Dairy profitability: input costs still rising

The theme of 2021 has been rising farm input costs and it is looking unlikely to change in the new year. Although feed cost increases appear to have stabilised since the summer, energy and fertiliser costs are rising exponentially, with the steepest rise to date occurring between September and October. The impact of input cost inflation on farmer margins appears to have led to a reduction in milk production in recent months. GB milk production for the three months Oct-Dec 21 was 2% down on the year, and 0.9% lower than the 3-year average. As a result of the low milk supplies, several price increases have been announced by processors in late 2021 and early 2022.

Using the Defra agricultural indexes, we can see how dairy output prices (a proxy for milk prices) slowed in early 2021 but have started to rise again through the second half of the year. In the latest data, reflecting September and October rates of change, the rise in output prices matched input price inflation.

As the trend in input pricing continues upwards, it will be important that milk price rises keep pace in order to reduce pressure on farmer margins and maintain the flow of milk off farms. With uncertainty on how long the inflationary period will last, keeping on top of budgets and maximising the value of the milk will be critical to profitability.

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