Category: Dairy & Livestock

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.

With rising input costs and falling prices it is not surprising the latest statistics from Defra show that the English pig breeding herd has contracted by -4.2% on the year.  The figures for 1st December 2021, also reveal the number of fattening pigs on farm is up by 10.6% compared to December 2020 at just over 3.7 million, as producers continue to struggle with having to keep market-ready pigs on farm due to problems in the slaughter capacity at abattoirs.  The full statistics can be found at https://www.gov.uk/government/statistical-data-sets/structure-of-the-livestock-industry-in-england-at-december.  Cattle and sheep numbers in England as at 1 December 2021 will be published at the end of February 2022.

Markets

The prime lamb price has eased as demand post-Christmas slows down, but prices still remain very strong.  For the week ending 19th January, the GB liveweight old season lamb (OSL) SQQ was down 5p per kg from week earlier levels but at 263.22p per kg this is still nearly 9p per kg above the same week last year.  Availability remains tight, with throughput at GB auction marts estimated to be 11% down on the week and 10% lower than the same week in 2021.  Deadweight markets also eased, but still remain over 600p per kg and 32p above the same the same week a year ago.  Deadweight slaughterings were 9% down, compared to year earlier throughputs.

The picture is similar in the prime beef market.  Prices have fallen on the week, but only marginally and compared with last year’s (historically high) price, the all-prime deadweight average is still over 30p per kg more.  Slaughterings for the week ending 15th January were 13% below year-earlier levels; reports suggest staff absences are causing a problem for abattoirs and affecting throughput.  The cull cow price has risen, this is often the case in the New Year as demand switches from prime cuts to more processing beef.  There are also reports of increase demand on the Continent, where supplies are said to be short.

Trade

Sheep meat exports have struggled over the year due to Covid and post-Brexit trading arrangements.  However, reports show there was a significant uplift in November.  Exports in the year to the end of October were down 20% to 62,200 tonnes compared with 2020.  Every month, except March has recorded lower exports than the previous year, but in November, exports totalled 7,200 tonnes of sheep meat; only very marginally less than for the same month in 2020.  It is too early to tell whether exports have started to return back to more ‘normal’ levels, but is something to keep an eye on.  Imports for November fell sharply, by 39% year-on-year.  Imports to the end of November stood at 42,600 tonnes, 18% lower than for the same period in 2020.

Fresh and frozen beef exports have picked up over the year.  Starting well below the five-year average, they have risen and have been around the 5-year average since May/June.  For the year to the end of November, total exports were 12% down compared to year earlier levels, but for November were 8% up year-on-year, driven by increased shipments to France, which now acts as a ‘transit’ country for UK exporters to the wider continental EU.  Imports for fresh and frozen beef to the end of November stood at 216,300 tonnes, 4% more than a year ago, shipments from Ireland are up 2%  from the year before.  For November, imports were 8% higher than in 2020.

High input costs look set to keep global milk supplies in check.  The AHDB is forecasting supplies for 2022 increasing by just 0.6% (1.8bn litres); this follows an estimated year-on-year increase of 0.9% in 2021 (Dec data is still provisional).  Similar to the UK, high input costs, labour shortages and increasing environmental requirements are offsetting strong prices globally.

At home, feed costs look to have stabilised, but energy and fertiliser prices rose significantly during autumn, leading to a reduction in production; particularly for GB.  Northern Ireland continues to buck the trend.  Data from AHDB shows GB deliveries for November 3.3% less than the previous year, whilst NI production was up 3.2% for the month.  UK deliveries overall for November were down -2.3%, with latest December UK deliveries also down by -2.4% compared with year earlier production (see KFFs for UK data).

With a fall in input costs looking unlikely any time soon, processors continue to increase milk prices to try to secure deliveries.  Following on from some big increases announced in January, below are a few for February as processors try to secure milk production;

• 0.75ppl increase for First Milk members, taking their manufacturing standard litre to 34.75ppl
• Meadow Food Supplies and Muller Direct have both announced a 1ppl increase meaning producers’ liquid standard litre for both processors will be 34ppl from 1st February
• Yew Tree Dairy has announced a minimum 2ppl increase, this will be 0.5ppl on 1st February and at least a further 1.5ppl from 1st March giving a standard litre price of 34ppl in February and a minimum of 35.5ppl in March.
• Medina has announced a further 3ppl increase for February (following 3ppl in January) taking its liquid standard litre to 35.8ppl
• Freshways has already announced it will be increasing its price in March by 3ppl, which will see its liquid standard litre rise to 36ppl.

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.