Looking back at articles I have written over the years for Westcountry Farmer, I note that in October 2016 I wrote an article titled ‘Milk – a tide on the turn?’
At that time it seemed as if the milk price was finally on the turn, there were green shoots of recovery and the future seemed a little brighter. Thankfully, the market steadily improved for much of the subsequent 18 months, however, I feel that now might be the time to raise the question again. Is the milk price on the turn again and if so, what should be done about it?
I think it is safe to say that the 2.16ppl price cut announced for March by Arla shocked many dairy farmers and has drawn strong criticism from the national farming representatives. The main concern was obviously what the knock-on effect such a cut could have across the sector. Those fears were borne out in the subsequent cuts announced by First Link, Muller and Dairy Crest Davidstow and questions were then asked as to where the price might go from here?
Whilst a keen observer, I am not an expert in the global milk market and I can only speculate where the price might go next. I understand that current thinking is that producers should budget for a price in the region of 25/26ppl, but hope for 27ppl so perhaps all is not lost and at present, there seems nothing to suggest that prices will fall to the dark days of 2016 with a milk price of less than 20ppl.
However, what this does is to remind all farmers that they are indeed price takers and for the most part the milk price they receive is beyond their control.
To that extent what remains best practice must be for farmers to focus their efforts on managing what is within their control, namely costs, and this is what can differentiate a good from a bad business. Our experience shows that it is only by managing costs that you can have any control over the ultimate performance of your business, and if the commodity price moves in your favour, then having controlled costs will only serve to maximise your return.
This does not mean just cost minimisation, but more that ensuring costs are incurred for a specific reason and not just through habit. Overhead costs and in particular capital investment costs should be incurred after due consideration and in order to improve the business, with overheads being clearly matched to outputs.
Our experience found that when the milk price was at its low point necessity it meant that costs were properly controlled, there was no other option. However, as the price has risen, perhaps the purse strings have been loosened a little and the marginal litre chased. If this is the case, then perhaps the current ‘correction’ in milk price, which we hope is just a temporary blip, could act as a useful reminder to all farmers to keep a close eye on their costs.