The DGCL Benchmarking Figures for 2020/2021
This year with the inflation in costs we thought it important to get our benchmarking figures out to you as quickly as possible – so we have beaten Christmas!
We have analysed accounts that we have received during the period September 2020 to April 2021. The data used is collated from both long-standing clients and newer clients that we have started working with over the last 12 months.
This newsletter presents our Average and Top 25% Cost of Production (CoP) figures for benchmarking purposes.
As expected, there is a wide range of total cost of production from 27.18 – 35.71 ppl.
Drilling down to individual costs you can compare your business against the benchmark and see where there may be scope to investigate where things can be tightened up within your own business.
Your farm data:
If you sent you data in during the year, a copy will have been sent to you comparing your result to the Benchmark figures.
Given that there is a variation in milk prices between each client, the profit is not a fair comparator, and therefore the cost of production is where we compare figures. We can discuss these in further detail with you at our next appointment, together with the implications for the development of your business.
The data used is for conventional milk only. We have a small sample from organic farms which are benchmarked separately.
summary of the conventional milk data we benchmarked
|2019/20 Top 25% CoP||2019/20 Average||2020/21 Top 25% CoP||2020/21 Average|
|Yield Per Cow||7,909||8,599||9,763||8,908|
The scale of enterprises cannot be compared year to year as they deal with different farm samples.
|Milk Price ppl||30.07||28.94||27.16||29.11|
|Variable Costs ppl||13.72||16.22||14.61||17.47|
|Gross Margin ppl
|Comparable Farm Profit ppl||7.48||2.66||1.75||2.16|
|Comparable CoP ppl||26.58||30.15||28.84||31.20|
|Total CoP ppl
- BPS and non dairy enterprise income is excluded
- Overheads include private drawings
- Comparable farm profit should not be used to judge robustness or the ability of a business to service debt
- Comparable farm profit and cost of production is a benchmarking tool only
- A full breakdown of the costs can be found in the Appendix sent to you in our newsletter - please contact us for more information if required
- The scale of enterprises cannot be compared year to year as they deal with different farm samples
- Differences year to year on a pence per litre basis are more meaningful
Average milk prices
The average milk price increased by 0.17ppl, but the cost of production rose by 0.95ppl over the same period. However, remember these are not necessarily all the same businesses over both years.
Its salutary to note that the average dairy farm last year, having paid rent and finance and themselves, made a loss of 0.23ppl from milk production when BPS and other income is excluded..
The top 25% still only made a marginal profit of 0.33 ppl. Their milk price was just under 2 ppl below the average price, but their costs were 3.33 ppl less, confirming that cost is the key driver of profit for most, and is definitely the thing farmers should focus on. But cost inflation is not something farmers have any control over at present!
Yield and profit are not correlated. In our top 25% this year, half the herds are on fully housed systems showing that it is not the system necessarily, but how efficiently it is run. However, one common theme is the more milk you get from forage the higher your profits will generally be, be it silage or grazing.
Key Cost Analysis:
|Key Cost||ppl av.||Range||Top 25%||Comments regarding range or change from previous year|
|Milk Price||29.11||24.09-32.04||27.16||There is a large difference in milk prices that changes year upon year. The top 25% have a lower milk price which may explain why they have more focus on cost control.|
|Total Output||33.36||28.83-37.71||30.59||The total output is not just milk sales, it includes calf sales, culls and increases in herd valuations. BPS and non-dairy enterprise income is excluded.|
|Heifer Purchase/ Rearing||2.78||0-5.16||2.29||The heifer purchase/ rearing costs have increased from last year by approximately 0.75ppl. Herd valuations have on the whole reduced, suggesting that it has been more expensive to rear heifers rather than more numbers being reared.|
The range is massive. Costs over 10ppl are a threat to viability. Overall feed costs per litre have increased by about 0.5ppl this year. Forage quality and excellence in grazing are key drivers of lower feed cost and profits.
|Vet & Med||1.05||0.37-1.82||1.04||Vet and Med costs have fallen marginally this year, but there is still a massive difference in costs on a ppl basis. All farmers should look at their vet costs on a per cow basis and identify the health areas
which are causing the main issues and work with your consultant/vet to reduce them.
|Bedding||0.85||0.14-3.06||0.55||Bedding costs have increased by 0.09ppl, which is not as high as we thought considering straw prices last year. The higher prices are either due to longer housing periods or loose housing/purchased straw.|
|Staff incl. drawings||4.60||2.38-6.79||4.70||Staff costs have increased by around 6%. Those with the lower staff costs are those reliant on family staff receiving low levels of £ reward, but receiving other significant benefits (house, vehicles etc).|
|Contractors||2.53||0-4.65||3.07||This is the second year that contractor costs have decreased from the previous year on a ppl basis. Some of this will be due to a higher reliance on grazed grass meaning less silage is made and less manure spread. On the whole contractor costs per operation increased by around 3-5%.|
|Power/ Machinery (excl. Contractors)||4.05||2.12-6.55||3.74||
Power costs have increased by on average 0.26 ppl. Again, we can see a massive range in costs between each client. Scale of operation is impacting on the higher end of the range.
|Total Overheads||13.73||10.64-16.95||14.23||Overheads have marginally decreased by 0.19 ppl showing better cost control. However, overhead costs for our top 25% have increased by a massive 1.37 ppl, reflecting a higher percentage of housed high yielding cows in our top 25% this year.|
On average, clients made a loss this year on their dairy enterprises alone, and even the top 25% only made a marginal profit. It is key to remember that profit is a function of cost and not output.
|Comparable Farm Profit (excl rent,
|2.16||-2.15-7.49||1.75||On average the comparable farm profit has reduced by 0.5ppl this year. The top 25% farms on cost of milk production actually made a lower profit due to their lower milk price. Some of the farmers making the best profits this year incorporated cow sales as well as milk sales as part of their output.|
CURRENT MILK PRICE COST INFLATION SQUEEZE
The impact of Brexit and Covid on all costs since April has surprised everyone, not just in agriculture. During Covid the government in reality handed over the responsibility of supplying food to the supermarkets, giving them even greater control over the food supply sector. And as we know, the key driver with the supermarkets is margin not sustainability for their producers, or quality of what is on the shelf.
As costs have increased in the past few months, even those on cost of production contracts have not seen their costs increased in line with what is really go on. So, the margins on milk production have tightened even further at a time when we should have had a wake up call with Covid as to how vulnerable our food supply system really is. Our estimation of the effect of cost of inflation on overall costs of production is as follows:
|Key Cost||% Rise in price||Increase in terms of ppl|
The published average farmgate milk price between September 2020 and 2021 increased by 11% (3ppl), but of course this did not fully reflect the appalling situation with milk supply during the first lockdown.
The effect of the cost of inflation started to occur in August, but the main impact will be over this winter when the continued inflated costs put pressure on cashflows as milk buyers are slow to reflect the increasing cost of milk production in their milk prices. The average milk price will need to rise considerably this winter if we are to absorb the current costs. We estimate a milk price of 36ppl needs to be achieved to return farms to profits seen a couple of years ago. Only time will tell how important a sustainable supply of fresh milk is to our buyers.
In the meantime, the key things to focus on are:
- Efficiency of production – there is a big difference in profitability of the top and bottom performers in terms of milk quality and cow fertility in particular
- Look very closely at feed costs and whether they can be cheapened in any way without affecting cow performance (marginal litres or cows may not be cost effective at current feed prices!)
- Maximise milk from forage – both silage and grazing quality
- Look at other costs and see if there is scope to reduce them without impacting negatively on the business
- What does it cost to keep your cull cows once you have decided they have no long term future in the herd? How much milk are they giving and how quickly should you cull them? See our separate newsletter on this sent in November
- If practical, graze your stale in-calf cows out for as long as ground condition/weather allows in order to reduce your feed and manure spreading costs, but make sure they do not lose weight
- At the other end of winter, plan to turnout your stale cows as soon as weather/ground conditions allow in order to reduce feed costs without having a significant effect on milk production
- If you are feeling pressure on your cashflow then talk to us/your bank as soon as possible - it is always better to tackle these issues sooner rather than later
Want to explore your business results?
Get in touch and we would be delighted to help.
Benchmarking is just one step towards building farm profits. We have huge experience developing dairy businesses by combining technical and business solutions.
100% Independent, 100% for you.