Category: Dairy & Livestock

Global Supplies

The most recent forecasts show global milk is expected to increase by about 1% in 2020.  This would see global milk production at 292.5 billion litres, 2.9 billion litres higher than the estimates for 2019.  Forecasts from the five largest milk producing regions indicate increased supplies from Argentina, the USA and the EU 28.  In contrast, Australia is expected to see a reduction in supply due to the ongoing challenges of drought, fires and high feed and water costs in the country.  The production forecast for New Zealand is level; last season saw a record production and it is difficult to see that being beaten.

UK Deliveries

Defra’s monthly delivery statistics will not be updated until the New Year to show November’s production, but the AHDB is expecting to see a fall compared to 2018’s deliveries for the month.  According to its forecast, GB deliveries will be 992m litres, 0.8% less than last year and the lowest level delivered in November for three years.  The AHDB’s Milk Forecasting Forum is expecting production to be slightly down for the rest of the season.  This is because, although silage stocks are reported to be good and plentiful, this time last year short supplies of forage saw high levels of concentrates being fed which gave yields an extra boost.

Wyke Farms and Lidl

Suppliers to Wyke Farms now have the option to fix the price they are paid for their milk for three years.  The offer follows a long-term cheese supply deal between Wyke and the discount supermarket Lidl, which was agreed last year.  Under the offer, all of Wyke’s suppliers (approximately 130 farmers) will be able to fix between 10% and 50% of their volumes at 28p per litre.  The offer comes into force as from 1st January 2020.  A similar move was made by Muller in 2018, following a three-year supply deal with the discounter.  With the recent swings in milk prices, securing a fixed price will give suppliers some certainty and reduce their exposure to market volatility in the milk market.

Prices

The average Global Dairy Trade (GDT) price index has shown a significant fall at the latest auction.  After recording increases at all the events since mid-September, the auction held in early December unexpectedly recorded a fall, albeit only of 0.5%.  However, the latest event held on 17th December, saw a much larger decline in the average index by 5.1% to $3,302.  WMP and SMP both saw significant declines falling by 6.7% and 6.3% respectively.  The GDT index is often seen as the bellwether for global dairy markets.

Closer to home many processors are holding the price they pay to producers, but where it has changed, the direction has been downwards.  Muller, South Caernarfon Creameries, Saputo, Wyke Farms, Belton Farms, Barbers and Glanbia are all among those who have announced there will be no change to their price in January.

The AHDB has recently released its latest beef & sheep Outlook forecasts.

Beef Outlook

The levy board expects the beef breeding herd (suckler and dairy) to continue to decline, imports are forecast to recover but exports reduce as production falls.  In October 2019 the beef breeding herd was 60,000 head (2%) lower than at the same time in 2018.  It is expected to reduce by a further 1.7% in 2020, mainly due to a reduction in the suckler herd as the prolonged period of low beef prices takes its toll.  The UK dairy herd remains a significant part of beef production and it has also been in decline.  However, with the number of dairy females being registered almost the same as last year, this could be an indication the herd is stabilising.  The use of sexed and beef semen in the dairy herd has been increasing over recent years, this has seen the number of beef calves out of dairy dams accounting for 45% of births to September, an increase from 36% in 2015.

The number of GB calf registrations to September 2019 stands at 2.16 million, slightly down by 8,000 head (0.4%) compared to 2018.  However, there has been an increase in the number of beef calf registrations (up by 1%, or 14,400 head).  This is due to an increase in beef semen used in the dairy herd.  Data from BCMS shows GB female beef calf registrations to dairy dams increased by 5.2% in the year to September compared to the same period in 2018.

Prime cattle slaughter numbers are expected to reach 2.01 million head for 2019; 1% more than in 2018.  Supply is expected to be tighter in 2020 though, particularly during the first half of the year, as data shows there are 2.3% (46,800) fewer cattle aged between 12 and 30 months in October 2019 compared to the same time in 2018.  Prime slaughter in 2020 is forecast to be about 1.96 million head, down 2.7% (58,000) than the amount expected in 2019.  Looking further ahead, the reduction in prime cattle availability is expected to continue.  This is more due to the dairy herd stabilising and young cattle going into the breeding herd rather than for beef production.

Carcase weights have been consistently higher this year, probably due to a number of factors; cattle were in good condition at turnout having been fed more concentrates to make up for the lack of winter forage.  It has been a good grass growing season and with low beef prices producers have held on to cattle longer.  This winter, diets are expected to revert back to more forage-based and carcase weights are forecast to be slightly lower in 2020.  Looking ahead through 2020, with an increase in native breed registrations and more beef coming from the dairy herd, carcase weights are expected to steadily decline as these types of cattle tend to have poorer confirmation.  The combination of fewer numbers and lighter carcase weights sees the AHDB reduce its production forecast by about 4% in 2020.

Due to lower prices, beef imports in the third quarter were 23% less than last year, however exports increased by 48%.  Irish production has a big effect on imports to the UK.  A 6% increase in Irish imports over the first half of the year, put downward pressure on domestic prices.  But protests at the end of August by Irish farmers in response to low prices saw production halting and, despite throughput running 5% ahead of the year earlier, it is expected to end the year 3% lower.  However, there is now a backlog of cattle in Ireland, in-spec cattle are likely to be prioritised by processors in the short term with heavier out-of-spec cattle expected to be processed over the coming months. This could put pressure on domestic prices if it makes its way over here.  Looking further ahead, an increase in calf exports and a shift from beef to dairy cows should see production in Ireland decline.  But for 2020, the AHDB is forecasting a 5% increase in imports and a 9% reduction in exports, mainly due to a reduction in domestic production.

The farm gate beef price has been increasing week-on-week throughout November, but even so, at the end of the month the all steer price was still about 29p per kg less than last year, when it had actually been falling from the beginning of October.  An increase in domestic demand is required to boost prices, reports reveal it has been lacklustre over the year, but has picked up over recent months, otherwise we will be relying on exports to support prices.

Sheep Outlook

The AHDB is forecasting the breeding flock and the lamb crop to contract in 2020 and also lamb and ewe slaughter numbers to reduce.  The contraction of the breeding flock is mainly due to producers’ reactions to uncertainty.  With a normal lambing season assumed, the levy board is forecasting a small reduction in the 2020 lamb crop of 400,000 to 16.6 million.  In the year to October an estimated 6.6 million lambs from the 2019 crop have been slaughtered, up 7.7% on the year and slightly above the five year average.  But the AHDB is expecting around 100,000 fewer lambs to come to market in November and December compared to last year, which will support prices.  This tightening in supply is expected to continue into 2020.  There is expected to be 100,000 fewer lambs to carry-over into next year.  In addition the levy board is forecasting 165,000 fewer new season lambs to be available in the first 5 months of 2020.

The cull sheep kill has been ‘exceptionally’ high throughout 2019, with carcase weights also up.  The forecast is for cull numbers and carcase weights to return to more normal levels in 2020.  Sheep meat production is forecast to reach 303,800 tonnes in 2019 the highest since headage payments were removed over 10 years ago.  However a reduction in the breeding flock will see production declining.  Exports generally depend on domestic production; with strong production in 2019, exports have risen.  But in addition, New Zealand has diverted its exports to China, so less has been available on the continent which the UK has been able to exploit.  During the third quarter exports have risen by 9% to 24,800 tonnes, with most going to France and Germany.  In contrast, imports have continued to decline.  In quarter three, imports were down by 34% to 12,900 tonnes.  Again,this is mainly due to New Zealand directing more of its product to China.

The new season lamb (NSL) price is currently buoyant and continues to rise.  It is now comfortably above last year’s, with the liveweight price nearly 20p per kg higher than the five year average.  The global lamb situation is supporting prices.  Demand is strong, particularly from China due to the effects of African Swine Fever (ASF).  Global farmgate prices are high; traditionally GB prices have been above New Zealand and Australia but this price difference has been narrowing since the middle of 2016.  Throughout the third quarter of 2019 both New Zealand and Australian prices have been above GB.  Recently the NZ price has seen further (unseasonable) gains, whilst the Australian price has fallen.  Both NZ and Australia are not forecasting any rise in production for the next year, which will mean global supplies remaining tight and limited imports to the UK.  With our own production expected to decline and imports remaining low, availability will be tight if exports can continue as normal (Brexit?), helping to keep farmgate prices healthy.

Avian Influenza was confirmed on a commercial chicken farm in mid-Suffolk on 10th December.  According to Defra it is low pathogenic avian influenza (LPAI) of the H5 strain, which is a less serious variant.  The last confirmed case of LPAI in the UK was in Dunfermline in January 2016.  It causes mild breathing problems, but affected birds do not always show clear signs of the infection.  A 1km restriction zone has been put in place around the affected farm and all 27,000 birds will be humanely slaughtered.  No movement of birds, eggs or carcases are allowed off premises within the zone unless under licence.  No poultry gatherings or the release of game birds are allowed in the restricted zone either.  There have been no cases of avian flu in poultry or other kept birds in the UK since June 2017.  Advice from Public Health England is Avian Flu is primarily a disease of birds and the risk to the general public’s health is ‘very low’.

Farmers in New Zealand have been given five years to cut their carbon emissions, otherwise penalties will be imposed.  The NZ Prime Minister, Jacinda Ardern’s Labour coalition Government has committed to making the country carbon Net-Zero by 2050.  Producers, particularly dairy farmers, are not particularly happy with the Government’s plans, arguing that they are not economically viable.

The Global Dairy Trade (GDT) average price index experienced good gains in November, rising by 3.7% and 1.7% in the last two auctions to average $3,481 per tonne.  The index has now seen five consecutive rises.  At the most recent event, SMP and WMP (which made up the majority of the volumes) rose by 3.3% and 2.2% respectively.  The cheddar price also increased by 2.5%; although butter fell by 1.3%.  Global demand is increasing whilst supply has slowed and is now fairly static.  Demand from China for alternative proteins, due to African Swine Fever (ASF) is strong and has seen the GDT SMP price rise by 10% over the month.  The GDT price is expected to continue to see gains over the next month.

Closer to home, Arla has announced there will be no change to its milk price for December, this is the 11th consecutive month in which the processor has held its price.  It claims the outlook for the coming months remains ‘stable’.  However, the same cannot be said for organic milk .  Although the processor has held its (organic) price for December, it has said the outlook for organic is ‘uncertain’.  A number of other buyers have announced they will be holding their prices for December these include; Belton Farm, Glanbia, Barbers, Paynes Dairies and Saputo.  Graham’s Dairies in Scotland has announced a 0.5ppl reduction for the last month of the year.

A month or two ago it seemed almost given that UK farmgate milk prices would see falls through the winter and possibly into the spring.  This appears far less certain now with markets firming at both the global and national level.    

Beef

Farmgate beef prices have been disappointing all year, only going above the five-year average for a brief spell in May.  At the end of September, the GB all steer deadweight price was 47.4p per kg less than for the same week in 2018.  As the chart shows, the farmgate price fell last year from the end of September until mid-December.  This year the price has fallen, but not at the same speed as in 2018 and there are signs of a slight (much needed) upturn as we head towards Christmas.

Source: AHDB

According to the AHDB, total beef and veal production in October was 3% higher than in 2018 at 86,100 tonnes.  This is a combination of an increase in throughputs and also carcase weights for prime cattle; both up by 1% compared to year earlier levels at 186,100 head and 339.7kg per carcase.  Grass growth has been good and cattle have done well over the year, leading to heavier carcases, this in turn will have contributed to the lower finished price per kg.  In an attempt to stop increasing carcase sizes, some abattoirs are putting a 400kg cap on weights.  Finishers will need to ensure weights do not go over this to avoid penalties.  An increase in numbers may have been in response to the Halloween Brexit date and also cattle finishing quicker after a good growing season.

Exports of beef to September, show an increase in volume by 20%, although only 7% in value as the price is much lower, although this has meant product from the UK is more competitive.  According to the AHDB, exports to the Philippines increased by 310%, possibly in response to the loss of pig meat in the country as a result of African Swine Fever (ASF).  Looking ahead, the market could get a welcome boost if shipments to China get underway; the first for over 20 years are expected by early 2020.  Imports have remained lower for most of the year.  In September, imports were down by 33.5% compared with 2018, mainly due to a reduction from Ireland (34.5% less).  This was probably in part due to less availability in Ireland as producers protested over the low beef price.

Lamb

The GB liveweight lamb SQQ has been hovering around the five-year average since June.  But since the end of October it has seen a sudden increase, taking it above last year’s levels for the first time since January.  So why has the lamb trade been fairing so much better than beef?  Over the year we have seen an increase in exports and a reduction in imports.  This is mainly due to demand in China, which has been increasing over recent years and is only likely to get stronger due to ASF (see our previous article https://abcbooks.co.uk/african-swine-fever/).  Sheep meat prices have been moving higher in New Zealand and Australia due to increasing shipments to China.  This means imports to the UK are not only less in volume, but importantly, more expensive, supporting domestic prices.  In addition, New Zealand has sent less sheep meat to the rest of the EU.   The UK has been able to fill some of this availability.  Although domestic supplies are expected to tighten; a good growing season and the Brexit uncertainty leading up to 31st October, may have encouraged farmers to sell their animals earlier; numbers slaughtered from the 2019 crop are up 7% year-on-year.  Less availability should continue to support prices up to Christmas, after which Brexit uncertainty may return.

Pigs

Finished pig prices have been on an upward trajectory since April and, with strong demand from China, the outlook looks good for producers into 2020.  According to the AHDB, producers’ margins moved into a positive position in Quarter 3 as pig prices continued to rise and the cost of grain (feed) fell.  This position is expected to continue through the last quarter of 2019 and going into the New Year.  This, however, is not as a result of demand from the domestic market, which remains a challenge, but due to strong demand from the export market.  Again, this is mainly through increased demand from China due to the ASF crisis.  China is the UK’s biggest pig meat customer.  According to the AHDB, around a third of the UK’s pig meat exports have gone to China so far this year, up by 58% on 2018 and it is a market which is continuing to grow both in volume and value.  In October all the major UK abattoirs were approved to send trotters to China.  Whilst there is a relatively low demand for trotters in the UK they are sought-after in the Chinese market.

The effects of African Swine Fever (ASF) cannot be underestimated.  It is forecast that the disease will halve China’s pig herd by the end of 2019 which, at over 400 million head, accounted for half of the worlds pig population (750 million) before ASF.  It is being described as the biggest animal disease outbreak in history.

The virus has spread across the whole of China since the first outbreak was discovered back in August 2018.  ASF continues to spread across Asia.  Vietnam was quick to get the disease, shortly after China, production there is expected to be reduced by 15-20% in 2019.  Similar to China, many Asian countries obtain most of their protein requirements from pigmeat.

Rabobank is forecasting pork production in China to decline by 24% this year and a further 10-15% next year due to the fall in herd size and the ongoing impact of the disease.  The decision by many to cull their herds before becoming infected (and thus still be able to sell the meat) accounts for the difference between production and the decline in herd numbers.  In 2019 China is expected to have a pork shortage of 10m tonnes.  To put this into perspective, the amount traded globally each year is in the region of 8m tonnes.  China has been trying to fill the gaps by releasing reserves from its cold stores, stock-piled from producers who decided to cull their herds earlier in the year.  But these stocks are becoming exhausted and the pig price in the country is now more than twice as high as at the same time in 2018 and is fuelling inflation.

As a result, there will be a large protein deficit across Asia.  China is importing a huge amount of meat.  According to the AHDB, China’s pork imports for the year have increased by 45%.  It is also not just pork imports; beef quantities are up by 50% and shipments of poultry meat have also increased.  There is also a demand for alternative proteins, such as Skim Milk Powder.  September saw China’s highest monthly imports since 2013 at 27,500 tonnes, total SMP imports are up by 30% over the year.

The EU has been the largest exporter of pigmeat to China with shipments to August increasing by 40% on the year.  The UK has also seen its exports to China up by nearly 60% on the year.  In 2020, the AHDB is forecasting EU production to only increase marginally, due to a decline in the breeding herd, but a fall in domestic consumption could see additional volumes available for export.  The trade war between the US and China has seen tariffs of 72.5% on US pig meat imports to China, but now the Chinese domestic price has risen so much, the US price is becoming competitive.  US shipments to China in August were five times higher than in 2018.  China has now agreed a set amount of pork can enter the country tariff free, although no details of the amount or when has been announced yet.  Nonetheless, the US looks to be in a good position to increase its pig meat exports to China.

Brazil has also seen its exports to China increase by a third on the year to September.  But as China has only approved a small number of farms for exports, this growth is likely to be limited.

Looking ahead, the Chinese Government sees the recovery of domestic production as a priority.  It is looking at measures to aid expansion for large scale producers, such as reducing interest rates, relaxing environmental regulations and loans.

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.