alternative. It is a protected rape product priced competitively. However, our experience to date feeding this has been disappointing. No doubt it will feature heavily in this years compound formulations.
  • Beans are worthy of consideration as a blend ingredient being a good source of Lysine (in line with Soya) but they are not as high in protein as Soya so you need to feed at a higher rate.
  • Brewers Grain is a great source of undegradable protein. 
  • Optigen (Alltech) is a controlled release urea. There is some data saying it can be used as part of a plan to eliminate soya from diets. 

The business of feeding 

The Impact of Increased Concentrate Costs 

The key factor that will influence the impact is of course usage per cow and per litre:

The impact of feeding costs rising by £25/t and £50/t is shown below on a per cow basis 

Tonnes fed per cow/year +£25/t +£50/t
1 25 50
2 50 100
3 75 150
4 100 200

High input systems are very vulnerable to price increases. 

At 10,000 litres, the impact of a £50/t hike would be approaching £200/cow, double the impact the same hike would have on a 7,500 litre cow. 

Feed Rate

This shows the impact feed rate has on feed spend and what a hike in price does to cost per litre. This happens whatever the cow yield is. 

Overall feed spend  £275/t £225/t £50/t
Overall feed rate  Feed spend Feed Spend  Change 
kg/l ppl ppl ppl
0.2 5.5 4.5 1
0.3 8.2 6.75 1.45
0.4 11 9 2

The need for really good feed efficiency has never been clearer. 

Feed efficiency is impacted by calving interval, grouping and allocation, as well as cow genetics, transition cow management and forage quality and presentation. 

Marginal Feed Rates - Feed Less? 

The law of diminishing returns is well known to dairy farmers:

  • As inputs increase, forage is displaced in the diet. 
  • The impact varies with cows genetics and forage quality but the graph illustrates the point. 
  • It would be typical with Holstein cows on good quality forage for the response to the last kg of cake to fall progressively from 10-11 kg/head/day. 
  • At grazing, the reduced response kicks in at much lower levels, say 6kg max. 

The last kg fed declines as the amount fed increases. 

Impact of Marginal feed rate on MOPF 
Milk price 27ppl, cake £275/t
Marginal Feed Rate  Feed cost ppl  MOPF last litre ppl 
0.45 12 15
0.7 19 5
1 27 0
1.3 35 -9
This shows the impact on margins when feed costs per kg and milk price per litre is the same. If the feed rate for the last kg fed is too high then margins per litre can be nil or even negative. There is a risk of this happening at 10-11kgs and 6kgs at grass. 
At a lower feed spend, there still can be a small positive margin. In the year ahead we will need to be very careful in this regard. 
Impact of marginal feed rate on MOPF
Milk price is 27ppl, cake £225/t
Marginal Feed Rate  Feed Cost ppl  MOPF on last litre ppl 
0.45 10 17
0.7 16 11
1 22.5 4.5
1.3 29 -2

We can calculate your own marginal response based on your own diet costs and milk yield. 

If B litres are a feature of your contract, do the calculation on the B price. 

Action Plan For Feeding 

  • There has never been a more important year to make sure you make top quality silage. Plan now. 
  • Review your feeding now and challenge pregnant cows in particular. 
  • Calculate your current margins given your milk and feed prices for the last kg of cake you feed. 
  • Feeding 10% less will counter a 10% price increase. 
  • Question the economics of feeding more than 11kg of concentrates and look at cake allocation. 
  • Grouping to avoid over feeding. 
  • Culling poor performers. 
  • Graze more efficiently. 
  • Review your feeding. Use an independent nutritionist (i.e. DGCL!) who does not get paid by selling the product. 
  • Join a buying group. 

Want some further advise?

Get in touch. We would be delighted to talk to you about your business, it challenges and opportunities. We have huge experience developing dairy businesses by combining technical and business solutions. 

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