Category: Dairy & Livestock

At the latest GDT auction held on 18th February, the average price index fell by 2.9% to $3,176.  This follows a decline of 4.7% at the event held earlier in the month.  The falls have been attributed to the Coronavirus hitting demand from Chinese buyers and therefore resulting in downward pressure on prices.  All products recorded a decline except for Cheddar.  WMP and SMP made up nearly three quarters of the volume sold, both were down by 2.6%.

Domestically there is very little direction in the market; the fact that there have been announcements of milk price increases, at the same time as others are being cut, probably says it all!  Notable price changes for March include:

• Meadow Foods has increased its March price by a further 0.5ppl, this follows a 0.5ppl rise in February.
• Pensworth Dairy has announced a two part increase to its March price; 0.5ppl as a flat rate and 0.5ppl for meeting new animal welfare standards.
• Freshways has also announced a 1ppl rise, and again split.  The first 0.5p will be paid on all litres, but the second 0.5p will only be paid if producers remain within 5% of their production forecast.
• Belton Farms, Graham’s Dairy, South Caernarfon Creameries, Pattemores Dairy, Wyke Farms and Wensleydale Creamery have all held their milk price for March.
• Crediton has announced  a 1ppl reduction for March, its first change since April 2019.  The processor has cited the reduction in cream prices as the main reason.
• Saputo Dairy UK has followed its 0.7ppl price cut in February with a further 0.5ppl drop in March, however the processor has promised to hold this price until June.

Meadow Farm

Ahead of their Spring Seminars in March, Andersons have updated their Meadow Farm model.  For the current year ending March 2020, there has been little change to the figures from those published in October.  The livestock gross margin has reduced slightly due to the cattle price remaining depressed; finance has increased marginally on the back of a poor year but an increase in BPS, due to exchange rates, more than offsets these changes.

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	617	682
Arable Gross Margin	647	768	662	590
Total Gross Margin	700	677	626	662
Overheads	496	504	511	504
Rent & Finance	84	82	85	84
Drawings	233	236	240	243
Margin from Production	(112)	(145)	(210)	(169)
BPS & CSS	250	250	251	251
Business Surplus	137	105	41	82

Looking ahead to 2020/21, the sheep price is forecast to remain strong and the finished cattle price is expected to see a modest improvement from its current low (see below).  The crops gross margin is forecast to decline due to the wet weather impacting yields in particular.  Margin from production remains negative and it takes the BPS and CSS to provide any profit.  The BPS is budgeted to remain the same for 2020 as 2019.

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.

Prices

Latest information for prime cattle, show prices continue to make steady improvements at a time of year when values usually see a decline.  Despite this, prices remain significantly below last year and the five year average.  This time last year the GB all prime average deadweight cattle price was about 16.5p per kg more and pretty much on par with the five year average, but prices fell sharply from mid-February to mid-March.

Reports suggest export demand is currently supporting prices.  Domestically supplies are tightening in certain parts of the UK which should also help to firm prices, this is especially so in England and Wales, where prime slaughter numbers were down by 1% in January to 107,000 head, compared with 2019.  In Scotland numbers remained steady at 33,000 head, but Northern Ireland recorded an 8% year-on-year increase to 30,000 head.  However heavier carcase weights (1.1%) more than compensated for reduced slaughter numbers, meaning UK beef and veal production in January was 78,800 tonnes, 0.7% (550 tonnes) more than the same month last year.

The lamb price continues to strengthen; the GB deadweight lamb SQQ is about 54p per kg more than at the same time last year.  Tight supplies are expected to continue to support prices.

The GB pig price has only seen a marginal drop in January.  Usually in the post-Christmas period, markets see a large decline.  This points to an underlying strength in the market.

Over the first three weeks of the year the Standard Pig Price (SPP) has only dropped 0.13p per kg; the five year average for this period is a decline of 2.7p per kg.  Early January typically sees low demand following Christmas and oversupply if pigs have had to be rolled-over from the holiday period.  The SPP is currently 23.53p p kg above last year’s level.  The numbers presented for slaughter continue to rise; the estimated kill for the week was 186,900 head, up by 12,000 head on the same week in 2019, however demand is reported to be steady.  Exports to China have seen a slow-down recently, but this expected to pick up again in the coming weeks, which should lift demand and continue to support prices.

Domestic demand for pig meat has suffered though in the last quarter, including the festive period.  According to the Kantar Worldpanel, in the 12 weeks to 29th December, GB pig meat sales fell by 4.5% compared to the previous year, although as prices were 4.5% higher, the total spend remained the same.  Roasting joints and chops/steaks were identified as the main reason for the losses, with primary fresh and frozen pork recording an 8% decline in volume and 7% decline in value.  Bacon sales recorded a 6% decline in volume over the period, but an 8% rise in spend as the demand for premium and healthy ranges increases.

When comparing consumption and spend with other red meats, total sale of lamb fell over the same period by 4%, but with prices 2% higher this lessened the impact on total spend.  Perhaps rather surprisingly given all the bad press over recent months, the volume of beef sales fell by less than 1%, but unlike lamb and pork, the average price has fallen and therefore the total spend declined by 2% during the period.  In all the categories, the volume of roasting joints sold fell, perhaps reflecting a ‘lifestyle’ change to quicker and easier meals.

Ahead of the Dairy Tech Show on the 5th February, and their Spring Seminars in March, Andersons have updated their Friesian Farm model.

The figures show relatively little change from those published in September.  This is a reflection of the current stability in the milk price (see other article) and also little substantial change in the key costs on dairy farms.

Friesian Farm Model – source The Andersons Centre
ppl           Milk Year –	2017/18 Result	2018/19 Result	2019/20 Est.	2020/21 F’cast
Milk Price	29.0	28.8	27.9	27.1
Total Output	31.0	30.9	29.7	29.2
Variable Costs	12.8	14.7	12.4	12.3
Overhead Costs	9.3	9.6	10.0	10.4
Rent, Fin. & Drawings	6.4	6.4	6.2	6.5
Cost of Production	28.5	30.8	28.6	29.2
Farming Margin	2.4	0.1	1.1	0
Basic Payment	1.9	1.9	1.9	1.9
Business Surplus	4.3	2.0	3.0	1.9

Returns in 2017/18 were good, but fell for 2018/19 due to higher costs as a result of the late spring and summer drought.

Projected returns for the current 2019/20 year have fallen slightly compared to the budget prepared in the autumn (total Business Surplus at that time was 3.4ppl).  The main reason has not been any move in milk price, rather lower other output in terms of poor calf and cull prices.  Feed costs have also been slightly higher.

A further small decline in farmgate milk prices is currently budgeted for 2020/21.  However, the market is currently pretty directionless.  Overhead costs rise (Friesian Farm is replacing its main tractor – pushing up depreciation).  This sees only break-even from milk production. The BPS currently provides the profit.

GDT Index

The latest GDT average price index rose by 1.7% compared to the event held earlier in the month to average $3,434 per tonne.  This is the second rise in January  (2.8% on 7th January) following the surprise 5.1% decline in the event held on 19th December.  Of the 33,165 tonnes of product sold, the majority was SMP and WMP, with both seeing increases.  SMP increasing by 0.7% to $3,036 per tonne and WMP by 2.4% to $3,036 per tonne.  Butter rose significantly, by 5.5% to $4,250 per tonne.

GB Prices

Milk prices remain stable with a number of processors continuing to hold their prices into February.  Arla has announced another stand-on, this sees the processor holding its price for 13 consecutive months.  Barbers (Cheese), Muller Direct and Belton Farm (Cheese) have all announced there will be no change to their prices for February.  Other price announcements from 1st February include:

• 0.7ppl reduction for suppliers to Saputo (Davidstow).  This is the first price change for 12 months for the supplier.
• First Milk has announced a 0.5ppl price reduction.  This brings their manufacturing litre down to 27.38ppl and the standard liquid litre to 26.5ppl.
• Tesco has announced a 0.26ppl increase for its Sustainable Dairy Group Farmers.  This sees their standard liquid milk price increase to 30.93 for Arla suppliers and 31.18 for Muller’s farmers.
• Meadow Foods has announced a 0.5ppl increase for its suppliers.  However, readers may recall the processor dropped its price by 1.75ppl back in September.  This increase sees their liquid standard litre rise to (only) 25.5ppl.

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.