Dairy farm profits in the UK are expected to fall by two-thirds over the next year due to weakening milk prices and rising costs, a new report has concluded.
While profits reached 12.43p per litre in 2025/26 – more than double the five-year average – this is expected to fall just 3.96p per litre in 2026/27, according to the report from Old Mill accountants and the Farm Consultancy Group
The current high also masks sizeable variation between farms and systems, the report said, and doesn’t reflect the ongoing reality of lower milk prices and extreme weather challenges.
Farmers’ input costs have all increased against the five-year average, driven in particular by high feed costs. This is likely because the milk-to-feed-price ratio was extremely strong, encouraging farmers to feed for yield at a time of forage shortages.
But the analysis found that neither milk yield nor herd size was a strong predictor of profit per litre.
The best dairy system for profit
“Extra litres can be expensive to produce, and it may be that controlling cost and hitting a profitable level of production is the better option,” said Bradley Causey, rural accountant at Old Mill.
No single dairy system dominated the standings with the best-performing farms combining a low cost-base with effective technical innovations.
The top 10% generated total income of 60.87p per litre, compared with 50.19p among the bottom 10%. Their costs were also much lower, at 36.56p per litre against 52.75p.
This left the strongest performers with profits of 24.31p per litre, while the bottom group recorded a loss of 2.56p.
Allaster Dallas, a consultant at the Farm Consultancy Group, said: “The top 10% are achieving the same milk production at a lower cost.”
Dairy’s other areas for concern
He added: “It is not enough to focus solely on production, as cost structure can be key to success.”
The report highlighted other areas of concern for dairy farmers including mounting compliance requirements, political uncertainty and wider economic fragility.
However, investment in energy-saving technology and improved genetics is beginning to deliver efficiency and financial benefits on some farms, it said. Sales of dairy and beef animals are also helping businesses diversify their income and reduce exposure to the milk market.
“There is some light at the end of the tunnel, and the UK remains a competitive place to produce milk,” Dallas said.
Farmers are being urged to review costs, cash flow and tax liabilities as margins weaken, particularly where January 2027 payments will be based on the stronger 2025/26 results.
