Category: Dairy & Livestock

The results of the provisional June 2020 Survey, recently published by Defra, show all the main categories of UK livestock have declined in number over the past year underlining the uncertainties facing the sector.   The table below summarises the figures.

The total number of cattle and calves has continued to fall and is at its lowest level since the basis of data collection changed in 2009.  Both the dairy and beef breeding herds continue their historic decline.  The finished beef price has improved this year, but has been been very poor in the recent past.  In dairy, some parts of the sector were hit hard when the food-service sector was locked down due to Coronavirus, with many introducing a harsh culling policy to reduce production.  Looking at the Survey results it is only in the category of animals aged less than one year where there is any year-on-year increase in numbers, meaning breeding herds are likely to continue their decline for the immediate future.

The sheep breeding flock has also recorded a year-on-year drop, with all categories showing a fall in numbers.  This may be due to uncertainty ahead of Brexit.  However, autumn sales of breeding sheep and store lambs have been strong, which would indicate otherwise.  It should be noted that the June figures tend not to be the best guide to future breeding intentions as the Survey occurs before autumn cullings and the sales; strong finished lamb prices may have changed intentions held earlier in the year.  The December Survey figures provide a better indication of the coming lamb crop.

Total pig numbers have decreased slightly from 2019, although they are still higher than any other year since 2004.  But the breeding herd has declined by a relatively large amount; on the back of good margins this is rather puzzling.  However, gilts intended for first time breeding have recorded a 3.5% year-on-year increase so we should see some herd rebuilding.  The fact that total pig numbers is only marginally down though, implies production per pig is increasing.  The full Survey results can be found at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/925327/structure-jun2020prov-UK-09oct20.pdf

The Andersons Centre’s Meadow Farm model has been updated, and shows how the grazing livestock sector continues to be heavily reliant on subsidy.  The table below shows the final results for 2018/19 and 2019/20, an estimate for the current year, and a forecast for 2021/22.

The 2019/20 year was affected by low livestock prices, particularly the beef price.  For the current year, 2020/21, both cattle and sheep values have recovered.  Meadow Farm sells all its finished cattle from August to October and lambs from July, with all having left the farm by the end of December.  This year it is expected to capitalise on the current good trade and crucially, all lambs will have been sold before the end of the Transition Period and the possibility of a no Free Trade Agreement with the EU.  But after a tough winter and spring, resulting in low yields, the arable side of the business is forecast to decline.  Overheads are expected to fall, in part due to a drop in the fuel price, but also because of a decline in machinery and property depreciation.  With such a poor year in 2019/20 the proprietors of Meadow Farm have not bought any big pieces of machinery.  However, they were able to replace their old mobile sheep handling equipment and buy a new EID reader, obtaining a 40% grant from the Countryside Productivity Small Grant Scheme.  Such low levels of reinvestment are not sustainable though.  The combined margin from production is the strongest it has been for a number of years, but the margin from production is still negative and it remains the case that it takes the BPS and CSS payments to provide any profit.

Looking ahead to 2021/22, notwithstanding the possibility of a No Deal Brexit, the sheep price is forecast to decline.  But if we do not get a Trade Deal with the EU, Meadow farm could experience a much sharper fall in sheep prices.  The beef price is also expected to drop back from its current high as more cattle become available.  In contrast, the crops gross margin is forecast to increase as yields recover to a more ‘normal’ level next year.  Overheads continue to fall, as a lack of confidence in the industry over Coronavirus and in particular Brexit, sees the proprietors of Meadow Farm refraining from investing.  The margin from production remains negative, similar to 2018/19 and it, again, takes the BPS and CSS to provide any profit.  This is lower though as the BPS is reduced by 5% in the first year of the BPS Transition, which will see direct payments reduced to zero by 2028.

Meadow Farm is typical of many livestock holdings in England, it is a notional 154 hectare (380 acre) beef and sheep farm in the Midlands.  It consists of grassland, with wheat and barley for livestock feed.  There are 60 spring-calving suckler cows with all progeny finished, a dairy bull beef enterprise and a 500 breeding ewe flock.  The business is subsidy-dependent, but with direct payments decreasing from 2021 it will need to adapt; maybe through restructuring to reduce its overheads, which are fundamentally too high, or perhaps by taking advantage of the new ELM scheme, or possibly a combination of both.

After declining for the last four events, the Global Dairy Trade (GDT) price index increased by 3.6% at the latest auction held on 15th September.  Powders, particularly SMP, performed better than expected; with WMP and SMP increasing by 3.2% and 8.4%, to $2,985 and $2,889 respectively.  Fonterra removed 10,000 tonnes of SMP from sale earlier in the month, which no doubt helped the price, but even so, together these products made up about three qaurters of the total volumes traded.

The GDT saw SMP prices fall between January and May, more than likely as a consequence of the Coronavirus impacting on trade, particularly demand from China, but prices have been steadily recovering since then.  The GDT SMP price at the turn of the year was $3,026 per tonne, it hit a low of $2,373 at the event on 5th May and is now back up to $2,889.  However, production is increasing as New Zealand moves towards its peak in October which could slow the recovery.

Closer to home, the AHDB has reported the European dairy market futures reduced slightly in August.  Strong production and uncertainties over the increase in Coronavirus cases having an impact on the recovery in the service sector is affecting market optimism.  Nonetheless, GB farmgate milk prices remain stable, if not increasing.  Some of the key announcements include:

• First Milk, South Caernarfon Creamery, Muller Direct (liquid) and Barbers Cheesmakers all to stand-on with their prices until 1st November
• Belton Farm will increase its price by 0.5ppl from 1st October
• Suppliers to Medina will receive a 0.3ppl increase from 1st October
• Wyke Farms suppliers will receive a strong 1ppl price rise from 1st October after the cheesemaker announced firm cheddar prices and exports returning back to normal.  This will see the manufacturing standard litre price increasing to 29.014ppl; nearing the top of the milk price league table.

UK finished pig prices have been on a steady increase since March 2019 but the period of bouyancy may now be coming to an end.   The GB UK-spec SPP (Standard Pig Price) reached a high of 162.57p per kg at the beginning of July; nearly a penny dearer than the last high seen at the end of July 2017.  But prices have been struggling across the EU recently and these now seem to be influencing the British market.  Throughout August, prices have fallen week-on-week.  The GB UK-spec SPP for the week ending 5th September fell by 1.23p per kg on the week to 158.28p per kg.  This is the largest weekly fall since June 2019, although the price is still 8p per kg above 2019 levels for the same week.  A case of African Swine Fever has been confirmed in Germany, which could put prices under further downward pressure.

On 10th September Germany announced its first case of African Swine Fever (ASF); found in a wild boar near the Polish border.  Germany is the largest European pork producer and exporter.  Usually countries outside the EU place a total ban on pork imports from ASF infected countries, even if the disease is only found in wild boar.  The EU allows unaffected regions to continue to trade with other EU countries.  If this were the case, Germany’s usual export volumes would be available on the EU market, increasing supplies and depressing pig prices across the EU.

Germany exports a significant amount of pork to China.  The usual Chinese approach would be to apply a total ban to all German exports.  However, Germany has previously been hopeful it could agree a regional approach with China if the country was to become infected.  In addition, as ASF in China itself has meant a serious shortage of pork in the country, China may change its policy and accept a regional approach.  But even if this doesn’t happen, an updated report, by the AHDB, shows the EU pork situation has changed significantly over the past 18 months and it appears the spread of ASF into Germany may have less severe consequences on the market than it once would have had.

Due to ASF in China, there has been a sharp rise in demand and other countries in the EU have been sending significant quantities of pork to China, so that if Germany is unable to export and the volumes are retained in the EU, the market is unlikely to be swamped.  Prices are still likely to decline, but probably not by as much as once feared.

The Government has announced it has awarded a total of £500,000 towards five projects to diagnose bovine TB (bTB) in cattle faster.  The five schemes have each been given £100,000 for up to 12 months for proof-of-concept research.  In addition, the Animal and Plant Health Agency’s (APHA) own research to speed up the diagnosis of TB in cattle (and other livestock) will be put into practice next year.  This will see the use of a polymerase chain reaction (PCR) test which can identify bTB in post mortem tissue samples within seven days compared with the current two months.  This should be available from early 2021 and will mean where samples are taken and a negative PCR test is found, herd movement restrictions could be lifted much earlier than currently happens.

A report, recently published, found the cost of a TB breakdown directly borne by cattle farmers across England and Wales varies significantly but the median value was around £6,600.  For those with herds of over 300 cattle, the median value was £18,600 with herds of up to 50 animals experiencing costs in the region of £1,700.  The report, titled ‘Estimating the economic cost of bovine TB incidents on cattle farmers in the High Risk and Edge Areas of England and Wales’ can be found via http://randd.defra.gov.uk/Default.aspx?Menu=Menu&Module=More&Location=None&ProjectID=19957&FromSearch=Y&Publisher=1&SearchText=se3139&SortString=ProjectCode&SortOrder=Asc&Paging=10#Description

Dairy farmers appear to have employed a stronger culling policy in response to Covid-19.  The number of cows in the GB milking herd has been on a downward trend for many years now, but this has excelerated in 2020 as many producers were faced with reducing their milk output.  Overall, data from BCMS shows as at 1st July there was a total of 1.68 million dairy cows in the GB milking herd, this is a 2.9% reduction, or 51,000 less cows, than at the same point in 2019 and significantly more than the three-year average which stands at -1.3%.  Unsurprisingly, the data suggests that it is the older cohort of cows that have experienced higher-than-usual rates of culling.  Looking ahead though, the number of youngstock under two years has actually risen; albeit by only 0.4%.  This is the first time this has been seen since October 2016 and suggests there could be some stabilisation in the herd from 2021, in addition to a younger, more productive, herd.

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.