Scottish dairy farmers have been given a great Christmas present with news that the average milk price to feed cost ratio is currently the best it has been for four years.
That ratio is one of the important factors in the profitability of milk production and has fluctuated considerably in the past five years. It hit a low of 1.16 in the autumn of 2012 which led to dairy farmers protesting about lack of profitability and demanding higher prices for their milk. The ratio for July to September 2013 rose to 1.29 and estimates for the current month put it at 1.43.
What that improved figure means is that for every pound spent on feed, the return in terms of milk income is about 20% greater than a year ago. With good stocks of reasonable quality grass silage made throughout the country, plus decent maize and whole-crop silages, most dairy farms have a great foundation on which to build higher performance ratios to capitalise on the extra margin available.
Dairy farmers and their advisers aren’t stupid and soon realised producing milk has become more profitable. As a result, they are producing more of the white stuff. UK milk production in November 2013 rose by about 9.5% on November 2012, while the comparable figure for October was up nearly 10% on the year, and September’s by about 6.5%.
It’s the dairy industry’s ability to quickly increase production in response to improving profitability that has made milk prices so volatile in the past. Many in the industry had been predicting a slump in farm-gate prices in spring 2014 as global supplies increased, but there is now a suggestion that global dairy commodity prices will remain buoyant.
Recent figures from China have revealed that two million dairy cows have been culled in the past 12 months. The reasons for the Chinese national herd’s contraction to about seven million remain unclear, but should stimulate increased demand for imports. Chinese demand for dairy product is reckoned to be about 40 million tonnes, but domestic production currently stands at about 35 million tonnes.
All the global indicators point to a bright future for dairy production because demand is growing and is going to continue to grow for some years to come. Population growth, increased wealth in developing countries and changing dietary habits all point to greater demand for dairy products.
For the UK dairy industry, this represents a fantastic opportunity to grow and wipe out the trade deficit in dairy products by displacing imports and exporting where it makes sense.
A new document titled «Leading the Way» has been produced jointly by DairyCo, Dairy UK and NFU (England and Wales), and sets out a target of wiping out the UK’s whopping £1.27 billion dairy trade deficit by 2025.
That sounds ambitious until you remember that the Irish have a well-publicised target to expand their milk production, following the abolition of milk quotas in March 2015, by 50% by 2020. Leading the Way suggests that eliminating the UK trade deficit could be achieved by producing four billion extra litres of milk, through yield improvements and at least half a million more cows. The expectation is that this growth will be met by existing dairy herds growing and new entrants, alongside the necessary growth in processing capacity.
Duncan Pullar, of DairyCo, one of the co-authors of the report, said: «We believe that our target to achieve a zero UK dairy trade balance value in the next 10 years, from the current £1.2bn deficit, is challenging but realistic.
«The whole chain must invest, innovate, become more efficient and strengthen routes to markets. Successfully adapting to the challenges and opportunities that lie ahead is the only way of securing a sustainable future for British dairying.»
The «Leading the Way» report follows on from a similar dairy review published earlier this year in Scotland, titled «Ambition 2025». In it, author James Withers, CEO of Scotland Food and Drink, also identified the greatest future growth opportunities relate to non-liquid dairy products.
Mr Withers predicts that by 2025, Scotland will be a nation producing over 1.6 billion litres of milk annually. According to him, that 50% rise over the next 10-12 years will have resulted from a new, ambitious, market-driven growth agenda being grasped and driven on by farmers and dairy companies, supported by industry bodies, the Government and its agencies in Scotland.
Dairy farmers can be relied on to produce more milk if it is profitable but the real driver for expansion will be processors finding new markets and having the confidence to invest in increased production capacity.
Source: Herald Scotland