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Dutch Dairy Farmers Facing Sharp Decline in Liquidity Margin: Milk Price Pushes Margin to 1.7 Cents per Liter

Lower milk price pushes margin to 1.7 cents per liter

The liquidity margin of dairy farmers has fallen sharply in the past year. Where farmers were left with almost 10 cents per liter of milk in 2022, this will only be 1.7 cents in 2023. The biggest cause is the lower milk price. This is evident from the provisional figures of Alfa Accountants.

Against a significant drop in the milk price in one year (from 57.59 euros to 47.91 euros), there was only a small saving in costs, due to 2.13 euros lower feed costs.

The average dairy farm that is an Alfa customer has 126 dairy cows and 67 young cattle. The company produces 1.18 million kilos of milk. Company production has increased by almost 41,900 kilos of milk compared to 2022.

Production per cow has increased by 121 kilos to 9,276 kilos of milk, with 4.51 percent fat and 3.59 percent protein. The intensity per hectare has increased by 628 kilos to 19,008 kilos of milk per hectare.

Extensive farmer has more left over

The decrease in the liquidity margin occurs at all production levels. Alfa’s business experts do see a correlation with the intensity of companies. Companies with less than 15,000 kilos of milk per hectare have the highest margin with an average of 2.11 euros per 100 kilos of milk. The companies with more than 20,000 kilos of milk per hectare have the lowest margin at 1.26 euros per 100 kilos of milk.

25 percent best

The best 25 percent farms produce on average an extra 106,000 kilos of milk, with 8,944 kilos of milk per cow, which is 331 kilos lower than the average. The critical milk yield shows a wide spread: 40.86 euros per 100 kilos of milk at the best 25 percent of companies, and 51.36 euros at the worst 25 percent. The top 25 percent of companies spend 30.14 euros per kilo of milk on process level, which is 5 euros lower than the average, or about 60,000 euros at company level.

‘Sector back to square one’

On average, companies save 1.70 euros per 100 kilos of milk. Hans de Bie, Agri & Food market manager at Alfa: “I knew that the margin would have fallen, but I was shocked at two cents per liter. A decline of eight cents in one year is intense. It is as if the sector is back to square one, in the years when the margin was often a few cents.”

Turbulence on the global dairy market is causing problems for Dutch dairy farmers, he notes. “There is also a bit of speculation, but ultimately the Dutch situation is a derivative of what is happening internationally. Fortunately, the demand for dairy is high worldwide, as Wageningen University & Research has already analyzed. Now for an appropriate Dutch milk price in the coming years. Dairy farmers have a lot coming their way, with the loss of derogation, climate legislation, inflation and higher interest rates than we have been used to in recent years.”

Higher production is not always the solution, as the figures show. “In itself a logical strategy for many dairy farmers. If you want to keep more cows, you will encounter various problems. The only thing you can then focus on is increasing production per cow. But you have to think very carefully about whether this will make you more money. It is tailor-made for each situation.”

Interest burden considerably heavier

The interest burden has also risen sharply. Financing has become 4 cents per kilo of milk more expensive in two years, compared to a financing of 1.09 euros per kilo of milk. The average dairy farmer who is an Alfa customer spent 9.10 euros per 100 kg of milk on interest and repayments in 2023. The increase of 1.01 euros in one year is mainly due to the higher interest rate. Business advisor Gijsbert Kamphorst: “Because various interest contracts are currently still concluded in the period before 2022, we expect a further increase in interest costs. The current interest rate is often at a higher level.” That is why Alfa advocates regularly updating a liquidity forecast.

2024-03-15 05:04:51
#Liquidity #margin #fall #sharply

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