Category: Dairy & Livestock

Profitability figures from our Friesian Farm model are shown in the table below.  This is a notional 220+ cow business in the Midlands with a milk contract on a constituent basis.  It has a year-round calving system, like much of the UK industry, but it is trying to maximise yield from forage.  The figures are for milk years – April to March.

The 2022/23 year was a very profitable one for most dairy farms.  Milk prices rose to unprecedented levels and. although costs went up a lot as well, many dairy farmers made record profits.  During the 2023/24 year milk prices declined considerably.  With costs ‘sticky’ on the way down, the business only broke even from its farming activities.  The decline in the BPS in England can be clearly seen.  For 2024/25 however, this farm has gone into the SFI.  This adds a useful amount to the bottom line (although there are costs to the scheme which are included in the farming margin).  Milk prices are firming but there is a question over how far and fast any rises may be.  Overhead costs drop for 2024/25 – this is due to cheaper fuel and electricity, but also due to unusually high contract costs during the previous year.  A strong recovery in profitability is forecast for the current year.

The final column is our first forecast for 2025/26.  An improving dairy market outlook sees the milk price up 1ppl.  Variable costs have remained fairly stable over the last couple of years and we forecast them just rising with a normal level of inflation.   Forecast overhead costs would have fallen for the year but the farm has budgeted to make some long-term investment in slurry storage.  We can clearly see the level of BPS declining, but together with the SFI payment the total is currently still more than support received in 2019/20 – a reminder that the costs of undertaking the actions to be in SFI (i.e herbal leys) are much higher than the BPS, but these have been accounted for in the farming margin.  Overall, however, the budget for 2025/26 shows some good returns – but it should be remembered that a lot can change in 18 months.

The Scottish Government has confirmed that a maximum calving interval requirement will be introduced for the 2025 Scottish Suckler Beef Support Scheme (SSBSS).  To recieve the hedage payment next year, cows will only be eligible if their calving interval is 410 days or less (or if it is the cow’s first calf).  The move is to increase the efficiency of the Scottish beef herd (and help reduce emissions).  The Scottish Government states that the interval could be reduced in future years – but by no more than 10 days per year.  Farming organisations were arguing for a more lenient threshold.

The Laying Hen Housing for Health and Welfare Grant is now open for applications.  The online checker is available until 18th September 2024.  In summary, the grant is available for laying hens and pullets.  Funding is available to replace or upgrade existing laying hen or pullet housing (a ‘comprehensive’ project) or to add a veranda onto existing laying hen or pullet housing (a ‘veranda-only’ project).  Further information can be found in our article of 15th May (see https://abcbooks.co.uk/laying-hen-housing-grant/).  The full guidance can be found via https://www.gov.uk/government/publications/laying-hen-housing-for-health-and-welfare-grant-round-1?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=a52ce90e-e81f-42d6-9c5b-585cd240140b&utm_content=daily

Both the EU-Spec SPP and APP experienced big losses in the week ending June 8th.  The SPP fell by 1.2p per kg for the week to 210.2p per kg.  The size of the fall was unexpected; since the turn of the year the price hasn’t swung more than 1p per kg either way.  Some of the fall was clawed back in the most recent week ending 15th June when the EU-Spec SPP gained 0.4p per kg.  This takes it to 12p per kg less than at the same time in 2023 and 3.3p per kg below where it was at the beginning of 2024.  On the Continent, the EU Reference price is just over 20p per kg lower than the equivalent UK reference price, which is within the typical range.  These prices are disappointing for producers, especially as throughputs are low.

In terms of throughput, Defra’s latest data shows UK clean pig slaughterings in May down 10% on the year at 783,000 head, resulting in production falling by 8.9%, as carcass weights on average are heavier.  However, the AHDB estimates GB slaughterings are marginally up for the week ending 15th June compared to the previous week and 1,500 head up on last year, but this was from a low base; some 27,500 less than in 2022 for the same week.

Low demand for pork is however the key reason for subdued prices.  According to Kantar, pork is one of the few proteins to experience a decline in retail demand over the 12 weeks to 12th May.  Whereas total pigmeat retail value increased by 2.3%, the volume of sales declined by 2.1%.  All other proteins increased volume sales over the same period, except beef which fell marginally by 0.4%.  Retail volume sales of pork have been in a constant slow decline over the last 18 months; this is due to shoppers buying less per shopping trip.  Pork is seen as less tasty than beef and lamb and harder to cook than beef or chicken.  Furthermore, despite being one of the cheapest proteins in the supermarket per kg, year-on-year it has seen one of the biggest increase in retail price, rising by 4.5% compared with lamb, which actually fell by -3.1% and poultry which increased but by a lessor amount, 3.1%.  Only beef retail prices experienced a larger increase, up 5.5%.  The result is that the gap between primary pork and primary chicken prices has widened.  Back in August 2022 the 12 week rolling primary pig price was just 51p per kg higher than primary chicken prices, but at its widest in September 2023, this rose to £1.34 per kg.  The gap has narrowed a little and stands at about £1 per kg.

Further analysis by Kantar reveals over 60% of pork volume losses are from shoppers switching to other proteins.  The biggest volume losses are from older and younger shoppers where the cost of living crisis is hitting hardest.  And for those holding out for BBQ demand, sausage demand apparently peaks in May!  However, it the weather is good over the summer this should help sales.  A promising area is the growth in demand from foodservice which has seen a 6.5% rise, but because over 86% of pork volumes are through retail, overall demand is in decline -1.5% on the year.  The AHDB is forecasting this trend will continue for the rest of the year with total pork volumes down by -2% compared with 2022 and -4% with 2019.

The AHDB has revised it’s GB milk production for the 2024/25 season down since its previous forecast in March.  The Levy body is now forecasting delivery figures to total 12.2 billion litres, 1% less than the previous milk year, in its latest forecast in June.  GB deliveries in the April and May totalled 2,205 million litres, 1.5% (33m litres) less than last year.  But the AHDB is expecting production to be slightly up on 2023 in July and August, when high temperatures in June impacted grass growth.  But after that, production is forecast to decline unless there is a significant movement in price.  According to BCMS the GB milking herd has remained stable at 1.64 million head in April.  The reduction in production is therefore down to lower yields.

Defra’s latest farmgate milk price for April 2024 was 37.21p per litre; this compares with 39.45p per litre in April 2023, but recent announcements surrounding milk prices have been positive (see below) and will provide a bit of stimulus to increase production.  However, for price rises to continue, the demand will need to be there.  China is one of the major drivers of the global dairy market, but according to the latest report from Rabobank, China’s dairy imports in 2024 are expected to decline by 8% year-on-year.

GB production is also likely to remain constrained.  Although input costs have eased over recent months they remain historically high.  In addition, forage quality is likely to have been affected by the cold spring and straw costs will be higher due to the lower arable area and more spring cropping this year.  All these increases in costs will make producers reluctant to push for production unless we experience a significant increase in farmgate prices.

Latest farmgate milk price announcements as from 1st July include;

• Barbers has announced a 1.03p per litre increase which takes its standard litre price to 41.28p per litre
• Producers supplying First Milk will receive a 0.8p per litre increase which will take their maufacturing standard litre to 40.3p per litre
• Wyke Farms are up by 0.7p per litre to 41.06p for their manufacturing litre and Belton Farm is increasing its standard litre by 1p to 39.3p per litre
• Meadow Foods has announced a 1.5p per litre which takes their price to 38.5p per litre.

Defra has expanded its support to tackle endemic diseases in livestock.  The previous Annual Health and Welfare review has been changed so that there are now two parts to the service;

• The Animal (slight change from Annual) Health and Welfare Review
• The Endemic Disease Follow-up

The table below includes the support payments for each species;

Currently the endemic disease follow-up is not available for dairy cattle.  This part of the service is expected to be available ‘soon’.  The eagle-eyed will also have noticed that the Pig Review payment has been reduced from £684 to £557.  This is because, following feedback from farmers and vets, the testing requirements for pigs has changed from blood testing to oral fluid testing.  This is considered to be more welfare-friendly for the pigs and is easier for the vets.  This method is also less expensive and therefore the payment rate has been reduced to reflect this.

The new offer will allow farmers to apply for a 3-year agreement to carry out Annual Reviews.  This is undertaken by the keeper’s vet of choice and includes a requirement for testing for the endemic disease or condition of the livestock type being reviewed to recommended standards – Bovine Viral Diarrhoea (BVD) in dairy & beef cattle, effectiveness of worming treatments in sheep, porcine reproductive and respiratory syndrome (PRRS) in pigs.   After the vet has completed the review, farmers can choose to have an Endemic Disease Follow-up.  This involve more in-depth diagnostic testing of PRRS in pigs.  For cattle it will help identify animals which are persistently infected with BVD and give advice on how to eliminate the disease on the farm.  With regards to sheep, there will be a little more flexibility, allowing farmers, in consultation with their vet, to choose from a range of health packages.  Eligible farmers will also receive funding towards a biosecurity assessment and bespoke advice on how to improve it.

There must be at least 10 months between reviews, and follow-ups must be within 10 months of the review.  The service will end on 19th June 2027 by which time all reviews and follow-ups must have taken place.  For those farmers that have already completed a review under the old Annual Health and Welfare Review, it is possible to go straight into a follow-up as long as it is no more than 10 months since the review took place.

The AHDB is forecasting UK sheep meat production to decline by 2.9% in 2024 compared with 2023, to total 278,000 tonnes in its latest Lamb Market Outlook.  In February, it was estimating a -1% decline (see https://abcbooks.co.uk/sheep-outlook-3/).

The lamb crop for the 2024/25 season (March to March) is expected to be 15.9 million head, a decline of 185,000 (1.2%) from the previous season as a result of a smaller breeding flock at 1st December 2023 (at 13.8m head this was the lowest since current records began in 1996) and lower scanning rates.  In terms of clean sheep slaughter, the AHDB is estimating the carryover for 2024 of old season lambs was just over 4 million head from January – May.  This is a decline of -6.5% (280,000 head) on the year.  It is despite a higher level of ewe lambs being slaughtered instead of being kept for breeding as farmers took advantage of the very high old season lamb (OSL) prices being achieved.  Furthermore, the number of new season lambs (NSL) slaughtered in the first half is also expected to be lower than in the same period for 2023, by some 235,000 head to 1.42 million, supporting prices to the record values realised over the first half of the year.

Looking forward to the second half of the year and assuming a typical slaughter pattern, clean slaughter numbers are expected to be up by 1% (48,000 head) to 6.4 million.  Adult sheep slaughter experienced a sharp decline in the first half of the year compared with 2023, there is expected to be a slight improvement in the second half.  However, there is still expected to be a fall of 3% over the whole year compared with year earlier levels.

In terms of trade, imports are forecast to increase by 12% year-on-year for the whole of 2024.  This rise comes from a low base though, as 2023 imports were only 10,800 tonnes, compared with a five year average of 17,000 tonnes.  Imports from New Zealand are already estimated to be 10,500 tonnes, the majority being frozen leg joints which were apparently needed to fulfil Easter orders.  These shipments are expected to slow down over the rest of the year as domestic lamb numbers increase and NZ production slows with its traditional slaughter season ending in September.  Imports from Australia remain stable as they concentrate on shipments to the US, China and Middle East.  UK exports declined over the first quarter by 800 tonnes year-on-year to 20,400 tonnes – mainly due to lower production and increased domestic demand.  The EU has taken 95% of all UK exports so far in 2024.  Looking ahead, our exports should be supported as the European Commission is forecasting by a 5% decline in EU production.  However, lower domestic production means there won’t be the product to export and shipments are forecast to decline by 5% on the year.

With regards to consumption, the AHDB says combined retail and foodservice demand for lamb in the first three months of 2024 has exceeded initial expectations.  Even so, pressures on household budgets, although getting slightly better, are expected to continue and a 1% decline in volume consumption is forecast, compared with 2023 and a 15% decline since 2019.

So what does all this mean for farmgate prices?  The lamb price has been very strong over the first half of the year.  Prices are currently seeing a seasonal decline as more new season lamb comes to market and consumer demand remains pressured due to the cost of living crisis.  But imports are expected to slow as NZ production comes to the end of its season and, if domestic demand does weaken, exports to the EU, where production is falling, presents an opportunity.  The result being an expection that prices should remain buoyant over the year.  The finished lamb SQQ p per kg deadweight price is tracked in our Key Farm Facts.

It has been announced that the Lancashire-based milk processor, Yew Tree Dairies, is to be taken over by Muller UK.  Yew Tree, build up over a number of years by the Woodcock family at Skelmersdale, West Lancashire, specialises in milk powders but also processes fresh milk and cream.  No price for the business has been reported and the takeover is subject to approval by the Competition and Markets Authority.

According to the AHDB the spring flush passed with a ‘whimper’.  GB daily milk deliveries recorded a downturn in the week ending 11th May.  The highest daily figure was recorded at 36.92m litres on 8th May (although this figure is still subject to revision).  Delivery data from the AHDB for 1st-11th May shows production was back 2.1% compared with 2023, which was itself a ‘subdued’ year.  Cumulative deliveries are already 2.9% below the AHDB’s forecast it made in March; this will be revisited in June.  Looking ahead, although grass growth is good now, the wet weather through autumn, winter and spring is likely to have caused longer term damage to the ground and grass quality.

The picture is similar at a global level.  Reported milk deliveries in the latest period (February) averaged 813 million litres per day, down by 0.4% (5.5m litres per day) compared with the same period last year.  Australia and New Zealand both recorded a year-on-year increase, but Argentina, the US and UK all exeperienced a fall in production.  Deliveries in the EU were said to be stable; significant declines in Ireland, down 13.3% on the year, have been compensated by growth in Germany, France and Poland.

Although the warning signs have been there, it appears the commodity markets have finally woken up to the fact that production has been constrained, with butter prices experiencing siginificant recent rises and cheese starting to follow.  The GDT average index has also risen at both events held in May by 1.8% and 3.3% to average $3,861.  Notable movers include:

• Butter           +5.1% to $6,931
• SMP              +3.5% to $2,629
• WMP            +2.9% to $3,408

At farmgate level, there is also an upward trend in UK milk prices, with some increases for June having already been announced;

• Suppliers to Muller will receive a 0.5ppl increase for those who meet the conditions for Muller Advantage
• Freshways has announced a 2ppl increase from 1st June, taking its standard litre to 37ppl
• Barbers has announced a further 1.02ppl increase, the 5th increase this year, which takes its standard litre to 39.15ppl

The only air of caution is Rabobank’s forecast for Chinese import demand which has been revised down to -8%.  Stronger domestic production and weaker demand is behind these updated figures.  Only 0.6% of UK British dairy exports went to China in 2023.  However, New Zealand, China’s biggest supplier will have a lot of displaced product which will need to go somewhere.

Defra has increased the grant available under the Smaller Abattoir Fund.  The fund, which opened in December, supports the purchase of a diverse range of capital investments and equipment.  Defra has confirmed the grant rate has increased from 40% to 50% and the maximum grant amount has been raised from £60,000 to £75,000.  To maximise the ability to access the fund, applicants are also able to make up to three separate applications throughout the application window, up to the maximum of £75,000.  The minimum grant amount remains the same at £2,000.  Our article of 15th December 2023 gives further details of the fund  (see https://abcbooks.co.uk/smaller-abattoir-fund/), which will now close on 30th September 2024.