Category: Dairy & Livestock

The Agricultural and Horticultural Development Board (AHDB) has released its latest Agri Market Outlooks.  According to the Levy Board this has been ‘the most challenging’ forecasting period yet.  It acknowledges that, even allowing for the impacts of the weather variations, forecasting production has been easier than demand.  Aside from the on-going trade negotiations with the EU and the US, the impact of the Coronavirus on how and where we shop and eat makes predictions even harder than usual.  The AHDB has used three scenarios to forecast future consumption depending on how well we come out of the Covid-19 lock-down;

Scenario A – called the ‘Bounceback’, is the most optimistic and is similar to how how we are currently experiencing the easing of lock-down.  It has the least impact on the economy; overall GDP for 2020 falls by 8% and the Job Retention Scheme helps to keep unemployment at less than 5%.

Scenario C – is the most pessimistic and assumes that the relaxations to lock-down are short-lived and Covid-19 has a long lasting, deep impact on the economy.  It sees GDP for 2020 dropping by 30% and unemployment rising to 21%.

Scenario B – sits in the middle and sees GDP for 2020 falling by 15% and unemployment driven up by 14%.

Beef

In the beef sector, production is forecast to reduce by 4%.  Both the suckler and dairy breeding herds have continued to decline in 2020 and this is expected to carry-on for the remainder of the year.   Fewer prime cattle are forecast to be available for slaughter together with lighter carcase weights, all leading to a reduction in production compared to 2019.  With regard to trade, both exports and imports are forecast to decline, exports due to a drop in production, but not by as much as previously expected, due to a fall in domestic demand because of Covid-19.  The table below summarises the AHDB’s supply and demand forecasts.

In the short-term, the AHDB is expecting beef prices, after seeing a period of recovery, to come under downward pressure due to an increase in Irish supplies and a decline in domestic demand, mainly due to continued weakness in the eating-out market.  However, retail sales of beef saw a 22% volume rise, in the 12 weeks to 17th May 2020, according to Kantar, the biggest volume percentage increase out of all the meats, as consumers turned to beef during lock-down.  Sales were mainly minced beef, but also good BBQ weather boosted the sale of beef burgers.  Supermarket promotions have also helped increase steak sales.  But a high proportion of beef has traditionally gone into the food service sector – the highest of all the AHDB’s meat sectors according to volume.  During March to May this declined to less than a quarter of its 2019 levels.   The temporary closure of the big burger brands saw a significant reduction in the takeaway market.

Looking ahead, under Scenario A, beef consumption is expected to reduce by -4% in 2020.  Although retail volumes will remain steady for the rest of the year, the losses experienced in the food service sector will see an overall decline in consumption.  Any re-imposition of lockdown restrictions would result in a larger drop in consumption as the recovery in the food service sector is chocked-off.  Added to that, we could see cash strapped consumers, switch to cheaper alternatives if incomes are hit or unemployment increases, as is the case under the AHDB’s Scenarios B & C, which see beef volumes decline by -8% and -10% respectively.

Lamb

The lamb market is overshadowed by uncertainty from both Covid-19 and Brexit.  Due to the large volume of lamb exported to the EU, trade negotiations will have more of an impact on the lamb market than the other meats.  Tight UK supplies were initially expected to support prices through the year, but the effects of Coronavirus on the global economy is expected to see both domestic and demand from Europe reduced.  The AHDB is forecasting UK sheep meat production to decline by 287,000 tonnes carcase weight equivalent (cwe).  In the second half of the year, a lower adult kill more than offsets the marginal increase in prime lamb slaughter and overall production is forecast to decrease by 2%.

Both imports and exports are forecast to decline.  Reduced production in New Zealand and high demand in China for protein (due to African Swine Fever (ASF)), means there is less availability for imports.  Exports usually follow production trends and therefore are expected to decline, also, due to Covid-19 pressures, demand across Europe could be a lot lower.

Lamb consumption in the UK has been on a downward trend for many years.  Even prior to Covid, both in the retail and eating-out market, the volumes for the year were about -4% down compared to 2019.  But lamb has been particularly hard hit by lock-down.  Whereas overall retail volumes of food and drink grew by 14.7% in the 12 weeks to 17th May 2020, Kantar found retail volumes of lamb actually declined by -7.5%.  The lack of gatherings for Easter and Eid al-Fitr did not help, but also the older generation are more likely to cook with lamb and many of these were isolating more.

Looking to the second half of 2020, the AHDB is not expecting the retail market for lamb to grow under any of its Scenarios.  Lamb is seen as a less versatile protein and is also more expensive so if consumer household budgets are cut, the switch to cheaper meats is expected.  The eating-out market is expected to remain constrained, although lamb has faired quite well in the take-away market, especially kebabs and this will help, unless financial pressures causes a decline in this market.  In the best case Scenario, consumption volumes are forecast to decline by -9% worsening to -14% and -19% under Scenarios B and C respectively.

Pig Meat

The AHDB is forecasting UK pig meat production to increase again this year.  However due to Covid-19, domestic demand is forecast to decline.  Trade is expected to balance the market, with lower imports and increased exports, underpinned by strong demand from China.

The pig breeding herd looks to have increased by 3% last year and challenges to herd performance are easing, production is therefore forecast to increase by 4% in 2020.  This is expected to continue into 2021.  Imports of pig meat this year were low before lockdown and are not expected to increase due to lack of demand.  Imports are forecast to decline by 5% on the year.  In contrast, exports are expected to grow by 6% due to increased domestic production and an increasing demand for pig meat from China during the second half of 2020 as the country recovers from Covid-19 and replaces some of its loss of production due to ASF.  Next year Chinese production is likely to recover a little and could put pressure on prices.

Out of beef, lamb and pig meat, the latter is expected to have fared the best during the Covid pandemic and as we come out of lockdown, due to its versatility and affordability.  For the 12 weeks ending 17th May 2020, pig meat retail volume grew by +14.3% according to Kantar.  For the remainder of the year, retail pig meat is expected to continue to do well, all though eating-out losses will result in an overall decline in volumes.  As pig meat has a lower price point it is expected to perform better than the other meats if the economic situation worsens.  Overall pig meat consumption is expected to reduce by -2%, -3% and -5% under the AHDB’s three Scenarios.

All the July Outlooks can be found at https://ahdb.org.uk/agri-market-outlook?_cldee=cmtpbmdAdGhlYW5kZXJzb25zY2VudHJlLmNvLnVr&recipientid=contact-19608f16c3f347b4b823670087b50991-a2ad3f4987b5401b8357aa27a79c815b&esid=d20000a4-6bbc-ea11-a812-0022480078c7  

 

The Government has issued a consultation on the possible introduction of mandatory written milk contracts.  It follows widespread concern in the sector that dairy farmers are in a position of weakness when it comes to relationships with their milk buyers.  This is despite the introduction of a voluntary code of practice on milk contracts in 2012.

Thirteen countries in the EU have already enacted legislation requiring compulsory written contracts.  The Defra consultation is UK-wide and runs until the 15^th September.  It covers pricing, duration and termination of contracts, deductions and bonuses, and exclusivity clauses.  Details of the consultation can be found at – https://consult.defra.gov.uk/agri-food-chain-directorate/contractual-relationships-in-the-uk-dairy-industry/

Somewhat bucking the overall trend is the industry giant, Arla (see previous article). The Coop has announced it will be cutting its prices from 1st July by 0.63ppl. This takes its standard manufacturing litre from 29.89ppl to 29.26ppl (including bonuses for farm standards and climate change).

The finished beef price has made significant gains over the last 6 weeks.  After hitting a ‘lock-down low’ at the end of April of 323p per kg, the all steer deadweight price has risen by over 35p per kg to 358p per kg for the week ending 13th June.  In 2019, the price plummeted in June; this year, in contrast, the price is seeing significant week-on-week improvement and is now about 19p per kg above last year.  The R4L steer and heifer prices for the same week are 372p per kg and 371p per kg respectively; this demonstrates the price benefit of selling cattle at the correct specification.  Cow and young bull prices have also seen strong gains.

The increase has been driven by strong supermarket promotion of prime cuts – for example two-for-£7 deals on many steaks.  Coupled with the ‘BBQ weather’ seen through the latter part of May and early June, this has boosted consumer demand.  Supplies of finished cattle have also been lower than at the same time last year.

The beef price has been lacklustre since the middle of 2019 and it is hoped as the food service sector gradually re-opens after lock-down, increased demand will continue to support prices.  But the sector is keeping a close eye on Irish production.  Data from HMRC shows in April 2020 beef imports totalled just under 18,000 tonnes, this is 3,200 tonnes less than April 2019.  A decline in imports from Ireland was the main contributor to the decrease in imports.  However, slaughter restrictions are beginning to ease in Ireland and production is increasing; if this beef enters the UK market we could see downward pressure on domestic prices.

The prime lamb price remains steady.  After crashing in late March/early April due to Covid-19, prices recovered in April and May.  The New Season Lamb (NSL) SQQ price started well (recording began from 3rd week in May); just over 47p per kg deadweight higher than year-earlier levels.  Prices have seen their usual seasonal decline since then, but the GB deadweight NSL SQQ for the week ending June 13th was 493p per kg, just over 41p per kg more than in 2019.  The GB liveweight NSL SQQ price fell by almost 20p per kg during the week ending 17th June to 214p per kg.  However, prices for lambs meeting export specification remained strong.  Again, emphasising meeting specification is key.

Milk deliveries are currently running about 1 million litres less per day than expected, due to those who reduced their production in the run up to the peak spring ‘flush’ to alleviate some of the oversupply problems as a result of Covid-19.  The AHDB has revised its estimated reduction in Aprils’ production from  23 million litres to 19 million.  But for May, it is estimating production was 36 million litres lower than it would have been if dairy farmers had not reacted.

Farmgate prices remain fairly stable and if anything are edging up.  Medina, although from a pretty low base, has announced a 1p per litre increase from 15th June and a further 1.5p per litre from 1st July.  Graham’s Dairies has also announced a 1p per litre price rise from 1st July.  Joseph Heler, one of the only processors to make a reduction in June (of 1.1ppl) has reversed this with the announcement of a 1.1p per litre rise, however this is not until 1st August.

Further afield, the Global Dairy Trade (GDT) average index recorded an increase of 1.9% to $2,979 at the latest event held on 16th June.  All products saw an increase except for butter;

• SMP         +3.1%
• WMP        +2.2%
• Cheddar  +1.4%
• Butter      -1.0%

The Dairy Response Fund 2020 opened for applications on 18th June.  Readers will recall this is in response to challenges the dairy sector has faced due to Covid-19.  To be eligible producers must;

• supply cows’ milk to a wholesale purchaser (direct sellers of cows milk or milk products and producers of buffalo, sheep or goats’ milk are not eligible), and
• had a reduction in the average price paid for their milk of 25% or more in April 2020 compared to that paid in February 2020 (calculated by comparing the average base price before any additions – i.e. butterfat, protein or volume bonus or any deductions for levy, SCC, bactoscan or antibiotics)

Eligible applicants will need to complete a Dairy Response Fund 2020 application form and email it to [email protected] together with milk statements for February, April and May.  There will be a one off payment of up to £10,000 to cover 70% of income losses in April and May.  Payments will commence from 6th July.  Applications must be received from an email address registered with the Rural Payments Service by midnight on 14th August.  Forms and further guidance can be found at https://www.gov.uk/government/publications/dairy-response-fund-2020?utm_source=7e19c820-b161-46e2-90d8-070ddcd21f42&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate

 

Dairy farmers in England and Wales will be able to apply for Corona hardship funding from 18th June.

In England, to access the ‘Dairy Response Fund’ farmers will need to show that their average milk price in April was 25% lower than that in February.  There will be a one-off payment of up to £10,000 to cover 70% of income losses during April and May.  Further details of the application process are expected over the next fortnight.  Payments are expected to commence from the 6th July.  The NFU has criticised details of the scheme – pointing out that many producers on A and B contracts will have sharply reduced production of B litres because the price was so poor.  This might mean their average price has not dropped by over 25%, but they still face significant income falls.  

In Wales, the Dairy Support Scheme will be very similar – providing up to £10,000 to cover 70% of lost income in April and May compared to February 2020.  Farmers will, again, have to show a reduction of 25% or more in the average milk price and will be required to provide their Milk Statement covering February, April and May 2020.  Payments should be made within 10 days and the scheme closes on 14th August 2020.  See https://gov.wales/welsh-dairy-support-scheme-set-open-applications .

 

Markets

In the latest Global Dairy Trade event on 19th May the average price index rose by 1% to $2,907 per tonne.  This is the first increase since the end of January, apart from a 1.2% in early April.  It was mainly due to a 6.7% increase in the SMP price.  WMP, butter and cheddar all saw losses of 0.5%, 1.9% and 6% respectively.

Closer to home, reports suggest markets are improving as the lockdown begins to ease on the Continent and, to a lesser extent, at home.  Increasing demand and the opening of Private Storage Aid (PSA) (see below) has seen the price of butter increase, this in turn has supported the cream price.  The spot milk price has also improved to about 18-20ppl as producers manage production and some areas of the country are reportedly now past the spring peak.

Farmgate Prices

Many processors have held their prices as they watch to see which way markets will go.  This includes Muller who, as reported last month, had to quickly rescind the price rise it had announced for May when Covid struck.  The processor will also be holding the same price for June.  Other processors have also kept their prices unchanged for June include; Barbers, Saputo, South Caernarfon Creameries, Belton Farm (Cheese) and First Milk (Cheese).  There has inevitably been some price reductions with Glanbia Cheese and Meadow Foods suppliers’ in Cumbria and South Wales receiving a 2ppl reduction as from 1st May. Other Meadow Foods suppliers received a 1ppl price cut from the beginning of May.  Even M&S aligned suppliers will receive a 0.61ppl reduction from 1st June, although its price will still be 31.72ppl and highlights the range of current farmgate prices.  The difference between the top aligned and lowest non-aligned contracts is now nearly 10ppl.

Production

Latest figures from the AHDB, show for the week ending 9th May, GB daily milk deliveries were averaging 37.01m litres; up 0.4% on the previous week.  But overall production is now about 1.8% behind that of last year.  The actions by some farmers to reduce production has prevented the need for milk to be dumped as witnessed at the beginning of April.  Reports suggest production was cut by 23m litres during April, helping to keep within processing capacity and avoid excess milk having to be disposed of on farm. While this may have given the industry some breathing space, these farmers will have seen a financial impact on themselves as a result of the cut-back.

Private Storage Aid (PSA)

The EU PSA scheme, which provides financial support for placing dairy products into storage, opened for applications on 7th May.  As the UK is still in the Transition Period it is allowed to use the scheme.  Limits have been put on the amount of cheese each member state can put into storage.  The UK along with Ireland, Italy and Sweden have all used their allocation for cheese already; the UK used its within a week.

Dairy Campaign

The AHDB, Dairy UK, Defra and the other devolved farming administrations have all come together to fund a £1m dairy industry marketing campaign.  The ‘Milk Your Moments’ initiative aims to increase consumption of milk and other dairy products by encouraging consumers to celebrate and record moments we used to take for granted before Coronarvirus – such as simply having a cup of tea or coffee with friends.  These can then be shared across all the digital platforms and social media.  Consumers will also be prompted to visit the ‘Milk Your Moments’ website which will generate a random ‘moment of inspiration’ and for each one will donate £1, to the mental health charity ‘Mind’.

Consultation

Defra has launched a consultation on managing both vaccination and culling of badgers in the Edge Area.  The aim is to reduce the risk of culling already-vaccinated badgers, balanced with allowing culling to continue where applications meet the licensing requirements.  The proposals would see badgers within active vaccination sites in the Edge Area protected from adjacent culling through the use of no-cull zones surrounding the vaccination sites.  The proposals include minimum criteria for the no-cull zones, including the size of the zones to ensure they are proportionate to the size of the vaccination area, to minimise any reduction in disease control that the zones may cause.  In response to the Godfray Review, the Government set out its ambition to move away from widespread badger culling to wider deployment of vaccination. 

The full consultation can be found at https://consult.defra.gov.uk/animal-health-and-welfare/badger-no-cull-zones-edge-area/   Responses need to be made by 26th June.

Culling Areas

Natural England has licensed and authorised seven new supplementary badger control areas to begin operations in 2020.  These include two areas in Cornwall, two in Devon and one in each of the counties of Dorset, Gloucestershire and Herefordshire.  In addition, it has authorised the resumption of operations in three existing areas in Dorset (year 2), Somerset (year 4) and Gloucestershire (year 4).

The GB finished pig price does not, so far, look like it has been severely affected by the Covid 19 pandemic.  However, with values on the continent falling sharply, will this remain the case?

GB prices have remained firm through May with the EU-spec SPP being 164.34ppkg in the week ending 16th.  This is around 20p higher than the same point last year and 25p  above the five year average.  Reports suggest demand remains steady.  Some processors are reporting disruptions due to Covid 19 which could affect processing capabilities in the short term.  Estimated slaughter numbers are 15% down compared to the same week in 2019 and 11% less than the five year average.  Whilst this helps stem any over-supply issues in the short-term, finished pigs may currently be held back – storing up issues for the future.  It is also reported that that there are currently plentiful supplies in cold storage.  Whilst the GB market is finely poised, it does seem that supply and demand are currently well balanced. 

The picture is quite different in the rest of Europe, with some of the main producers of pig meat finding the market over the last few weeks increasingly challenging as the lockdown measures affect demand.  Germany, Denmark, the Netherlands, Spain, Italy and Poland have all seen their pig meat prices fall sharply during the pandemic.  In Ireland, just two sites are responsible for more than half of the pig slaughter.  The worry is if a Covid 19 outbreak occurred in either of these sites, affecting processing capability, there would be a significant supply chain issue.  The ‘lockdown’ is starting to ease in most countries now, but with social distancing required in restaurants, the holiday season disrupted, and staffing levels in processing plants still affected, it remains to be seen how much the ‘ease’ supports demand and whether there will be a knock-on effect on GB prices.