Milk prices may have dictated conversations about the dairy industry for the past few years, but in 2019 input price volatility is expected to be the most pressing factor for UK farmers.
Production Costs set to rise
Last year’s late, wet spring followed by the summer’s drought caused significant shortages in forage and hay, and the effects of that will still be felt on feed, forage and bedding costs for the next few months. Inflationary pressure on energy and fertiliser costs is also expected to force up production costs by 2-4p/litre for many herds, cancelling out the celebrated increase in milk price. Brexit remains a continued threat to price stability, with difficulties in securing migrant labour, potential trade issues and exchange rate turbulence creating uncertainty for dairy producers in the coming months.
Global Uncertainty & Risk Management
Globally, the main concerns centre around the demand for milk and dairy produce. China, which had been hailed as a potential major client for UK dairy, stopped reporting market data early last year, making growth predictions challenging. Meanwhile, we’ve seen prices influenced by political events in the United States, with trade arguments causing prices to drop off – though the country’s Margin Protection Scheme means producers will eventually receive compensation for the lower farmgate price.
Whilst still part of the EU, UK producers still have some support mechanisms to protect them from sudden price drops (i.e. EU direct payments and the EU’s milk intervention scheme). There are further measures they can take and tools they can utilise, to manage fluctuations in milk price and input costs. Volatility insurance, in particular, offers the chance to smooth prices and provide assistance in crisis times, says farm consultant Andersons. Being as efficient as possible will also help producers ride out uncertain periods. “All systems can be profitable, but it is likely we will see family-sized businesses trending towards block calving systems, which are less expensive and more efficient to run,” it says in its latest farm outlook report.
“All systems can be profitable, but it is likely we will see family-sized businesses trending towards block calving systems, which are less expensive and more efficient to run,”
Andersons, farm outlook report.
Efficiency Drive for the Future
Larger businesses can benefit from economies of scale and ever-improving levels of technical efficiencies and output. Key areas to drive efficiencies on-farm are likely to be genomics to increase output, as well as sexed semen to reduce the number of dairy bull calves and improve overall returns from calves and heifers. Feed efficiency, which can be improved regardless of the system’s operation, will also need to be a core focus.
Looking beyond 2019, UK dairy producers need to start preparing for the end of direct payments. Working on creating a business that can deliver returns without subsidy – and saving any payments that are received over the next few years will give producers an opportunity to invest in ways to help them deliver a return and ensure they are still in production in ten year’s time.
Stable is the volatility insurance platform designed and built by farmers. We help farming and food businesses of every size and sector manage the risk of volatile prices so they can invest in their future with confidence. Stable’s index-insurance platform enables farmers and food businesses to insure themselves from a wide range of commodity prices and input costs. To read about examples of how Stable’s volatility insurance could help your farming and food business manage risk, read these case studies.
To find out more about Stable or to book a demo, please visit our website or call us on +44 (0) 203 8599390 or email email@example.com and we can show you how farmers are using Stable to protect their balance sheets.