UK dairy farmers recorded their strongest margins on record during the first half of 2025/26, before falling milk prices and rising input costs rapidly eroded profitability.

New data from Kingshay’s Dairy Costings Focus Report showed average yields across conventional Holstein and Friesian herds rose 6 per cent year on year to a record 8,848 litres per cow.

Margin over purchased feed increased 3 per cent to £2,708 per cow, supported by stronger milk prices and a milk-to-feed price ratio of 1.40 – its highest level since 2006.

The gains came despite farmers using 4 per cent more concentrate feed, with average consumption reaching a record 2,997kg per cow.

Milk produced from forage also climbed 9 per cent to 2,652 litres per cow, while butterfat and protein levels improved.

However, Kingshay warned that the stronger margins were increasingly being swallowed up by higher labour, machinery, fuel and fertiliser costs.

Farm services specialist Emma Puddy said the improvement in margins was “much needed” to offset rising expenses elsewhere in dairy production.

Energy market disruption linked to geopolitical tensions has added further pressure.

Red diesel prices jumped from 75p per litre to 118p in April before falling back to 91p by July, while UK bagged ammonium nitrate rose from £402 per tonne in February to £529 in April, before easing to £439 by July.

Labour has also become significantly more expensive, with Kingshay estimating the total cost of employing a senior skilled worker at £19.99 an hour once National Insurance and pension contributions are included.

That represents a 44 per cent increase over the past five years.

Meanwhile, falling milk prices have increased the pressure on farmgate returns after the strong start to the financial year.

Kingshay said the dairy sector had effectively experienced a year of two halves, with record production and favourable milk prices giving way to weaker returns and sharply higher costs.

Animal health remains another major area of expenditure.

Average herd health costs reached £30,307, compared with £16,907 among the top-performing 25 per cent of farms in Kingshay’s dataset, highlighting the potential savings available from tackling issues such as lameness, mastitis and abortions.

Weather volatility is also adding uncertainty for milk producers, after drought conditions affected forage availability before wetter weather arrived during the winter.

Kingshay development director Richard Simpson said many producers would have used the stronger margins generated earlier in 2025/26 to help withstand the subsequent downturn.

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