Financial forecasting for dairy farmers – Preparing for the 2024-25 milk year and beyond

By Chris Wright, Partner and ARA specialist

The outlook for dairy farmers is looking up, with profit margins expected to improve in the 2024-25 milk year.

Research has shown that the average profits per cow are forecast to rise to £590, a turnaround from the previous year’s challenges.

However, with rising costs and unpredictable cashflows, careful financial forecasting is imperative to keep your business on a steady footing.

Accurate financial forecasting can help dairy farmers plan ahead, make better decisions, and position their businesses to take advantage of the improved market conditions.

The importance of financial forecasting

Financial forecasting allows you to anticipate income, plan for expenses, and ensure you maintain a healthy cash flow throughout the year.

With fluctuating milk prices, feed costs, and other expenses, forecasting helps you create a roadmap to profitability, avoiding unexpected shortfalls or missed opportunities for investment.

Key areas to focus on in your forecasts

Milk prices and production

With farmgate milk prices expected to rise, forecast how much income you can generate from milk sales.

Factor in your herd size and anticipated yields, considering any issues such as last year’s poor silage that might affect production.

Cost of production

While profits are forecast to rise, production costs are still a significant factor.

Feed, labour, machinery, and borrowing costs all need to be factored into your forecast.

With interest rates higher than in previous years, ensure you account for any increases in loan repayments or other financing costs.

Non-milk income

Spreading out income streams will help with maintaining a stable cash flow.

Whether through the sale of heifers, calves, or other farm activities, make sure your forecast includes all sources of income.

This will give you a better overview of your financial position.

Capital expenditure

Investment in machinery or infrastructure may be necessary, but it needs to be carefully timed to avoid straining cash flow.

Build capital expenditure into your forecasts to ensure that you can afford necessary upgrades without jeopardising profitability.

Tax and cash reserves

Higher profits mean higher tax liabilities, so you must forecast how much tax you will owe and set aside the necessary funds.

Additionally, keeping cash reserves for unexpected expenses is vital.

Those who managed to retain enough cash during the better times of 2022 fared better through the challenges of 2023, and this should continue to be a priority for future planning.

How to prepare for long-term success

While the short-term outlook is more positive, long-term success requires ongoing financial planning.

Building flexibility into your forecasts will help you adapt to any unforeseen market changes or cost increases.

It is also a good idea to regularly review your forecasts and adjust them as new information becomes available, ensuring that your plans remain relevant and realistic.

By staying on top of your financial forecasting, you will be better equipped to manage risks, identify growth opportunities, and keep your dairy business thriving for years to come.

If you are unsure where to start or need help refining your forecasts, our team of expert accountants can assist you with financial planning and advice.

Contact us today to discuss how we can help you prepare for the upcoming milk year and build a strong financial future for your farm.