Category: Dairy & Livestock

Dairy Markets

At the first Global Dairy Trade (GDT) auction held in March the average price index increased by a huge 15% to $4,231 per tonne.   Whilst it fell back by 3.8% at the latest event, to $4,089 per tonne this is still the highest price the index has been since early 2014.

Strong demand, particularly from China, together with New Zealand’s seasonal decline in production is the main reason behind the price increase.  The Whole Milk Powder (WMP) price led the increases, rising to $4,083 per tonne.  Although little of this product is produced here in the UK, it should still support domestic farmgate prices as more milk globally will be directed into the powder, leaving less available for other products.

All eyes will be turning to the spring flush.  The AHDB is forecasting March’s milk production to be slightly less than last year but April and May higher (0.8% and 1.5%).  Last year many producers limited their production in these months because of Covid-disruptions.  This year the industry is in a much better position to deal with the flush and lockdown restrictions should begin to ease, increasing food service demand.

Farmgate Milk Prices

The headline story is a €1.5ppl increase for Arla Members from April; a big increase particularly for the time of the year.  This takes its standard milk price over 30ppl.  Arla Direct suppliers (Non Members) will receive a more modest 0.25ppl.  Arla has also announced its 13th payment will be increased from €1 to €1.75ppl for the 2020 calendar year.

Other price announcements include:

• Barber’s Cheesemakers and Saputo prices will stand-on for April
• M&S suppliers will receive a 0.6ppl increase from April
• Freshways has announced, following its 1ppl reduction in March, that will be its last for four months.  From July there will be 1.5ppl increase to reflect the forecast lifting of lockdown measures as per the Government’s Roadmap which should result in an increase in demand from the foodservice, hospitality and leisure sectors.

Processor Consolidation

The UK’s third and fourth largest liquid milk processors are in merger talks.  Freshways Dairy and Medina Dairy are looking to combine their businesses.  Between them, they process around 500m litres of milk per year and have a turnover of £400m.  Both companies have a large presence in the foodservice sector and were hit hard by the Covid-19 lockdown.

Arla looks set to close its Trevarrian soft cheese creamery by summer 2021.  Consultation has already started with its 37 members of staff at the Cornish site where it produces a range of Brie and Camembert.  The loss of key own-label cheese supermarket contracts together with Covid-induced volatility in the food service sector has been the final straw, following a decline in sales for a number of years.  The farmer suppliers, should not be too affected as the milk from the eight Arla Members will now go to Arla’s sites in Taw Valley and Westbury.

Livestock Auctioneers Association (LAA) has reported an increase in throughput at livestock markets during 2020.  Marts may have required a higher number of staff, and experienced tighter bio-security measures and other operational costs associated with keeping the markets open thoughout most of the pandemic, but figures show more than 11 million animals were sold through live sales rings during the year.   Just under 10 million sheep and over 1 million head of cattle sold were sold, an increase of 370,000 and 30,000 head respectively, compared to 2019.  Total turnover was up by £260 million to over £1.8 billion.

The AHDB has published its Dairy Market Outlook for 2021.  The full publication can be found at https://ahdb.org.uk/news/2021-dairy-market-outlook-now-online.   The levy board is forecasting GB milk production to increase marginally in 2021, but the pandemic and trade friction are expected to continue to have an impact on consumption, trade, and farmgate prices through the year.

Production

In its latest Dairy Market Outlook, the AHDB expects GB milk production to total 12.56 billion litres for the 2020/21 season (April-March), up 0.2% on 2019/20.  For the calendar year 2021, the forecast is for a 0.5% rise compared with 2020 to 12.59bn litres.  It is hoped, with the easing of Covid related restrictions from March there should be an increase in food service demand and the restrictions on production experienced last spring are not expected to reoccur this year; the spring flush is forecast to be up 1.2% (39m litres) on 2020.

Trade

According to the AHDB total UK dairy exports were down 11% on the year for January- November 2020.  Imports were also lower, by 7%; both due to the pandemic disrupting trade.  Reduced demand from the foodservice sector at home and across Europe is expected to continue during the early part of 2021 but it is forecast to improve as we progress through the year.  The majority of the UK dairy trade is with the EU, meaning the trade deal was good news for the sector.  However, the additional paperwork, health certifications etc (Non-Tariff Measures) will add time and costs to trading and is of particular concern for short-shelf-life products, such as cream and skim concentrate.  Exporting the surplus of these products helps balance the UK milk market, any disruption, particularly during the spring flush, when processing will be tight, could put pressure on markets.  With regards to imports, the changes to paperwork will be phased in from April to July 2021 and hopefully this should present less problems.

Consumption

All the major dairy categories have seen retail growth both in volume and spend during the pandemic; although still not fully offsetting the loss from the foodservice sector.  An increase in cooking from scratch, baking at home during lockdown, at-home lunches and more hot drinks have all contributed.  Fresh cream was the fastest growing sector with retail volumes up by 22.8% to the year ending 27th December according to market research company Kantar.  Butter and cheese retail volumes grew by 18% and 15% respectively.  Perhaps a little surprising, is the fact mozzarella was one of the fastest growing cheeses; despite restaurant closures, an increase in demand for takeaways has boosted mozzarella consumption, with 6% more pizzas sold to the w/e 4th October 2020 compared to year earlier levels.  Some of these consumption trends are expected to continue through 2021.  Even by the end of the year AHDB is assuming out-of-home consumption will not have returned to pre-Covid levels as some consumer ‘wariness’ will continue.  The scenario of higher retail demand offsetting some of the lost foodservice sector demand, but not all, is expected to continue.

Looking ahead, uncertainties remain.  Exports maybe impacted via trade friction or lower demand, leaving more product on the market.  The middle ground liquid processors have been particularly hit hard by the loss of the foodservice sector any setbacks in recovery of this market could affect liquid prices.  But with only a marginal increase in production and the expectation that demand will recover by the second half of 2021, dairy markets look relatively promising.  However costs; feed, fuel and fertilisers are expected to increase over the course of 2021 putting pressure on margins.

The end date for Defra’s ‘Call for Views’ on possible future measures to accelerate bovine TB eradication in England has been extended to 21st April 2021.  The deadline for responses to the current consultation on bovine TB remains 24th March 2021.  See article of 10th February for details of the Consultation and the Call for Views.

At the latest Global Dairy Trade (GDT) auction, the price index continued to perform well, increasing by 3% to average $3,746.  It is now 24% higher than at the low point in April last year and has increased in 10 out of the last 11 events.  At the last auction on February 16th, all products on offer realised an increase;

• WMP – +4.3% to average $3,615 per tonne
• SMP – +0.3% to average $3,207 per tonne
• Cheddar – +2% to average $4,268 per tonne
• Butter – +2% to average $5,129 per tonne
• AMF – +1.1% to average $5,527 per tonne
• Lactose – +0.4% to average $1,232 per tonne

Closer to home, domestic farmgate milk prices are easing, with some reductions being announced, particularly for the the middle ground liquid processors who are being hit by school closures and limited food service demand during the third lockdown.  However, plenty of processors are holding their prices until at least 1st April including;

• Graham’s Dairy
• Belton Farm
• Barbers
• Crediton Dairy
• First Milk Members’
• Saputo

Liquid processors, Paynes Dairies has announced a 0.5ppl reduction from to 1st February.  Similarly Pensworth dairies has been forced (due to Covid) to reduce it’s price by 1ppl from 8th February.  Suppliers to Freshways have been given a month’s notice that their price will be reduced from between 0.5ppl and 1ppl from 1st March, but with the market changing rapidly under lockdown it is unable to confirm the the exact amount at present.  Medina has also announced a 1ppl milk price reduction from 1st March.  It is likely downward pressure on prices will continue in the short term as the pandemic continues to impact on the supply/demand balance, but longer term with lockdowns easing it is hoped this will diminish.

The prime farmgate beef price continues to perform well.  Deadweight values are in the region of 45ppkg more than at the same period last year and about 35ppkg higher than the 5-year average.  It is a similar picture for the cull cow trade.  For both categories, prices for poor specification cattle fell  a little over the fortnight to 6th February, but for higher specification cattle, the prices have continued to strengthen; highlighting the need to hit specification.  But what can be expected going forward?

The AHDB has released its latest Market Outlook and is forecasting a 5% reduction in production in 2021, with domestic consumption falling by 3%.  Imports are expected to grow by 4% together with a 3% decline in exports, both mainly due to lower domestic production.

Production

The AHDB is forecasting prime cattle slaughter to decline by 5% year-on-year to 1.95m head.  According to BCMS figures the number of prime cattle (aged 12-30 months) was 5% less in October 2020 compared to year-earlier levels.  Added to this, strong prices in 2020 saw producers drawing cattle forward early, resulting in prime cattle slaughter numbers finishing the year 2% up when a decline was expected.  Therefore, supplies for 2021, particularly in the first half of the year, are expected to be tight.  Carcase weights have been steadily declining over recent years and this is expected to continue, particularly if prices remain strong, encouraging producers to finish cattle quicker and at lighter weights.  High feed prices will add to this trend.

Trade

Beef imports are forecast to rise by 4% in 2021.  Demand from the food service sector is anticipated to increase as lockdown ends and, although consumption is expected to decline, this will not be enough to offset the drop in domestic production and imported beef will be used to make up the shortfall.  However, imports may also be limited by tighter Irish supplies, especially in the first half of the year.  Lower domestic production will result in exports declining again.  The AHDB  is forecasting a 3% reduction as trade friction at the borders due to Brexit and disruption in the food service sector in Europe, due to Covid-19, also affects exports.

Consumption

Beef has faired pretty well during the pandemic after the initial carcase balance problems.  It has seen the greatest volume increase in retail of all the proteins during the Coronavirus outbreak.  According to market research company, Kantar, for the w/e 27th December beef retail volumes were up by 11% on the year.  The largest growth was for mince, burgers and steaks.  However, the out-of-home market for beef fell by 56%, although delivery and takeaway volumes of beef rose by 28%.

Price Outlook

Tighter domestic and Irish supplies should help maintain the current strong prices in the short term.  Last year also showed higher retail demand supporting prices whilst the food service sector was restricted.  The greatest question appears to be whether consumer demand will remain robust if 2021 sees the full economic effect of Covid hit home.  Even if consumers continue to buy beef, they may switch to cheaper cuts, causing carcase balance issues once again which could lead to downward pressure on prices.

A new consultation on the next steps to eradicate bovine TB has been launched.  It is seeking views on plans which include the phasing-out of intensive badger culling after 2022.  The eight week consultation which can be found at https://consult.defra.gov.uk/bovine-tb-2020/eradication-of-btb-england/ .

The paper is asking for responses on a range of proposals (see below) but the most controversial is the plan to stop issuing intensive cull licences for new areas after 2022.  The strategy would also enable any new licences to be cut short after 2 or 3 years based on a review of the latest scientific evidence at the time.  Any new supplementary cull licences (which are issued in regions after intensive culls are complete) would be restricted to just two years and would not be regranted again.  Many will be disappointed with this, especially as the statistics show an improvement in the incidence of TB breakdowns and numbers of animals needing to be culled.  But the phasing-out of badger culling and replacing with vaccination and surveillance was among the Government’s three top priorities in response to the Godfray review in March 2020.  Other proposals in the consultation include;

• Extending Post-Movement TB testing to parts of the Edge Area
• Use of the Interferon-gamma test in the High Risk Area and Edge Area

As bovine TB policy is devolved, the consultation is England only, responses need to be made by 24th March 2021. In parallel to the consultation Defra is also conducting a ‘Call for Views’ on further ideas, these include;

• Changes and improvements to TB testing
• Incentivising increased uptake of biosecurity measures
• Supporting responsible cattle movements
• Rewarding low risk purchasing behaviour

Further information can be found via https://consult.defra.gov.uk/bovine-tb-2020/bovine-tuberculosis-call-for-views-on-possible-fut/ .  Similar to the Consultation, views need to be made by 24th March 2021

The Government is to introduce statutory regulation of dairy contracts.  This follows the consultation launched last June which explored the imbalances of power within the supply chain and, in particular, where milk buyers are able to modify the terms of the contract with little or no notice.  The Government has stated that it is ‘clear there is a need to introduce new regulations to require certain standards for contracts between those producing and buying milk for processing’.  It also recognised that the ‘distinctive’ circumstances in Northern Ireland may need to be reflected in the regulations.

A voluntary code of practice on dairy contracts was introduced in 2012.  However, with a (small) number of processors continuing practices such as backdating price cuts or giving little or no notice of contract term changes, it has been decided that more robust measures are required.  The farming Unions have been campaigning for regulation to be put on a statutory basis for many years.

Defra will now work with the devolved administrations to develop a new statutory Code of Conduct for the sector using Section 29 of the Agriculture Act 2020 – Fair Dealing Obligations of Business Purchasers of Agricultural Products.  The new Code will establish minimum standards but with the ‘flexibility to adapt to individual circumstances’.  It is acknowledged that further work and engagement with the industry will be necessary before the new Code is drawn up.

Prices

The GDT average price index, often seen as the bellwether for the dairy markets, has seen strong improvements at both events held in January.  At the auction on 5th January 2021 the average price index was up by 3.9% and rose a further 4.8% at the latest event held on 19th January to close the month at $3,593.  Only cheddar experienced a small drop, by 0.3%; SMP and WMP rose by 7% and 2.2% respectively, with butter up by 4.6%.  SMP is now at $3,243 per tonne, the highest value for the last five years.    Anhydrous Milk Fat (AMF) saw a 17.2% increase.  The index has risen at every event now since the end of September 2020, except for one at the end of November.  This is despite Covid-19 impacting the demand from the food service sector, but recently there has been a weakening of the US dollar making products cheaper which looks like it has more than offset the lack of demand due to Covid disruptions.

This positivity is also reflected in domestic farmgate prices, which according to Defra’s latest release were averaging 30.38ppl in December (See Key Farm Facts).  And this looks set to continue, with a number of processors announcing prices will be maintained until at least March, these include; First Milk members, Arla members, Credition Dairy, Saputo, Barbers and Belton Cheese.  As a result of the Tesco cost tracker review, Tesco aligned suppliers will receive a 0.4ppl increase from 1st February and suppliers to the Co-op Group will also see a rise from the beginning of February of 0.22ppl.

Production

The AHDB is forecasting global milk production to rise by around 1% in 2021, increasing total supplies by 3.1bn litres.  This is at a slower rate than 2020.  Despite disruptions to Coronavirus it is expected deliveries increased by just under 4.9bn litres in 2020, up by 1.7% compared with 2019.

Meanwhile, the EU is forecasting milk production in the EU-27 to increase by 0.6% per annum, reaching 157bn litres in 2030.  This is the forecast in the EU Commission’s latest Agricultural Outlook 2020-2030.  The full report can be found via agricultural-outlook-2020-report_en.pdf (europa.eu).  The growth in production is less than in recent years due to a reduction in estimated herd size and a lower yield growth (1.4% per annum).  According to the report, this is because non-conventional systems are expected to experience an uptake in response to consumer demands for sustainability and the environment; the share of organic milk is expected to grow from 3.5% to 10% by 2030.