Category: Dairy & Livestock

Scotland has introduced tighter controls to reduce the risk of Bovine TB entering Scotland.  The new rules, which came into force on 18th May 2023 under the Tuberculosis (Scotland) Order 2023, will mean stricter pre-movement testing of cattle entering Scotland from a TB high-incidence area.  Under the new legislation, cattle from England and Wales which move from areas which must be tested more frequently than every two years, or those coming from a low-incidence area of England and Wales but have resided in these high-incidence areas at any time of their life, will require a clear pre-movement test within 30 days prior to the movement to Scotland; previously this had been 60 days.  In addition, a negative test in a herd under movement restrictions due to a TB breakdown will no longer qualify as a pre-movement test even if that test lifts restrictions.  If a pre-movement test has not been completed when required, the keeper’s holding will be put under movement restrictions until the animals have had a clear movement test.

Since the last time the Friesian Farm figures were presented, there has been a sharp fall in milk prices.  At the same time, some costs have eased.  However, the overall picture for the current milk year is for squeezed margins.

The table below shows the summary results for the past two years plus an estimate for the current milk year and a forecast for 2024/25.  It can be seen that good profits have been made in the dairy sector – especially in the past 2022/23 milk year – the pence per litre profit is the highest that Friesian farm has ever produced.  Although there was a sharp increase in costs, this was more than compensated for by very high milk prices.  The average for the year comes in at just over 47 pence – this is lower than the peak prices of 50ppl+ seen at one point in the autumn, but it is an average for the whole year.

Milk prices have already seen large falls going into the current milk year and these are forecast to continue in the coming months until markets stabilise from the summer onwards.  The average for the year is much-reduced compared to last year but, it must be remembered, still above values for two years ago.  The present year has seen some costs fall.  Notably fertiliser – as Friesian Farm buys in the spring, when prices had fallen, and feed – budgeted prices for next winter are lower due to grain price falls.  Overheads ease marginally due to cheaper fuel and electricity, but it can be seen that costs in this category are now ‘baked-in’ at a much higher level than a couple of years ago.  The good profits from last year mean that borrowing levels are lower and finance costs are estimated to fall, despite higher interest rates.  Overall, the margin from production is close to break-even, and a declining BPS contributes less than it once did.

A forecast is shown for 2024/25 but, with it still so far away, any figures must be treated with a large degree of caution.  The figures assume some recovery in milk prices.  Cost stay high in historic terms, but some margin returns to the business.

Friesian Farm is a notional dairy business milking around 220 cows.   It has been used to track the fortunes of British dairy farming for well over a decade.  It has a year-round calving system, like the majority of the GB industry, but it is trying to maximise yield from forage.  The farm comprises 135 hectares (335 acres) of which 65 hectares are rented on FBTs.  The proprietor provides labour along with one full time worker plus casual/relief.  

 

The Scottish Government has started making payments under the Scottish Upland Sheep Support Scheme (SUSSS).  The rate for 2022 will be £61.25 per ewe.  This compares with £61.65 in 2021 and £59.80 in 2020.  The rate varies with the numbers of claims made under the scheme each year.

Production

The AHDB’s estimated GB milk deliveries for 2022/23 is 12.39 billion litres (Defra’s figures will be available on 27th April).  This is 0.2% ahead of the previous year.  Production started the season very slow when margins were squeezed.  But buyers increased milk prices, reaching records levels, encouraging an increase in production  with seven consecutive months from September to March recording production at higher levels than in the previous year.  Although farmgate prices are now falling, the spring flush means production remains strong.  AHDB estimates deliveries for March to stand at 1,088 million litres; up by 1.2% year-on-year, although in line with the five-year average.  Daily deliveries for March averaged 35.09 million litres, 3% higher than February as we enter the spring flush.

Milk yields are expected to remain high during the spring, but looking further ahead the extent of the fall in farmgate milk prices (see below) will impact output later in the season.  The AHDB is forecasting a marginal growth of +0.5% in production for 2023/24 at this early stage of the season.

Global milk production is also above year-earlier levels.  This is based on supplies from the six key exporting regions which includes the UK and also the EU-27, Argentina, Australia, New Zealand and the United States.  Global deliveries for February averaged 816.6 million litres per day, up by 0.8% on February 2022.  Only Argentina and Australia recorded declines in the month.  Deliveries in Australia were 5.3% down on the year due to unfavourable weather conditions, whilst Argentina is feeling the effects of high costs.  Production in the EU was up by 0.9% on the year and the US by 0.8% with February being the 8th consecutive month to record year-on-year growth.  New Zealand has recorded strong growth, with deliveries 2.3% higher when compared with February 2022.

Prices

The GDT price has seen an unexpected increase at the the latest auction held on 18th April.  The average index rose by +3.2% to $3,362.  This is only the second time the index has recorded an upward movement in 2023 and follows a -4.7% fall at the auction held in early April.  All products recorded rises;

• SMP: +7.6% to $2,776
• Cheddar: +5.7% to $4,411
• Butter: +4.9% to $4,821
• WMP: +1.0% to $3,089

SMP and WMP make up the majority of sales at the auction and are particularly influenced by demand from China.  This was lower last year; dairy imports fell by around 19% in 2022.  This was due to high imports in 2021 and good domestic supplies increasing supply and soft demand due to China’s zero-Covid policy, low GDP growth and the increased cost of living.  Looking ahead, demand from China is uncertain but on balance forecasters are expecting it to recover throughout the year as China’s GDP increases and the country’s Covid restrictions lessen.  However, Rabobank is forecasting demand to weaken due to the cost of living whilst supply is likely to increase.

Closer to home, domestic farmgate prices are experiencing further price cuts for May.  Muller (Direct), Crediton Dairies, Sainsburys and Muller Co-op are among those who have announced price drops on liquid contracts for May.  Meanwhile, Freshways has held its price for May with Tesco increasing the amount it pays to its suppliers by 1.0ppl as it returns to its cost of production model.  In terms of cheese contracts, Glanbia, First Milk, Barbers, Saputo, Belton, Lactalis and South Caernarfon Creamery have all announced price cuts for May.

Beef

Finished cattle prices continue to break records rising through March and into April, although not at quite the pace seen in February.  The All Steer Deadweight price for the week ending 15th April was 490.8p per kg; this compares with 436.9p per kg for the same week in 2022.  It is a similar picture for liveweight, with the overall steer price up 41.05 p per kg on the same week last year.  In contrast, the cull cow price has shown some easing, with deadweight prices plateauing through March, although still comfortably above year earlier levels and over a £1 per kg higher than the 5-year average.  Tight supplies continue to support prices.  On the Continent the European Commission’s short-term Spring Outlook is forecasting EU beef production to decline by 1.6% year-on-year for 2023 as both dairy and beef herds contract due to low profitability and environmental pressures.  The tight EU beef supply picture should continue to support UK prices.

Sheep

The finished lamb price had a ‘slow’ start to the year, but since March it has been climbing significantly and has now surpassed last year’s value.  The Old Season Lamb SQQ overall average price for the week ending 15th April reached 306.6p per kg liveweight, compared with 274.6p per kg for the same week in 2022 and to 250.4p per kg just four weeks earlier.  Trade has been supported by Ramadan, which finished on 21st April with Eid al-fitr and Easter.  Anecdotal evidence reports that demand remains good but supplies are now short, which should continue to support prices.  Furthermore, lamb prices for the week ending 9th April, in the key export markets of France and Spain were up by 7.8% and 6% on the year respectively with the EU sheep population having declined by 1.8% in 2022.  However, bucking the trend was the Irish lamb price, for the week ending 2nd April, prices were 6.1% lower year-on-year.

It has been confirmed that Arla will no longer be supplying milk for Sainsbury’s own-label products from early next year.  As from February 2024, Sainsbury’s will use Muller as its sole supplier of its own-label milk.  The announcement brings to an end a long-standing supply deal between Arla and Sainsbury’s.  However, the processor has confirmed it will continue to supply it’s own recognised brands to the supermarket.  Arla made up around a quarter of the supermarket’s own-label milk supply with Muller making up the remainder.

Defra will regulate contracts in the pig sector.  This comes after Defra published the results of its consultation on reforms to the pig industry supply chain.  The consultation, which was called for due to unprecedented challenges within the industry, closed in October 2022 and received 374 responses.  The main outcome will be the development of regulations for pig contracts using the regulation-making power in Section 29 of the Agriculture Act 2020.  These should ensure all agreements between producers and buyers are in writing removing any uncertainty and ambiguity.  Furthermore, Defra will be working with the industry to see what other provisions should be mandated (if any) as part of these agreements.

The consultation also revealed pig producers’ concerns about market consolidation in the processing sector and Defra has agreed to share these responses with the Competition and Markets Authority (CMA).  Defra will also develop regulations so that it can collect and report on more supply chain data especially regarding wholesale price transparency and slaughter numbers.  It will also work with the devolved administrations on these issues and engage with all parts of the UK to ensure legislation works for all of the devolved regions.  The full response can be found at https://www.gov.uk/government/consultations/contractual-practice-in-the-uk-pig-sector?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=6524d947-557c-489e-886f-5be7129b047c&utm_content=daily

 

Poultry will be able to return outdoors in England and Wales from 18th April 2023.  The Animal Plant and Health Agency has announced that the housing requirement that has been in place since the start of November will be lifted.  This is as a result of the falling incidence of Avian Influenza across the country.  Bird keepers are being asked to remain vigilant however, as the virus is still circulating.

The finished pig price has experienced a steady increase since the turn of the year.  The latest GB EU spec SPP for the week ending 18th March rose by 1.12p per kg on the week to 212.53p per kg, some 70p higher than year-earlier levels.  History shows that the deadweight pig price usually has a seasonal uplift through the spring into autumn, which producers will be hoping happens again this year, as whilst prices are at record highs, they are still not covering the costs of production.

The AHDB quarterly full economic cost of production for Q4 2022 is estimated at 224p per kg deadweight.  This means the average producer will still have negative margins.  However, the estimated cost of production has fallen by 3p per kg since Q3, mainly due to a decline in feed costs, which fell by 5p per kg over the same period.  With arable prices continuing to fall, feed costs are likely to decline further.  In addition, pig prices should remain supported by the uplift in the EU pig price and reports of production tightening both at home and on the continent.

The EU-27 reference pig price experienced an 18p per kg increase between mid January and mid February following reports of tight supply in slaughter-ready pigs.  It is usual for the price to increase in the spring, but this year it is a few weeks earlier as processors try and secure supplies.  Prices for the selected key nations of Germany, Spain, France and the Netherlands are now at their highest on record and saw significant increases since the start of the year.  It is only Denmark which experienced a 4p per kg decline, over the same four weeks, although it has seen small gains recently.  At home, Defra reports in February, just 762,000 clean pigs were slaughtered.  This is the first time monthly slaughterings have fallen below 800,000 head since May 2020.  Furthermore, it is the lowest recorded monthly figure since May 2014.  Throughputs are down 11% on the month, 17% compared with 2022 and 13% below the 5-year average for February.

Whilst supply is constrained, demand looks weak too.  The latest retail data from Kantar shows in the 12 weeks ending 19th February, the volume of pork purchased fell by 2.6% compared with the same period last year.  The actual spend on pig meat rose by 8.8% year-on year but that is because of an 11.7% price increase due to inflation.

Milk Production

GB milk deliveries look set to end the (milk) year strongly.  February has shown a 3% year-on-year increase to 952m litres; also marginally up on the 5-year average.  The high milk price has driven production, but this is now faltering and could impact on yields going forward.  The current milk year (finishing end of March) is expected to record production up marginally on the year, by 0.2% at 12.39bn litres.  Prior to September, production was running behind 1-2% behind the previous year, but the increase in milk price has had the effect of boost output during the second half of the season.

Production for 2023/24 is forecast by AHDB to increase by 0.5% to reach 12.46bn litres.  Current high yields are expected to continue through the spring, but with production then slowing through the second half of the year, as the effect of lower milk prices hitting margins feeds through.

Globally, milk deliveries in January grew by 1.1% on the year.  Increased deliveries were recorded in all of the key regions except for Australia.  For the calendar year 2023, Rabobank is forecasting a 0.7% increase, with most of the growth expected in the first half of the season.

Prices

The Global Dairy Trade (GDT) average price index has fallen at both the events held in March.  At the latest auction, on 21st March, the index declined by -2.6% to average $3,361, this compares with $5,039 in March 2022, when the index peaked.  All products on offer recorded falls, most notable;

• Cheddar: -10.2% to $4,052
• SMP: -3.5% to $2,648
• Butter: -3.0% to $4,748
• WMP: -1.5% to $3,228

In terms of farmgate prices, increased deliveries and reduced market returns are inevitably having a downward impact.  Large cuts have already been announced over the first three months of the year and April is not going to be any different.  Some key prices include;

• Cheese manufacturers Glanbia has announced a -4.5ppl cut for its suppliers
• Barbers is reducing its price by -3.92ppl from 1st April
• Both Saputo and South Caernarfon Creameries have announced a -4ppl cut for their suppliers
• Suppliers to First Milk will receive a -3ppl drop
• Suppliers on the Muller non-aligned liquid contract will receive a -1.5ppl fall
• Those on the aligned Tesco contract and the Co-op Dairy Group will see their milk price cut by 1.5ppl and 1.18ppl respectively.