Category: Dairy & Livestock

Beef

The GB prime cattle price has been steadily rising since early May (see Key Farm Facts).  Deadweight prices are now in the region of 45p per kg more than last year’s levels (although these were at a five-year low) and about 22p per kg above the 5-year average.  Reports suggest strong demand and abattoirs ‘competing’ for supplies.  The opening-up of the food service sector is supporting demand and, although a little too early to tell, the Government’s ‘Eat Out to Help Out’ scheme should boost sales and we may see some ‘trading-up’ from burgers to steaks.

Domestic cattle supplies are expected to tighten over the remainder of the year which should help to support prices.  But there has been a question mark over production in Ireland and whether increased supplies will enter the UK market and put pressure on prices.  However, recent industry reports suggest the current beef supply in Ireland is also tight.  But forecasts are for an increase in Irish beef in 12 to 18 months.  Ireland’s 1st June Survey results show a year-on-year decline in cattle numbers aged 12-30 months; those destined for slaughter over the rest of 2020.  But due to Covi-19 disrupting calf export opportunities there are around 121,000 more calves aged 0-12 months currently on Irish farms compared to year earlier levels, which could lead to an increase in beef production in 2021.

Lamb

The prime new season lamb (NSL) price remains strong for the time of year, at 73.9p per kg deadweight above the same point last year.  The lamb kill has recorded a strong recovery in July, partly due to the food service sector continuing to re-open but mainly due to Eid-al-Adha which fell in July this year as opposed to August.  After slaughterings fell below 2019 levels in March, April and May due to Covid-19, the lamb kill rose above last year’s numbers in June and July, with the latter showing a 17% increase on the year and 29% more than June 2020 levels.  Strong prime lamb prices are also bolstering prices for breeding sheep and store lambs as the autumn sales get underway.  However with the possibility of a no-deal Brexit looming at the end of the year will these stores lambs look expensive when they are ready to be sold?  Yet another autumn of uncertainty.

Defra has published its response to its latest TB consultation.  This covers the delivery of both badger vaccination and culling in the Edge Areas (see our article of 26th May at https://abcbooks.co.uk/bovine-tb-4/).  Its view remains that implementing no-cull zones to reduce the risk of vaccinated badgers being culled in the Edge Area will help manage the delivery of vaccination and culling in the same area.  The Government has also published new ‘Guidance to Natural England on Licenses to Control the Risk of Bovine Tuberculosis from Badgers’.  This incorporates the proposed changes which were consulted on and, in particular, the no-cull zones.  The full response and a summary of the changes can be found at https://www.gov.uk/government/consultations/bovine-tb-badger-vaccination-and-culling-in-englands-edge-areas/outcome/summary-of-responses-and-government-response

The outlook for dairy farming remains steady if unspectacular.  This is the main conclusion of the latest Friesian Farm figures.

Friesian Farm is a notional 200 cow all-year-round-calving business.  It has been used to track the fortunes of British dairy farming for well over a decade.  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, a budget for the current 2020/21 year then a forecast for 2021/22.  

The 2018/19 results were negatively affected by the summer drought resulting in greater purchased feed pushing up variable costs.  The following 2019/20 year was more ‘normal’ – despite a lower milk price the business produced a (small) surplus from dairying to which was added the BPS payment.  The surplus of 3.1ppl gives a total business surplus of around £50,000 (after drawings).

The figures for the current 2020/21 year show relatively little change from those published earlier in the year.  The average milk price for the year has been increased as the Covid effects now look less severe.  But is still below last year’s level.  No attempt has been made to forecast the potential effects if there is ‘No Deal’ after the end of the Transition Period in December.   The other big change for this year versus last is that variable costs have risen.  This is mainly due to higher forecast concentrate feed prices next winter after the poor 2020 harvest.

Looking to 2021/22, milk price is forecast to weaken slightly – mainly due to increasing production around the world and lacklustre demand due to the economic downturn.  Costs reduce due to lower concentrate feed prices and also reduced fertiliser values.  The farm makes a profit from it’s dairying activity, but this is still less than its BPS income.  It can be seen that the BPS falls slightly as the first reduction of the Agricultural Transition kicks-in.  By 2028, there will be no BPS in England, meaning Friesian Farm will be reliant solely on its dairying operation.

 

 

 

Latest estimates from the AHDB show GB milk production is back up to where the Levy Board would have expected it to be for the time of the year.  The AHDB has been keeping an estimate of likely deliveries if some producers had not cut their production to reduce oversupply due to Covid-19.  Data now shows actual deliveries starting to run back into line with these estimates on about the second week in July.  It is estimated production was cut by 75 million litres in the period April to June, mainly through the removal of cows from the herd and to a lesser extent by drying cows off early.

Defra has announced the deadline for applications to the Dairy Response Fund has been extended until midnight on 11th September.  The support is available to those who supply cow’s milk to a wholesale purchaser and have been adversely affected by Covid-19.  There will be a one-off payment of up to £10,000 to cover 70% of income losses in April and May.

Further details can be found in our Bulletin article https://abcbooks.co.uk/dairy-support/  and on the Defra website at https://www.gov.uk/government/publications/dairy-response-fund-2020?utm_source=38e768d4-bff6-4aac-b6d7-142480025c2a&utm_medium=email&utm_campaign=govuk-notifications&utm_content=daily

Eligible applicants 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.

Medina

Dairy processor Medina has announced it will be closing its Watson’s Dairy in Hampshire, to try and consolidate its processing operations in a bid to save money.  The fresh liquid processing site had capacity for 200 million litres, although it has not been not operating at full capacity.  This will now be diverted to Buckleys (Huddersfield), Severnside (Gloucestershire) and Freshways (London).   There could be a potential loss of 144 jobs, but the closure, according to Medina, should not have an impact on its 156 farmer suppliers.  Medina has been hit hard by Covid-19 due to the closure of the food service sector and wholesale markets; it cut its milk price to producers by 5ppl, but consecutive milk price increases in June, July and August, by 1ppl, 1.5ppl and 1.5ppl respectively and the announcement of a further 1ppl increase from 1st September will bring it back to pre-Covid levels at a standard price of 25.75ppl.

Prices

Following a large, 8.3% increase at the event held at the beginning of the month, the Global Dairy Trade (GDT) average index fell by 0.7% to $3,201 at the auction held on 21^st July.  Earlier in the month WMP increased by 14% to average $3,208 and SMP, cheddar and butter all increased by 3.5%, 3.3% and 3% respectively.  At the latest auction, WMP backed up its big increase with a further 0.6% rise to average $3,218, butter and SMP both fell by -4.9% and -0.5% respectively.  Cheddar bucked the trend, increasing by 0.6% to average $3,803.

Closer to home the direction of farmgate prices is upwards as lockdown eases and peak supply is passed.  Some of the key changes include:

• Yew Tree Dairy and Paynes Dairies have both announced 1ppl price rises as from 1^st August, as has cheese processor Wyke Farms.
• Suppliers to Meadow Foods in South Wales, Cumbria and Lancashire have been given a 1ppl increase, back dated to 1^st July, which brings them back in line with the rest of the suppliers to Meadow Foods.
• Arla has announced its prices will remain unchanged for August.  Its standard price for conventional manufacturing milk will be 29.26ppl and organic milk 36.21ppl

Production

The AHDB has reported that France saw the largest drop in production in response to the Covid-19 crisis.  Lockdown occurred across Europe and North America just as dairy farmers in the Northern Hemisphere were approaching the spring milk peak.  In France, where farmers received direct aid for reducing production, average daily deliveries in May were down by 2% compared to the same month in 2019.  In the US and the UK, where there were no official reduction schemes, average production was down by 1.1% and 0.8% respectively.  In other key producing regions there wasn’t much change.  However, in Ireland, deliveries actually increased compared to 2019 – this is consistent with long-term trends of annual production increases.  The latest monthly delivery figures for GB can be found in Key Farm Facts.

Defra has confirmed bovine TB vaccination trials are to start in England and Wales.  This follows a major breakthrough by Government scientists and could see the vaccine for cattle rolled out in 2025.  The field trials will take place over the next four years on behalf of Defra, the Welsh and the Scottish Governments.  The deployment of a cattle bTB vaccine was one of the key priorities in the Government’s response to an independent review of its 25 year bTB strategy conducted by Professor Charles Godfray, which set out the goal to phase out intensive culling in the next few years.  A cattle vaccine is part of the plan to eradicate the diesease in England by 2038.   A cattle vaccine will be a massive breakthrough for the industry and will be hugely welcomed by all.  Bovine TB is one of the biggest animal health issues that England and Wales face today and over 40,000 cattle are slaughtered each year because of it.

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).