Category: Dairy & Livestock

Defra has released the final UK results from the June 2021 Survey; the table below summarises the figures.  As can be seen, both the cattle and pig breeding herds have declined but the sheep flock has recorded an increase.

The total number of cattle and calves has continued to fall and is at its lowest level since the basis of data collection changed in 2009.  However, the final results show that the dairy herd is stable and there is the prospect of a rise in the future.  For dairy cattle aged between 1 and 2 years and those less than 1 year the Survey shows a 3.5% and 6.8% year-on-year increase in numbers.  This suggests more replacements coming through.  In contrast, the beef breeding herd continues to decline.  Even though the finished beef price has been at a record high this year, many in the sector are reliant on support payments and with these starting to drop, and strong cull values, some may have decided it is time to exit the industry.  It is notable that the number of male cattle aged over 2 years is -9.8% down on the year, showing how tight beef supplies are and hence the high prices.

The final results show all sheep catergories above last year levels, apart from lambs under 1 years old.  In the provisional figures, all types showed a decline; the December Sheep and Goat Inventory seems to be more accurate for sheep numbers.  The sheep sector has been receiving some exceptional prices over the last year which will have supported the sector.

Although the pig breeding herd has experienced a decline, total pig numbers have increased by 5.3%.  This is likely to be as a result of producers having to keep pigs on farm longer than normal due to a reduction in the processing facilities experienced this year, rather than a fundamental increase in production.  The economic climate for pig producers is currently very challenging and we could see a further contraction of the breeding herd unless circumstances improve.  The full Survey results can be found at https://www.gov.uk/government/statistics/farming-statistics-final-crop-areas-yields-livestock-populations-and-agricultural-workforce-at-1-june-2021-uk?utm_medium=email&utm_campaign=govuk-notifications&utm_source=267662b4-b4b6-4182-9bf3-8b4f21df9921&utm_content=daily

Commodity prices continue to rise both at home and globally on the back of tight production and strong demand.  The latest GDT average price index rose by 1.4% at the event held on 7th December, to average a record $4,290.  All seven products offered recorded an increase on the previous event.  Butter increased by 4.6% to $5,791 with SMP and WMP both up by a further 1.3% and 0.6% to average $3,721 and $4,008 respectively.

Production is expected to remain tight.  The AHDB has revised its forecast for deliveries in 2021/22, down again to total 12.4bn litres; 1.2% less than in 2020/21.  In September the levy board was predicting a 0.2% year-on-year decline.  It is normal for milk yields to rise by about 2-3% per year.  However, this year, between July and November average milk yields have shown no improvement compared with the same period in 2020.  Furthermore, for the month of November the AHDB is reporting that average yields were actually 1.4% lower on the year, hence GB production falling further behind last season through the autumn.

We still await the official production figures for November from Defra, however the AHDB has put GB production for the month provisionally at 977m litres, some 3.1% below November 2020.  In addition, daily deliveries for the week ending 4th December averaged 32.49m litres, 4.2% behind last year’s levels.  Rising input costs continue to limit any push to increase production, even with significant increases in farmgate milk prices (see below).  We may not see yields increasing now until spring calving commences.

Lower deliveries has resulted in product shortages and is seeing some significant farmgate milk price rises to record levels; below are a sample:

• Suppliers to Yew Tree Farm will receive a 3ppl increase from 1st January, taking producers’ liquid standard litre to 33.5ppl
• First Milk members will receive a 2ppl increase, also from 1st January, which will result in producers’ manufacturing standard litre reaching 34ppl and the liquid standard litre at 33ppl
• Saputo has announced a 2.35ppl increase from 1st January, taking its manufacturing standard litre price to 35ppl and the liquid standard litre to 33.75ppl
• Muller had already announced a 2ppl rise from 1st January for its direct suppliers, but has now revised this to 3ppl.  This takes the standard litre to 33ppl.  And it is good news for those who took advantage of the fixed price contract from Lidl (see article  https://abcbooks.co.uk/muller-lidl-deal/) these will also see a 4ppl increase in their price, taking it to 33ppl as well.
• Currently topping the table are Waitrose (Muller) aligned producers, who will receive a 2.5ppl increase taking their standard litre price to 36.85ppl.

The Andersons Centre’s mixed lowland farm model ‘Meadow Farm’ has recently been updated.   The table below shows the final results for 2019/20 and 2020/21, and an estimate for the current year, and a forecast for 2022/23.

The 2019/20 year was affected by low livestock prices, particularly for beef.  But livestock prices recovered in 2020 and as the table shows, the livestock gross margin in 2020/21 was the strongest it had been for some time.  Also, as a result of the rise in crop prices seen through autumn 2020 the crop gross margin also strengthened.  The result being the combined margin from production for 2020/21 was the best it had been for a number of years.  However, the margin from production was still negative and the BPS and CSS payments were required to provide profit.

In the current year, livestock prices have further increased to record levels, resulting in the highest livestock gross margin figure for Meadow Farm ever seen.  Arable margins have also been very good.  Overheads are forecast to increase as the proprietors of Meadow Farm have decided to replace the old telehandler with a new tractor complete with loader.  But even so, the margin from production is positive – for the first time in many years.  We can see the impact of the first BPS deduction under the Agricultural Transition, but the addition of this still leaves a good profit for the business relative to other years.

The final column is a forecast for 2022/23.  Livestock prices are expected to drop back as supplies start to increase, likewise arable prices and yields are expected to be more ‘normal’ but fertiliser costs have increased.  Overheads rise due to increased fuel prices and the proprietors are planning to invest in a new cattle shed, to replace old ones, meaning the depreciation increases.  The result is the the margin from production is back to 2019/20 levels but with the BPS reduced by 20%, the business surplus is very small.  The proprietors of Meadow Farm are keeping an eye on the new Sustainable Farming Incentive, to see if some of the ‘lost’ BPS can be recouped from this scheme.

Meadow Farm is 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 business is subsidy-dependent, but with direct payments decreasing from 2021 it will need to adapt; maybe through restructuring to reduce its overheads, which are fundamentally too high, or perhaps by taking advantage of the new ELM scheme, or possibly a combination of both.

The Government has confirmed exports of British lamb to the US will resume in 2022.  The ‘Small Ruminants Rule’ which has been in place in the US for more than 20 years, bans the imports of lamb from countries where scrapie has been identified.  After extensive evaluations, the USDA has amended this rule, which effectively means UK processors will be able to ship lamb to the US as from next year.  The amended rule comes into force as from 3rd January and paves the way for Defra, DIT, and the UK food saftety authorities to work with their counterparts in the US to complete the final steps so that full resumption of UK lamb exports to the US can begin.  This will be a welcome boost to sheep farmers in the UK, the US market is estimated to be worth £37m over the first five years.  The news comes after President Biden committed to lifting the ban on British lamb back in September (see our article https://abcbooks.co.uk/lamb-exports-to-us/)

Both GB farmgate beef and lamb prices remain exceptionally high.  The GB average deadweight prime cattle price is in the region of 35-40p per kg above last year and 55-60p per kg above the 5-year average.  It is a similar story for lamb, with the liveweight market about 55p per kg above last year and nearly £1 above the 5-year average.  The deadweight GB NSL SQQ nearly reached the £6 barrier for the week ending 13th November, rising to 597.4ppkg.

Tight supplies are supporting prices.  In the same week as reported on above, prime cattle throughput at GB abattoirs were estimated to be 4% down on the week before and 15% (5,200 head) less than for the same week in 2020.  Usually the kill increases at this time of year, with the run up to Christmas, but this has not materialised as yet, contributing to higher prices.  Supplies of lamb are also low.  The latest weekly kill (13th Nov), did increase, week-on-week by 12% to 247,000 head, but was still 46,000 head (16%) below the same week last year.

Perhaps slightly worrying is that prices appear to be supported by tight supplies rather than demand.  According to Kantar, in the 12 weeks ending 31st October 2021 spend on lamb declined by 7.2% year-on-year, while volumes fell by 11.1%.  Highlighting that British meat sector did well under Covid restrictions is the fact that, compared to two years ago, total lamb volumes are (only) down by 1.3%.  It is a similar picture for beef sales.  Over the same period, spend on beef declined by 3.8% year-on-year and volumes declined by 6.4%.  Compared with the same period in 2019 volumes are 2% less.

The Welsh Government has announced a 12 week consultation period on proposed changes to the Bovine TB eradication programme.  The full consultation, which can be found at https://gov.wales/sites/default/files/consultations/2021-11/refreshed-tb-consultation-document.pdf  is seeking views on;

• Changes to when pre and post movement tests are required
• Using a more sensitive test (i.e blood test) for pre-movement testing
• Informed purchasing, by enhancing the ibTB interactive map to include more details on herd breakdowns and including TB information at point of sale
• Linking TB payments to implementation of disease prevention and control practices
• Alternative approaches to TB payments, including table valuations as used in England

The closing date for responses is 8th February 2022

Since our last article there has been multiple reported cases of Avian Flu and number of 3km Protection Zones and 10km Surveillance Sites have been put in place across the country.  With the worsening situation the the Chief Veterinary Officers for England, Scotland, Wales and Northern Ireland have agreed to bring in new housing measures from Monday 29th November.  This will mean that it will be a legal requirement for all bird keepers across the UK to keep their birds indoors and to follow strict biosecurity measures in order to limit the spread of and eradicate the disease.  There is already a requirement to house birds, in the districts of Harrogate, Hambleton and Richmondshire in North Yorkshire, but this will now cover the whole of the UK.  All the latest information can be found at https://www.gov.uk/guidance/avian-influenza-bird-flu including links to information in Scotland and Wales.

UK milk production for October is lower than last year and supplies remain tight.  As is usual for this time of year, deliveries have increased compared to the previous month, but are about 1.5% lower than last year (see Key Farm Facts for data).  Restricted supplies are resulting in a rise in wholesale market and farmgate prices.  But processors are also facing increasing costs and further farmgate prices could be constrained unless costs can be passed on to consumers.  An increase in production in response to the high prices is also likely to be limited due to escalating input costs.  Whilst feed costs have been steadily increasing since the start of 2020, energy and fertiliser prices have risen sharply since the beginning of this year, squeezing margins (See our Friesian Farm article https://abcbooks.co.uk/friesian-farm-update-7/).

Reacting to tight global supplies, the GDT overall average price index recorded its biggest price rise since March at the beginning of November (up by 4.3%).  This was followed up by a further 1.9% increase at the latest event held on 16th November to average $4,287 – the highest figure since 2014.  Butter rose by 3.5% to $5,534 with WMP and SMP rising by 1.9% and 1.4% respectively to average $3,987 and $3,676.

UK processors have also responded.  In what looks like a bid to secure future supplies Arla has announced a 3.03ppl increase for its members from 1st December.  This will take its members liquid standard litre price to 35.29ppl and standard manufacturing litre to 36.68ppl.  Other notable increases include:

• Both Freshways and Medina have announced 3ppl increases from 1st January.  This will take their standard liquid litre to 33ppl and 32.8ppl respectively.
• Muller Direct suppliers will receive a 2ppl rise, also from 1st January, taking its standard litre to 32ppl

The Government has introduced a Slaughter Incentive Payment Scheme (SIPS) with the aim of increasing the throughput of pigs via processors and easing the backlog on farm.  The scheme is part of a package of measures which we wrote about last month (see https://abcbooks.co.uk/pig-sector/) These were introduced by Government to support the pig industry because of a build-up of pigs on farm due to a lack of processing capacity brought-on, in part, by a shortage of skilled butchers and disruption in CO2 supplies.

The scheme will contribute towards the extra costs involved in operating additional slaughter shifts at abattoirs.  The scheme is being run by RPA, it opened on 16th November and will close on 20th December 2021.  The claim period will run from 21st December to 31st January 2022.  The payment rate will be £3 per eligible pig and will be made within 28 days of a valid claim.  All pigs must be slaughtered and processed in England.  Further eligibility rules and how to register can be found at https://www.gov.uk/guidance/slaughter-incentive-payment-scheme-sips?utm_medium=email&utm_campaign=govuk-notifications&utm_source=6977af8b-8d04-40e0-b954-14947419170a&utm_content=daily

The latest figures for our Friesian Farm model illustrates the rapidly changing fortunes of dairy farming as milk prices and costs both move sharply.

Friesian Farm is a notional dairy business milking a little over 200 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 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 below shows the farm’s actual results for the two previous milk years (April to March), a budget for the current 2021/22 year then a forecast for 2022/23.  

The figures are averages for an entire milk year.  For the current 2021/22 year, this means milk prices are not as high as presently seen, as, for a large portion of the year values were lower.  By the same token, whilst costs have risen (winter concentrate feed being a big element) the biggest rises have only been seen over the last few months.  In particular, fertiliser for the year was bought last spring at far more ‘normal’ values.  This means the returns for the current milk year look likely, on average, to be good.

It is in the following year that cost increases are really seen.  This is not just in areas such as feed, fertiliser, fuel and electricity, but also in costs such as labour, property repairs and machinery purchase.  Even with a higher milk price, returns are much reduced.  The effect of the Agricultural Transition in England can also be clearly seen with the pence per litre value of the BPS declining.

Budgeting ahead is currently difficult due to the fast-moving situation with costs and prices.  However, it is fairly clear that testing times for dairy profitability lie ahead.