Category: Dairy & Livestock

Applications for a grassland derogation for 2020 in England can now be made.  Usually, producers within a NVZ can apply up to 170kg per hectare of nitrogen from livestock manure, per calendar year.  But under a derogation, farmers can apply to use up to 250kg per hectare.  A derogation is only available if at least 80% of the agricultural holding is grass.  The deadline for applications is 31st December 2019.  Applications are made by telephone to the Environment Agency (EA) on 03708 506506.  Further information, including the details required by the EA can be found at: https://www.gov.uk/guidance/grassland-derogations-for-livestock-manure-in-nitrate-vulnerable-zones   In Scotland, applications have to be submitted by 30th April in the scheme year.  A derogation form needs to be completed, this can be found at https://www.gov.scot/publications/nitrate-vulnerable-zones-grassland-derogation-application-form/

Muller’s review into the Scottish milk  surplus (see last month’s article – https://abcbooks.co.uk/dairy-upate/) has resulted in the processor serving 12 month’s notice on 14 of its producers from Aberdeenshire.  It is also introducing a tiered transport charge to offset the cost of moving surplus milk from Scotland to England; Muller claim it is transporting 180 million litres annually.  The transport charges, which effectively are a milk price cut, will be introduced from February 2020 and range from 0.25ppl to 0.85ppl, with those who have expanded most since the 2017 base year paying the highest charge.  However, farmers in Aberdeenshire, who already pay a transport charge of 1.75ppl will not be charged this additional cost.  Although devastating news for the 14 producers, who now have 12 month’s to find another milk buyer and effectively a price cut for the remaining 216 suppliers, many in the industry feared the review could have been worse.  The suppliers themselves are arguing Muller should have known about the increase in milk production as it had supplied letters to banks to support funding for expansion with Muller stating it required extra milk.  In addition, members have to supply production forecasts 15 month’s in advance.

GDT

At the latest Global Dairy Trade event, the average price index saw a further, marginal, increase by 0.5% to $3,330 per tonne.  This was mainly due to a 2.4% increase in the SMP price, as the cheddar and butter prices both fell by -2.2% and -0.4% respectively.  There was no change in WMP.  Although only a small increase, this is the third rise in a row for the index which is often seen as a bellwether for the dairy market.

Cream

Wholesale cream prices have been declining since the middle of 2018 and hit a 36-month low of £1,400 per tonne in August 2019.  This was mainly due to good availability of cream and lower demand for butter from the food manufacturing sector.   This has added even more pressure on liquid margins.  For liquid milk processors, market returns come from the price received for the milk and for any products made with the excess cream.  Where excess milk and/or cream does not have an alternative use, margins are reliant on sales of bulk cream.  According to the AHDB the average return from cream to a liquid processor is 27% lower (at 8.46ppl) in the period January to September 2019 compared with the same period in 2018 (at 11.62ppl).  However, the cream price in the UK saw a surge in September, up by 14% to £1,590 per tonne compared to August.  It’s hard to tell whether this is just a ‘blip’; many are hoping the demand for Christmas has already started, whilst others expect a further weakening citing the fat value in cream being a long way ahead of that in butter and expect it to drop back again.

Global Milk Supplies in 2019

According to the latest AHDB forecasts, there is not expected to be any change in global milk supplies for 2019 compared with last year.  Initially, a small 0.3% rise was forecast, but lower than expected deliveries in the EU and a slowdown in US growth, sees this marginal increase wiped out.  In the EU, the main producing areas of France and Germany have struggled to recover from the drought in 2018 and although good growth is expected in Ireland and Poland and to a lesser extent in the UK, this will only partially compensate for this.  Therefore, milk production is only expected to grow by 0.5% in the EU.  In the US, poor margins have led to a contraction in the dairy herd.  Output growth in the US, is now only expected to be 0.3% in 2019, compared to the typical growth rate of 1% – 1.5%.  Total deliveries in Argentina continue to be behind 2018, but higher milk prices and favourable weather conditions mean production is only expected to be 2% behind 2018 compared to the previous forecast of 5%.  Deliveries in New Zealand are expected to be between 0% and 1% ahead of last year; the country experienced high deliveries late in 2018 and production has remained strong since the beginning of the season.

Scottish Milk Surplus

The milk surplus in Scotland is estimated to be 214 million litres in 2019/20.  This will be the highest on record and will have doubled in the last five years.  The excess is due to a combination of a rise in milk production and the loss of some of the smaller processing sites in the country.  Milk collections in Scotland are estimated at 1,478m litres in 2018/19; 55m litres more than in 2014/15 and could rise to over 1,500m litres in the current year.  Processing capacity in 2018/19 is estimated at 1,294m litres, slightly lower than the 1,327m litres estimated in 2014/15.  Muller has said the ‘excessive supplies’ are unsustainable and have a significant environmental impact; the surplus milk has to be transported to England.  It has said it must work urgently with its farmer suppliers and other industry stakeholders to review a range of measures.  This could signal worrying times for some suppliers; measures could range from the end of volume incentives to transport charges or even termination notices.

Milk Prices

Arla has announced it will be holding its conventional milk price for November; this has now been unchanged for 10 consecutive months.  However, Arla’s UK organic members will receive a 0.91ppl reduction.  Other processors to maintain their price for November include; Belton Cheese, Saputo, Wensleydale Creamery, Yew Tree Dairies and Meadow Foods (liquid).  Those who have announced a price reduction for November include;

• a 0.45ppl cut for First Milk members.  First Milk has also announced their member premium will increase from 0.25 to 0.5ppl from April 2020
• Both Barbers Cheese and South Caernarfon Creameries (Cheese) have announced a 0.75ppl reduction.

 

Andersons has updated its Meadow Farm Model.  This is a notional mixed farm with grazing livestock and some arable.  The table below shows the results for the last two years and an estimate for the current year, to the end of March 2020, plus a forecast for 2020/21.

Meadow Farm Model – source The Andersons Centre
£/Ha                       Year –	2017/18 (final)	2018/19 (final)	2019/20 (est.)	2020/21 (f’cast)
Livestock Gross Margin	717	654	621	645
Arable Gross Margin	647	768	662	652
Total Gross Margin	700	677	628	646
Overheads	496	504	512	505
Rent & Finance	84	82	82	82
Drawings	233	236	240	243
Margin from Production	(112)	(145)	(206)	(184)
BPS & CSS	250	250	241	241
Business Surplus	137	105	35	57

The results for 2017/18 showed a better performance compared with the previous year, mainly due to higher beef and sheep prices.  But 2018/19 and, in particular, the current financial year sees a decline in profits.  The wet spring, followed by the drought in 2018 affected yields and grass growth, contributing to lower income and higher costs.  In the current year the low beef price has been the biggest factor, not helped by lower crop prices.   At the same time, overheads have increased.  Looking ahead to 2020/21, the beef price is expected to see a modest recovery, with the lamb price showing a slight decline.  Overheads are forecast to reduce, but this mainly due to lower machinery depreciation; with such a poor year in 2019/20, machinery investment has been put on hold.  This is not a sustainable policy for the long-term.

The business continues to be dependant on the Basic Payment and the additional income from the Countryside Stewardship Scheme (CSS) for profitability.  As farm policy evolves and support moves away from the Basic Payment to the new Environmental Land Management Scheme (ELMS), we expect the amount available to these types of farms to reduce by about 50% by the end of the next decade.

Meadow Farm is a notional 154 hectare (380 acre) lowland mixed beef and sheep business typical of many family-run livestock operations across Great Britain.  The farm has a 60 cow suckler herd and a 500 ewe mule sheep flock; in both cases finishing all progeny.  There is also a small dairy-cross bull-beef enterprise and 32 hectares (80 acres) of feed wheat and feed barley is grown.  The model is managed on a real-time basis and provides an accurate representation of business structures and changes in annual performance. 

Results from two new pieces of research come to completely opposite conclusions on the effectiveness of culling badgers in reducing bTB in cattle.

A report by conservation charity Zoological Society of London (ZSL), claims badger culling makes bovine TB worse in cattle.  The report finds that, following a cull, the surviving badgers roam further (the ‘perturbation’ effect) and therefore spread the disease.  According to the report, researchers found that after a cull in Cornwall, 61% of the surviving badgers roamed further afield, visiting 45% more fields each month.  But the industry has questioned the effectiveness of the report as it was based on such a small sample size and in just one area of the county.

In contrast, the long awaited peer-reviewed research, produced by the Animal and Plant Health Agency (APHA), found the culling of badgers was effective.  The review looked at data from the first three licensed badger cull areas in England; between 2013 and 2017 in Gloucestershire and Somerset and 2015 to 2017 in Dorset.  The research found that, in Gloucestershire and Somerset the reduction in bTB incidence rates in the cull areas relative to comparison areas was 66% and 37% respectively after years years.  In Dorset there was no change in the incidence rates in the cull areas compared to the comparison sites after the two years, but incidents dropped by 55% during the same period in the 2km buffer zone around the edge area.  The latter finding rather contradicts the perturbation claim in the previous study.  The report confirmed the results from the study showed there were ‘statistically significant decreases’ in cattle TB incidence in the Gloucestershire and Somerset cull areas.

The UK will still be allowed to continue to export live animals and animal products to the EU even if we leave with a No-Deal.  This comes after the EU’s Standing Committee on Plants, Animals, Food and Feed (SCoPAFF) confirmed the acceptance of the UK’s listed status application after it met the health and biosecurity assurances required for a third country.  However, third country listed approval only allows animals and animal products to continue to be exported.  If we leave with a No-Deal, there will be new requirements, which the UK will have to adhere to.  These include tariffs and non-tariff barriers, such as going through the correct EU Border Inspection Post and the requirement to have a signed Export Health Certificate.

British beef farmers will be given a much needed boost by the news exports of British beef to China have been given the go-ahead.  China imposed a ban on imports of British beef back in 1996 following the BSE outbreak.  Defra has confirmed shipments will begin again in the next few months after the Chinese authorities have cleared four beef sites for export with further sites being reviewed.  The announcement follows several years of engagement between the UK and Chinese government officials, culminating in extensive inspections by the Chinese authorities.  It is estimated the beef industry will benefit by £230 million.

Is the GB pig price finally starting to see a significant increase?  With all the problems of African Swine Fever (ASF) in China and EU pig prices rising, we had been expecting the GB price to have made a noticeable improvement before now.  Admittedly, the GB SPP has been steadily increasing since April, but plateaued from July through to September.  But for the week ending, 5th October, the EU-spec GB SPP recorded its largest weekly increase since June, up by 1.11p to 155.32p per kg.  This is now 8.53p per kg ahead of the price recorded for the same week last year.  In addition, estimated slaughterings reached 184,000 head for the week, some 3,200 more than the previous week and 11,600 up on the same period in 2018.  Meaning there is real demand in the market, not just a lack of product.  High EU prices are driving exports and keeping import prices high, all supporting GB prices.

Tomlinson’s Dairies of Wrexham has ceased trading.  Highlighting the current problems in the UK liquid milk sector, the 10th biggest liquid milk processor has given its 30 farmer suppliers immediate notice to quit.  It is understood half of these have already been taken on by Yew Tree Dairy, but the fate of the rest is not known.  The company had been under financial pressure for some time, after expanding significantly to take on a Sainsbury’s liquid milk supply contract.  Whilst it had recently been given an extension to this contract, it was unable to continue trading; Muller will take up this contract with immediate effect.  The position of suppliers is unknown as it appears some are owed significant sums of money.

The main categories of UK livestock have all shown a small decline over the past year.  These are the results of the provisional June 2019 Survey results recently published by Defra.  the table below summarises the figures;

UK June Census (Livestock) – source Defra
Numbers – ‘000 Head	2016	2017	2018	2019	Change 18 to 19
TOTAL CATTLE & CALVES	10,033	10,004	9,891	9,748	-1.4%
TOTAL BREEDING HERD	3,493	3,481	3,441	3,398	-1.2%
Dairy Breeding Herd	1,897	1,891	1,883	1,871	-0.6%
Beef Breeding Herd	1,596	1,589	1,558	1,527	-2.0%
TOTAL SHEEP & LAMBS	33,943	34,832	33,781	33,569	-1.5%
BREEDING FLOCK	16,304	16,669	16,286	16,083	-1.0%
TOTAL PIGS	4,866	4,969	5,012	4,977	-0.7%
BREEDING HERD	415	417	409	409	0.0%

2019 Data is Provisional    Poultry figures for 2019 not yet available.

The total number of cattle and calves has dropped to its lowest level since the basis of data collection changed in 2009.  The fall has been driven mostly by a decline in the beef sector, with the beef breeding herd continuing its historic decline.

The sheep breeding flock has also recorded a year-on-year decline.  This may be producers retrenching ahead of a possible Brexit.  However, the June figures tend not to be the best guide to future breeding intentions as the Survey occurs before autumn cullings and sheep sales.  The December figures provide a better indication of the coming lamb crop.

Total pig numbers have decreased slightly from 2018, although they are still higher than any other year since 2004.  The breeding herd is static.  The full Survey results can be found at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/837834/structure-jun2019prov-UK-10oct19.pdf.