Milk prices have been on an upward trajectory over the past 12 months, rising from an average base of 23.15p/l last May to the most recent average of 29.32p/l for milk produced last month.
The 6.17p/l difference from one May to the next is significant, given most dairy farms hit peak production during this month.
For a dairy farmer supplying 100,000l in May, it is an extra £6,170 in milk sales year on year.
However, while higher milk prices are welcome, input costs have also seen significant price inflation since the start of the year, with the most notable increase being for purchased concentrate.
Last spring, typical price quotes for a 19% to 20% dairy ration were relatively steady around £240 to £250/t. Prices were generally unchanged into the autumn and early winter.
However, by January, market disruption to global soya supplies saw spot prices for the same rations rising towards £270/t.
While soya prices did ease, other key straights strengthened, pushing a 19% to 20% dairy ration to current prices of between £295 and £305/t.
To put this price increase in context, take the example of two dairy farms.
Farm A has cows yielding 8,000l/year from 2.75t of concentrate, or a feed rate of 0.34kg concentrate/litre of milk produced.
Assuming the ration price has risen by £50/t from £245/t to £295/t since the start of the year, this means purchased feed cost has increased by 1.7p/l.
Moving to Farm B, which operates a more intensive system yielding 10,000l/cow annually from 4t of concentrate, the purchased feed rate is 0.4kg/litre of milk produced.
Assuming the same price increase for Farm B, the rise in ration price means feed costs have increased by 2p/l.
Feed costs are one of the biggest expenses in milk production, accounting for close on 70% of variable costs.
According to Jason McMinn of FarmGate Consultancy Ltd, typical feed costs on herds working with his business were in the region of 8.5p to 9p/l last year.
However, higher concentrate costs in 2021 have added in the region of 1.5p/l to production costs.
“Milk price is running around 7p/l ahead of last spring, but feed price rises absorb at least 1.5p/l of this increase,” said McMinn.
“We would see feed costs on farm currently running around 10p/l, and as high as 12p/l in herds with a very high concentrate feed rate.
Fertiliser has also increased by close on £80/t this spring with CAN hitting £260/t. Fuel and energy costs are also higher year on year.
Deducting just the feed costs from the higher milk price leaves a margin of around 5p/l to cover other inputs, fixed costs and generate a wage,” he explained.
However, he also pointed out that milk prices started rising last summer, so the year-on-year difference is likely to get smaller as 2021 progresses.
To demonstrate the relationship between purchased feed and milk price, market analysts at the Agriculture and Horticulture Development Board (AHDB) have updated their milk-to-feed-price ratio (MFPR).
The ratio is calculated monthly by dividing concentrate price in to milk price.
For example, at a milk price of 30p/l (approximately £300/t) and concentrate price of £280/t, the ratio is 1.07.
The ratio increases as milk price rises and/or concentrate prices fall, so it effectively gives an indication of input costs in relation to income.
The latest MFPR for April and May of this year is running at 1.12, down from 1.21 in March, 1.22 in January and below the five-year average ratio of 1.25.
The lower ratio reflects the fact that milk prices in Britain have held steady this spring, while concentrate prices are up significantly.
According to AHDB, historic analysis of data shows that when milk-to-feed-price ratio drops below 1.15, concentrate use is often reduced, leading to a fall in overall milk production.
That analysis prompted a warning at the start of June from the UK farming unions, including the UFU, around rising costs and the lack of a sustainable milk price.
However, our analysis of local data would suggest that the milk-to-feed-price ratio is frequently below 1.15 on NI farms.
Shown in Table 1 is the ratio calculated for the 12 month period ending May 2021.
Monthly concentrate prices are based on typical price quotes, with milk price taken as the average price paid across all processors in the 650,000l league table for milk collected on alternate days.
Back in June 2020, the ratio was at 1.03. However, milk price increased month on month last summer, while feed prices stayed relatively static at around £245/t, so the ratio rose towards its highest level of 1.24 in October.
However, since the outset of 2021, the ratio has been falling as feed prices have increased. By May 2021, the ratio had slipped to 1.03, the same level it was at 12 months ago.