UK Dairy Farms Face Margin Pressure Despite Profitable 2025–26, Report Warns
The latest Milk Cost of Production Report 2025–26, prepared by Old Mill and the Farm Consultancy Group, highlights a mixed outlook for UK dairy farmers. While dairy businesses achieved strong profitability during the financial year ending 31 March 2026, declining milk prices, rising production costs, and tighter cashflow are expected to significantly reduce margins in the current season.
🥛 Strong Results Driven by High Milk Prices
The report shows that dairy farms recorded an average comparable farm profit of 12.43 pence per litre, more than double the five-year average. Average milk income reached 46.38p per litre, supported by favourable milk prices throughout much of the 2025–26 financial year.
📊 Key Financial Highlights
- 💰 Comparable farm profit: 12.43p/litre
- 🥛 Total income: 54.81p/litre
- 📉 Cost of production: 42.38p/litre
- 🐄 Non-milk income: 8.43p/litre, mainly from cull cows and calf sales
The report notes that livestock sales have become an increasingly important revenue stream, particularly for smaller dairy farms benefiting from strong beef market prices.
⚠️ Margins Expected to Tighten
Despite last year’s profitability, the outlook for 2026–27 is considerably weaker. Analysts expect many dairy farms to earn less than one-third of last year’s profits, with some businesses unlikely to recover their full production costs.
Lower milk prices, higher labour expenses, increased machinery costs, rising electricity bills, and greater compliance requirements are all adding pressure to farm profitability.
🌾 Feed Costs Continue to Rise
The prolonged dry weather has reduced grass availability across many regions, forcing farmers to introduce winter feed stocks earlier than usual.
Producers are increasingly relying on:
- 🌽 Wholecrop silage
- 🌾 Straw treatments
- 🍺 Brewers’ grains
- 🥣 Rapeseed products
- 🌿 Total Mixed Rations (TMR)
Demand for alternative feed ingredients has pushed prices higher, further increasing production costs.
👨🌾 Efficiency Matters More Than Herd Size
One of the report’s key findings is that profitability is not determined solely by herd size or milk yield. Instead, businesses achieving the strongest financial performance focus on cost control, labour efficiency, benchmarking, and disciplined financial planning.
Experts encourage dairy producers to:
- 📅 Monitor monthly cashflow
- 📊 Benchmark business performance regularly
- 🤝 Join buying groups to reduce input costs
- 💼 Plan ahead for upcoming tax liabilities
- 🎯 Focus on long-term business strategy
🌍 Market Outlook Remains Cautiously Positive
While current margins remain under pressure, market analysts believe milk prices could improve later in 2026 if global milk supplies tighten.
Factors supporting the market include:
- ☀️ Heatwaves affecting European milk production
- 🌏 Potential El Niño impacts on New Zealand output
- 🧈 Stable butter markets
- 🧀 Continued demand for cheese exports
However, elevated dairy inventories and uneven international demand are expected to limit the pace of any recovery.
As UK dairy businesses navigate another challenging production year, maintaining efficiency, managing costs, and adapting feeding strategies will remain critical for protecting profitability.