Production cuts are looming as feed costs rise

The industry could be set for a reduction in milk volumes as dairy farmers respond to rising feed costs.

The Agricultural and Horticultural Development Board (AHDB) milk-to-feed price ratio is trending to the level at which milk output has historically contracted, as farmers review feed volumes to manage costs.

Farmers supplying into non-aligned fresh milk or manufacturing supply chains have, however, been facing a pressure on margins for over a year.

Patty Clayton, AHDB lead analyst said:

Farmers will welcome recent milk prices increases, but these have been countered by a marked rise in feed prices.

“When our milk-to-feed price ratio drops below 1:15, concentrate use is often reduced, leading to a fall in overall production.”

Price ratio

AHDB’s milk-to-feed price ratio shows the value of milk compared with the cost of purchased feed.

While on average, the current milk to feed price ratio remains above that cut-off point, the use of average farmgate price masks the situation faced by individual farms.

The challenges facing fresh liquid and ingredients markets over the past year have led to a widening gap in farmgate prices, and farmers supplying those sectors have been operating with a low milk to feed price ratio for at least the past year.

Steve West, AHDB senior knowledge exchange manager said:

With feed and forage accounting for over 40% of cash costs, any rise in input prices can have a major impact on farm margins.

“Equally, it presents a big area of opportunity to make efficiencies on farm.”