Kingshay reports record dairy production and stronger margins despite rising farm costs
Dairy producers enjoyed record margins in the first half of 2025/26 before falling milk prices and surging input costs rapidly eroded the gains.
Kingshay’s annual Dairy Costings Focus Report shows a year split sharply in two, with strong milk prices and record production early on followed by weaker returns and rising costs later in the period.
Among conventional Holstein and Friesian herds in Kingshay’s costings dataset, average yields reached a record 8,848 litres per cow, up 6% year on year.
Margin over purchased feed also increased by 3% to £2,708 per cow, helped by stronger milk prices and a milk-to-feed price ratio of 1.40, the highest since 2006.
Farmers fed 4% more concentrates, taking average use to a record 2,997kg per cow. At the same time, milk from forage increased by 9% to 2,652 litres per cow, while butterfat and protein levels also improved.
Kingshay farm services specialist Emma Puddy said the stronger margin was needed to offset rising costs elsewhere.
“However, this increase in margin is much needed to cover ever-rising costs of other inputs, particularly labour and machinery,” she said.
Those gains came under growing pressure as milk prices weakened and key farm inputs moved sharply higher. Kingshay linked part of the increase in costs to geopolitical tensions in the Middle East and subsequent disruption to energy markets.
Red diesel rose from 75p per litre to 118p per litre in April before easing to 91p by July, while UK bagged ammonium nitrate climbed from £402 per tonne in February to £529 in April before falling back to £439 by July.
Labour remains another major pressure point for dairy businesses. Kingshay put the cost of a senior skilled worker at £19.99 an hour, including National Insurance and pension contributions.
“That has risen steeply over the past three years in particular, bringing the increase to 44% over the past five years,” Puddy said.
Animal health performance showed some improvement, particularly around calving-related issues, but the gap between average and top-performing herds remained substantial.
Kingshay calculated average herd health costs at £30,307, compared with £16,907 among the top-performing 25% of businesses. Puddy said lameness, mastitis and abortions continued to offer some of the biggest opportunities to reduce costs.
“Lameness, mastitis and abortions offer the biggest wins, with gaps of £5,526, £3,773 and £1,203, respectively,” she said.
“The opportunities to reduce costs through improved health therefore remain significant.”
Weather also added pressure during the year, with drought affecting forage supplies before wetter conditions arrived over winter.
Richard Simpson, development director at Kingshay, said producers had needed to remain adaptable through rapidly changing conditions.
“Farmers are nothing if not resilient, and many will have made the most of strong margins in 2025/26 to weather the downturn,” he said.
He also warned that further weather volatility could create additional challenges for forage production and farm planning.
For dairy businesses, the report suggests the strong margins achieved earlier in 2025/26 may prove increasingly important as lower milk prices, higher labour costs and volatile input markets continue to squeeze returns.