Category: Dairy & Livestock

Production

The AHDB estimated GB production at 1,141m litres in May; a 0.5% increase on last year but 0.82% less than the Levy Board’s forecast.  The cold, wet spring impacted turnout and with falling farmgate milk prices (see below) and high input costs (albeit easing), producers have had little incentive to try and increase output.  The weather has now ‘flipped’, allowing turnout and some good weeks of grazing and silaging but, if the dry weather of the last few weeks continues, this could start to cause issues with grass growth and impact production later in the year.

There is a similar situation on the Continent.  Reports show Western Europe is also suffering from a lack of rain and with falling milk prices, production is likely to be affected into the autumn.  However, markets suggest that buyers appear to be ignoring these signals, at least for now, with spot prices remaining subdued and farmgate prices continuing to be cut.

Prices

There was no change to the average Global Dairy Trade index at the latest event held on 20th June which remained at $3,479.  However, this is 24% less than June 2022 and follows two consecutive declines both of 0.9%.  Notable changes include:

• Butter      +5.5% to $5,379
• Cheddar   -3.3% to $4,533
• SMP          -2.3% to $2,667
• WMP         0.0% to $3,172

Even though UK production is easing and last month we reported some signs of recovery, farmgate milk prices continue to be cut.

• Arla has announced a 1.78ppl reduction from 1st July for UK members, taking their standard manufacturing litre prices down to 35.21ppl.  This also means the total price cuts for this year are 17ppl so far.
• UK Direct suppliers to Muller will receive a 2ppl price cut to 38ppl from 1st July.
• First Milk has announced a 1.04ppl to 36.85ppl from 1st July
• Barbers and Freshways ‘A’ price have both been cut by 2ppl

The latest Meadow Farm figures forecast an improvement in returns for the current 2023/24 year.  However, the farm’s margin from production remains negative and with declining subsidy payments the future for the business as it currently operates looks unsustainable.

Meadow Farm is a mixed lowland farm, typical of many livestock holdings in England, it is a notional 154 hectare (380 acre) beef and sheep farm in the Midlands.  It consists of grassland, with wheat and barley for livestock feed.  There are 60 spring-calving suckler cows with all progeny finished, a dairy bull beef enterprise and a 500 breeding ewe flock. 

The table below shows the final results for the last two years an estimate for  2023/24 and a (tentative) forcast for 2024/25.  It can be seen how ‘agflation’ has impacted even when livestock and crop prices were buoyant.  For 2022/23 it clearly shows the impact of increased, fuel, fertiliser and feed costs for this type of farm.

For the current year, ending April 2024 (2023/24) the Livestock Gross Margin has improved.  Cattle prices continue to run ahead of last year and the lamb price picked up in March after a slow start to 2023 and is now similar to 2022.  Meadow Farm markets most of its livestock in the autumn and we do not foresee any major changes in the prices apart from seasonal adjustments.  Feed, fertiliser and fuel costs have all declined compared with 2022/23, meaning the Total Gross Margin improves on the year.  Overheads continue to increase with inflation.  The Margin from Production, although better than last year, remains negative.  The BPS has reduced again, meaning the Business Surplus is just £37 per Ha (£5,698 in total).  Meadow Farm is currently in the Countryside Stewardship scheme.  This agreement ends December 2023 and the proprietors are considering whether to enter into a new SFI scheme.

The final column is a tentative look at 2024/25 and clearly shows the importance of the BPS to this business. This business has been subsidy-dependent for many years, and with direct payments being phased out it will need to adapt.  This could be through restructuring to reduce its overheads, which are fundamentally too high, or by taking advantage of opportunities under ELM schemes – or probably a combination of both.

Production

UK milk production has started to slow.  The cold, wet, spring affected grass growth and hindered turnout due to poaching.  Even so UK production in March was 0.8% above year-earlier levels.  However latest UK production figures from Defra show in April deliveries were only 0.3% higher than in 2022 and are now running -2% behind the AHDB’s GB milk forecast for the year.  The spring flush was expected to be later this year, but the AHDB reports GB daily deliveries started to decline in the week ending 13th May with volumes at similar levels to last year.  Furthermore it will be interesting to see what the silage quality is as, in many parts of the country, cutting has been delayed due to ground conditions, with the drilling of maize also having to be put back because of the wet weather.  With input prices remaining historically high, farmgate milk prices falling (see below), strong prices for culls and the possibility of poor forage, production could be significantly lower this season.  On the Continent, the EU is forecasting a -0.2% drop in production for 2023.  Production in the second half of the year is expected to decline as a result of a reduction in the dairy herd and lower prices.

Prices

At the latest GDT event held on 16th May the Price Index fell by -0.9% to average $3,488.  However, this follows two consecutive rises of +3.2% in Mid-April and +2.5% at the event held in early May.  Elsewhere, there have also been (small) signs of a recovery in the commodity markets, with the Dutch Dairy Board butter price increasing, the Dutch SMP price has also increased for three consecutive weeks, the cheese price is also looking more promising.  In the UK, although farmgate prices continue to fall, the spot milk price is creeping up to 30ppl on the back of lower than expected deliveries.

The latest farmgate prices for June include:

• a 2.5ppl cut for Arla direct suppliers
• First Milk has announced a 1.4ppl cut, and
• suppliers to Belton Cheese and Wyke Farms will receive a 2ppl and 1.04ppl cut respectively.

Beef

Prime beef prices continue to trend upwards, albeit at a slower rate than the first three months of the year.  The GB deadweight All Steer price for the week ending 20th May was 493.9p per kg; up 0.5p on the week and compares with 438.7 p per kg a year ago.  Tight supply continues to support prices with low carcase weights being the main driver.  Although there has been a slight increase in the number of cattle coming forward over the last four months compared to 2022, any increase in production has all but been offset by the lower finished weight of animals.  According to Defra, prime carcase weights averaged 343.8kg between January to April this year, compared with 350.2kg in 2022 over the same time period.  However, average weights have been increasing since November last year, when feed costs were exceptional; with feed costs expected to fall further as grain prices fall, carcase weights are likely to increase.

Globally, latest forecasts from the USDA show 2023 beef production marginally lower at 59.1 million tonnes, compared with 59.3 million tonnes in 2022.  A 5% reduction in production in the US is forecast to be somewhat offset by increases in Australia, Brazil, China and India.  Outside of the US, beef production in expected to increase by 1% as producers react to the high global beef price.  Production in Australia is expected to increase by 10% due to heavier carcase weights as pastures improve and there is a greater availability of feed.  Both Brazil and India are forecast to increase production by 2% and China by 3% as food service demand returns as Covid restrictions lift.

Sheep

The finished lamb price remains buoyant.  Since mid-March the lamb price has taken off.  The GB deadweight SQQ NSL price for the week ending 20th May stood at 743p per kg compared with 672p per kg for the same week last year.  (AHDB switches to reporting New Season Lamb (NSL) in the 3rd week of May).

Prices were boosted by Easter demand.  Lamb did particularly well, receiving support from retailers via promotions and with the weather not as nice as some Easters, consumers appeared to opt for a traditional and, in particular, a roast leg of lamb.  According to Kantar, for the week ending 9th April 2023, lamb roasting joints saw an overall increase of 25.5% in volume sales compared with year earlier levels.  Of this, leg roasting joints accounted for almost 93% of all lamb roasting joints sold at Easter.  In contrast, volume sales of beef and pork were down by -0.7% and -16.8% respectively for the same week.

Farmgate pig prices continue to perform well.  The UK-spec GB SPP for the week ending 13th May stood at 216.4p per kg, up some 46.5p per kg on the year.  It is a similar story in Europe.  The EU average reached an all-time high of 211.7p per kg for the week ending 23rd April.  The difference between the UK and EU reference is now about 4p per kg.  In the 17 weeks since the turn of the year, the EU average has increased by nearly 32p per kg.  Prices in Spain and France, in particular, have performed well, increasing by over 43p and nearly 47p per kg respectively.  However, prices fell during January in Denmark and has only risen by 13p per kg over the same period.

Tight domestic supplies are helping to support prices at home.  Defra has made some revisions to its UK slaughterings and production data (going back to 2021).  This has led to an increase in the slaughter numbers previously reported for Q1 2023 and a marginal uplift in pigmeat production for the quarter by 2,000 tonnes.  Even so, production is still 11% lower year-on-year.  Furthermore, this reduced output continued through April.  The number of clean pigs slaughtered in April stood at 765,400 head, the lowest monthly figure since 2014.  Including sow and boar kill, pigmeat production for the month totalled 70,900t; the lowest monthly figure since May 2020 during the first UK Covid lockdown.  For the year to date (January to April), pigmeat production is down 13% compared with the same period in 2022, at 305,300 tonnes.

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.