Category: Dairy & Livestock

The 2021/22 milk year (April to March) ended 1.5% below 2020/21 production levels at 12.36bn litres.  After a fairly strong spring flush, production fell quickly from the peak and remained below 2020/21 levels for the rest of the year as input costs started to rise.  For March, there was a rise in month-on-month production as cattle were turned out, but compared with the same month last year the AHDB is reporting deliveries are still running about 3% down.

Turning to the current milk year, the Levy board is forecasting deliveries for 2022/23 to total 12.25bn litres, a further 0.9% decline, but has said this could be worse if costs pressures continue, which at present is looking likely.

2021 was a ‘low growth year’ for global milk production in general; up by only 0.8%.  The current 2022 year is not looking any better.  Updated forecasts now show global production remaining flat from the key exporting dairy regions; US, EU-27, UK, New Zealand, Australia and Argentina.  This is a revision downwards from the previous forecast in January when annual growth of 0.6% was forecast.  Each of the key dairy exporting regions has reduced its forecast although, most notably, the biggest decline is the UK.

On the back of tight supplies prices should remain strong, but by how much prices can continue to increase before demand starts to be impacted is debatable.  Indeed, the Global Dairy Trade (GDT) price index has seen a decline at the last three events.  On 1st March the index reached a record high of $5,065 but fell by 0.9% and 1% at the two auctions held after that and by a larger 3.6% at the latest event held on 19th April.  There are reports that volumes purchased by the Northern Asia region were particularly weak.  However, the average index is still high, standing at $4,855.  Whether this decline will impact other regions remains to be seen; the weekly EU dairy wholesale prices have in general continued to rise through the last couple of months.

At farm level, processors continue to increase farmgate prices in an effort to encourage production.  We reported last month on the frustration of farmers on retail aligned contracts not reacting to costs quick enough.  Those on the Tesco Sustainable Dairy Group will be delighted that the new methodology of looking back three months and forward three months, as opposed to the previous calculation, which looked nine months back and three months forward.  This will see April’s milk price increased by 4.64ppl to 38.80ppl and a further rise of 2.04ppl to give a price of 40.84ppl from 1st May.  Many others are increasing their prices by 2-4ppl for May, the UK’s peak spring production month, unheard of in a ‘normal’ year.

Production and Costs

As the 2021/22 milk year draws to an end, production continues to run behind last year.  The year is forecast to total around 12.34bn litres; 1.6% less than in 2020/21.  Spring 2021 started pretty well, but production fell after the spring peak and, with increasing costs, has never recovered.  This year, however, it doesn’t look like production will be starting strongly.  Milk deliveries are currently running 4% behind last year.  Add onto that the pressure on margins and working capital from the rises in feed, fertiliser and fuel prices, it seems any sudden increases in production are unlikely.  These cost pressures are also expected to continue to impact production going into the autumn and winter when producers will be more reliant on bought-in feeds.

The AHDB is forecasting 2022/23 production to be 12.25bn; a further decline of 0.8% on where it expects 2021/22 to finish.  Its two key variables are size of the milking herd and milk yields, neither of which it expects to increase in the coming year.  The levy board is forecasting the milking herd to continue its long term decline despite youngstock numbers rising since 2020.  The AHDB is not expecting producers to expand their herds this year due to high input costs and also the high costs of building materials required for any expansion project.  In response, there could be an increase in the number of cull cows as the youngstock are used to replace older animals.  Yields had been improving at an average rate of 2.3% until last year.  But following 2021/22, the AHDB is also reducing its projected yield expectation for the coming year.

Higher input prices are seeing the costs of production go up on all farms, but how this is felt will be different depending on the system.  Autumn block and all-year-round calving systems will be more exposed to high feed costs, but spring block calving systems, who are more reliant on grazing, will be feeling the high cost of fertiliser prices.

Prices

Milk prices have been rising, although costs are often escalating faster than the market can react to.  However, some buyers are lagging behind more than others.  The once highly sought-after retail aligned contracts, which are linked  to production costs, have tended not to have kept up with the rapid increases, due to using 6 or even 12 month rolling averages.  The Sainsbury’s aligned pool COP tracker produced just a 0.4ppl rise for April – taking its standard litre to 34.3ppl for Muller SDDG and 34.18ppl for Arla SDDG; some way off the pace (see below).  However, the retailer is planning to make an ‘exceptional intervention’ to its model which will see the price increase by 4.72ppl compared to March.

Other 1st April price increases include:

• Topping the table is M&S who has announced a 0.48ppl increase which means its conventional liquid standard litre has passed the 40ppl mark at 40.03ppl
• South Caernarfon Creameries (cheese) members will receive a 1ppl rise.  Taking its manufacturing standard litre to 37ppl and liquid standard litre to 35.75ppl
• Waitrose aligned suppliers will receive a 1ppl increase (from 1st March).  Meaning its standard litre is now 37.85ppl
• Muller has announced a 1.5ppl increase taking its standard litre to 36.5ppl
• Medina has announced a 2ppl rise for 1st April and a further 2ppl for 1st May, taking its standard liquid price for May to 39.8ppl
• Suppliers to Saputo, will also receive a 2ppl increase, which means its manufacturing standard litre is now 38ppl and its standard liquid litre 36.64ppl.

Budgets

It is hugely difficult to budget in any farming sector currently, including dairying, with such large and sudden changes in prices and costs.  However, we have produced some updated figures for our Friesian Farm model ahead of the Dairy Tech show on the 7th April.  The figures are summarised in the table below.

It can be seen that the 2021/22 year just ending was profitable for the farm as milk prices increased and costs, whilst rising, had not yet hit current levels.  The upcoming 2022/23 year shows the massive increase in the cost of production.  Although the budgeted milk price is also moving up strongly, it results in a margin from production only just above break-even levels.

Friesian Farm is a notional 210 cow business.  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 most of the UK industry, but it is trying to maximise yield from forage.  The farm comprises 130 hectares (of which 60 hectares are rented on an FBT).  The proprietor provides labour along with one full time worker (plus casual/relief).  The table above shows the farm’s actual results for the two previous milk years (April to March), an estimate for the current 2021/22 year then a forecast for 2022/23.  

The British Standard Pig Price (SPP) has seen some stabilisation over the last month and has started to see a much-needed increase.  The latest SPP for the week ending 19th March has actually experienced quite a strong gain, up by 3.2p per kg to 141.71p per kg.  This is the highest price for 2022 and is now above levels received this time last year.  But as we have written about extensively, input costs have risen exponentially and will have more than offset any output gains in the pig sector.  However, over the last couple of weeks there are reports that retailers and processors have been increasing their contribution price by 10-15p per kg, with Morrisons (Woodheads) putting their price up by 30p to 180p per kg; leaving some questioning whether there should be an alternative pricing mechanism to the SPP which can respond more quickly to the market signals.

With very few pigs traded on the spot market, it only makes up a limited share of the SPP in comparison to contract prices.  If contract prices are heavily based on the previous week’s SPP, the effect of other factors that can move the market is ‘dampened’, explaining why the SPP is ‘slow’ to move.

However this does mean producers should continue to receive some much needed price increases over the coming weeks as these feed through to contracts.  Furthermore, the National Pig Association (NPA) has said it has written to all the major retailers asking them to increase their pig price to at least £2 per pig – so producers at least have a chance of breaking even.  It estimates most UK producers are now facing costs of production in excess of £2 per kg.

There is some better news regarding the numbers of pigs overdue movement or slaughter.  Results from the February 2022 survey report 22% of pig farms in England reported having a backlog of pigs on farms as at 1st February 2022, down from 25% on 1st December.  When raised to a national level, this equates to 47,000 weaners over due movement and 155,000 fatteners overdue for slaughtered compared with 73,000 and 168,000 respectively in December.  Still a concern to producers, but at least heading the right direction.

Defra has opened a questionnaire for farmers, asking for suggestions as to what items should be available though the new Animal Health and Welfare Grants.  As part of the Animal Health and Welfare Pathway the grants will fund the purchase of equipment, technology and infrastructure which support health and welfare issues seen as applicable to most farms.  Smaller grants for items valued from around £50 to £10,000 will be available, as well as larger grants for bespoke infrastructure investments.  As part of its ongoing co-design of schemes, Defra wants to make sure it provides grants suitable for all types of farmers that cover the latest innovations, so has created sector specific questionnaires for those interested to share their ideas.  Our article of 11th March set out the health and welfare priorities that had been agreed for the six livestock sectors (pigs, sheep, dairy, beef, meat chickens and laying hens).  Defra is now looking to collect suggestions that would be most effective in helping stock keepers to achieve these welfare priorities.   More information and a link to the questionnaires can be found via https://defrafarming.blog.gov.uk/2022/03/24/animal-health-and-welfare-grants-your-chance-to-suggest-items/  although Defra is not giving respondees much time, as the deadline for suggestions is 31st March 2022.

As of Monday 21st March, free range eggs are no longer available in the UK.  Due to Avian Influenza, the Government introduced housing measures back in November 2021 to minimise the disease spreading .  Meaning that keepers of all chickens, plus ducks, geese or any other birds are legally required to keep them indoors and to follow strict biosecurity measures.  For the first 16 weeks there was a derogation to allow free range eggs (and poultry) to continue to be labelled as free range (even though hens were housed) but this has now come to an end and eggs must now be labelled ‘barn eggs’.  The British Retail Consortium has said most supermarkets are putting up signs to explain this to consumers and once the risk levels have reduced and Defra lifts the housing ban, the birds will then be able to go outside and eggs and poultry will be able to go back to being labelled free range.

It had been hoped that the Government would lift the housing ban soon, but new outbreaks mean this has not happened.  In fact, the Chief Veterinary Officer, on 23rd March, urged poultry keepers in Suffolk to ‘step up their efforts’ in the fight against bird flu following a recent spike in cases in the county.  According to Christine Middlemiss, there have been 5 new infected premises in Suffolk in the last month alone.  The warning comes as the UK faces its largest ever outbreak of bird flu with over 100 cases confirmed since the start of November.

Defra has set out its initial priorities for the Animal Health and Welfare Pathway across each livestock sector.  These have been drawn up alongside industry vets, non-governmental organisations and welfare scientists, and will be the basis for future support for each of the sectors.  A summary is included in the table below;

Through the Pathway farmers will be able to receive financial support to address these priorities.  Funding will be available via:

• An Annual Health and Welfare Review with their chosen vet
• Animal Health and Welfare Grants for investments in equipment, technology and infrastructure
• Disease eradication and control programmes
• Payment by results for ongoing costs

We have written previously about the Annual Health & Welfare Review which will be launched this year as part of SFI 2022.  In addition the Animal Health and Welfare grants are also planned to be available this year and Defra has said it will shortly be sending out a questionnaire asking for ideas for what should be included within these grants.

The GDT average price index continues to make significant gains.  At the latest auction the index rose by 4.2% to average $4,840.  This rise follows 4.1% and 4.6% increases held at events on 1st February and 18th January respectively.  The last time the index was this high was at the end of 2013/beginning of 2014.  All products recorded a rise; butter and cheddar are now at an all time high;

• SMP up 6% to $4,295
• WMP up 4.2% to $4,503
• Butter up 5.1% to $6,686
• Cheddar up 3.5% to $5,881

UK farmgate prices also continue to increase;

• Muller has already announced a 1ppl increase from 1st March resulting in a standard liquid litre prices of 35ppl, with Muller Direct Organic suppliers receiving 45ppl.
• Saputo has announced a smaller increase of 0.25ppl from 1st March which means its manufacturing standard litre is now 36ppl
• Suppliers to Barbers (cheese) will receive a 1.3ppl increase from 1st March, taking its manufacturing standard litre price to 36.26ppl.
• At the time of writing Arla had not announced its March price, but suppliers received a 1.6ppl increase in February taking producers’ standard litre price to 33.6ppl.

Tight supplies have been the key driver for the rise in farmgate prices and, with high input costs, farmers have not been incentivised to ‘push’ for extra production.  Latest forecasts from the AHDB show GB production for the 2021/22 season (April to March) totaling 12.4 billion litres; down 1.2% on the year.  Furthermore, yields were unexpectedly lower in the latter part of 2021 which will have an impact going forward into 2022.  In addition, the long term decline in the dairy herd is expected to continue, as well as high input costs maintaining downwards pressure on production.  Whilst the forecasts for 2022 show a slight rise compared to 2021, output will be 0.6% lower than 2020.

It is a similar story around the world.  Global milk supplies from the key dairy exporting regions are set to remain tight in 2022; only forecast to grow by 0.6%.  Similar to the UK, high input costs, labour shortages and increases in environmental requirements are offsetting strong global milk prices.

Demand has also remained robust.  Domestically it has shifted from the foodservice sector to to retail during the pandemic, but this is expected to reverse during 2022 as food service recovers.  With low stock and an increase in demand from the foodservice sector, imports could start to rise.

With milk supplies so tight, processors have been keen to encourage production, hence the significant rise in farmgate prices between November and February 2022.  And, with increases in production limited, low stocks, and demand robust, prices are expected to remain good for at least the first half of 2022.

 

The UK sheep market has been buoyant throughout 2021 and has remained strong into 2022; tight supplies have continued to support prices.  Brexit challenged exports, particularly during the first half of 2021, but they recovered towards the end of the year.  Imports have remained low; New Zealand lambs have been attracted to other markets (Asia) due to high shipping costs and strong prices globally.

Looking to 2022, the AHDB is forecasting the carry-over from 2021 to be about 3.9 million head, with a further 1.8 million new season lambs expected to come forward in the first half of 2022.  New season numbers will be higher than in 2021, but the carry-over is less – due to Brexit more lambs than normal were marketed in Q3 and Q4 of 2020.  The AHDB is forecasting a strong 2% growth in the breeding flock on the back of high farmgate prices providing optimism in the industry.

The number of ewes available for slaughter is expected to be about 750,000 head in the first half of 2022 and 700,000 head in the second half.  This is up on 2021, particularly over the first six months, but is more in-line with historic averages.  Total sheep meat production for 2022 is forecast to be 294,000 tonnes, up on the five-year average of 291,100 tonnes.

Trade has been impacted by Covid and Brexit over the last couple of years.  But imports have been down for five years now, due to lower production in New Zealand and Australia and increased demand from Asia.  Covid has also caused shipping issues meaning high freight costs.  This is expected to continue for at least 2022, meaning Asia will remain an attractive market for NZ and Australian lamb.  We could see an increase in imports of Australian lamb later in the year when the UK-Australian free-trade agreement comes into force, but total imports are not expected to increase as AHDB is expecting these to just displace product from other countries.  Exports have struggled during 2021 due to increased friction (paperwork and checks) after the end of the Brexit Transition Period.  In addition, Covid has caused reduced demand from the continent and a lorry-driver shortage.  Exports have recovered during the latter half of 2021 and the AHDB is forecasting a 5% growth in 2022.

Retail lamb sales remain strong.  Although 2021 sales were back on 2020, according to Kantar, volumes were still 1.9% above 2019 levels.  Growth in the takeaway sector has offset losses in the eating-out market; volumes of lamb through foodservice as a whole were up 9.9% in 2021 compared with pre-pandemic levels.  Lamb has been less impacted by closures in the food service sector than other meats as more than half of the volume goes into the takeaway sector, meaning volumes through foodservice as a whole have remained above 2019 levels throughout the pandemic.  In 2022, eating out is not expected to return to pre-Covid levels due to hesitancy in the first half of the year and economic pressures on household budgets.  Retail sales may also suffer, but Easter could bring a boost this year after two year’s of Covid-restricted gatherings.  Takeaways are expected to remain strong, although these are less likely to use British lamb.  The AHDB is therefore predicting demand for lamb in 2022 to be down -3% on 2021 and slightly less than in 2019 levels.

All this means that farmgate prices are unlikely to drop significantly over 2022.  Values are forecast to remain good but could ease slightly compared to 2021.

 

The AHDB has released its latest outlook for the UK’s beef sector.  The beef market has experienced some exceptional prices in 2021 which have continued into 2022.  Tight supply and strong retail demand has driven prices.  But even so, higher feed, fertiliser and fuel prices are impacting on profitability.

The AHDB is forecasting a 1% increase in total beef production in 2022.  The UK prime cattle slaughter is expected to grow by 2%, but this is forecast to be offset by around a 1% fall in the slaughter of cull cows.  Prime beef supplies are expected to remain tight in the first half of 2022, but increase in the second half of the year.  In 2023, production could see further ‘moderate’ growth due to changes in dairy bull calf management.  An increase in beef semen used on dairy cows will result in more ‘beef-type’ cattle coming from the dairy herd, contributing to the total production.

Beef consumption has performed well throughout the pandemic.  It experienced the fastest volume increase in retail of all the meat proteins in the 52 weeks ending 14th June 2020.  However, it did return to slightly more normal levels in 2021, reducing by 6% on the year.  However, compared to 2019 levels retail sales remain strong; up by 4%.  Foodservice conditions remained difficult in 2021.  The AHDB estimates the eating-out market for beef in the 52 weeks ending 26th December 2021 declined by -5% year-on-year and this follows a -54% fall in 2020.  Deliveries and takeaways however, continue to perform well.  The AHDB estimates beef volumes in this market rose by a further 40% in 2021 year-on-year, meaning an 87% increase compared to pre-pandemic levels (2019).  However, this increase is not expected to be enough to offset the decline in beef consumption from eating-out and retail, meaning total beef consumption for 2021 is estimated to be 4% less than 2020 and the same as in 2019.

In 2022 the AHDB is forecasting total beef consumption to be down by a further -1% compared to 2021 (and 2019 levels).  This is mainly through a continued drop in retail sales.  Inflation and, in particular, the increase in energy costs is expected to impact on household finances and therefore purchases.  The food service sector is expected to start to see a recovery, especially through the second half of 2022.

Looking at trade, the AHDB forecasts imports to grow by about 1% in 2022 compared to 2021.  The first quarter should see a year-on-year increase as imports last year were affected by Brexit.  Ireland, the UK’s biggest supplier of beef, could see a 3% increase in cattle numbers and with its prices at a discount to the UK, imports are expected to be attractive, especially for the food service sector.  Exports are forecast to grow by 10% as demand from the foodservice sector on the continent increases, as it continues to open up after Covid and, at the same time, production across the EU and more widely in North America and New Zealand is forecast to remain tight.  Lower global supplies should support EU prices which in turn should maintain UK values.  But increased demand from the food service sector which often uses cheaper imports together with an increase in lower priced Irish beef could exert some downward pressure on UK prices.

The EU-spec SPP has been on a downwards trend since last August and there doesn’t seem to be any let-up.  In the week ending 15th January it dropped a further 1.10p per kg to 139p per kg; the lowest since March 2021.  Delays at abattoirs still remain, meaning pigs are heavier and fatter coming to market.  For the same week, carcase weights were at (another) record high at 95.42kg.  Probe measurements increased by 0.1mm on the week to 11.9mm, the highest recorded measurement for the SPP sample.

The UK pig meat trade is also subdued.  The latest export figures for November were 10% less than 2020 levels, although higher than October.  In the 11 months of the year, a total of 201,400 tonnes of pig meat was exported, 24% less than at the same point in 2020.  Reduced demand from China is the main reason, as its domestic production increases.  UK exports to China are down 30% on the year, even so it remains a key destination for UK exports.  In contrast, shipments of offal were 9% higher year-on-year in November and up 25% for the 11 months of the year so far.  China is the single biggest market, increasing by 17% on the year.  Imports of pig meat were 9% lower in November at 67,100 tonnes compared with year earlier levels and 8% down in total for the 11 months of the year.