Category: Dairy & Livestock

Markets

In the latest Global Dairy Trade event on 19th May the average price index rose by 1% to $2,907 per tonne.  This is the first increase since the end of January, apart from a 1.2% in early April.  It was mainly due to a 6.7% increase in the SMP price.  WMP, butter and cheddar all saw losses of 0.5%, 1.9% and 6% respectively.

Closer to home, reports suggest markets are improving as the lockdown begins to ease on the Continent and, to a lesser extent, at home.  Increasing demand and the opening of Private Storage Aid (PSA) (see below) has seen the price of butter increase, this in turn has supported the cream price.  The spot milk price has also improved to about 18-20ppl as producers manage production and some areas of the country are reportedly now past the spring peak.

Farmgate Prices

Many processors have held their prices as they watch to see which way markets will go.  This includes Muller who, as reported last month, had to quickly rescind the price rise it had announced for May when Covid struck.  The processor will also be holding the same price for June.  Other processors have also kept their prices unchanged for June include; Barbers, Saputo, South Caernarfon Creameries, Belton Farm (Cheese) and First Milk (Cheese).  There has inevitably been some price reductions with Glanbia Cheese and Meadow Foods suppliers’ in Cumbria and South Wales receiving a 2ppl reduction as from 1st May. Other Meadow Foods suppliers received a 1ppl price cut from the beginning of May.  Even M&S aligned suppliers will receive a 0.61ppl reduction from 1st June, although its price will still be 31.72ppl and highlights the range of current farmgate prices.  The difference between the top aligned and lowest non-aligned contracts is now nearly 10ppl.

Production

Latest figures from the AHDB, show for the week ending 9th May, GB daily milk deliveries were averaging 37.01m litres; up 0.4% on the previous week.  But overall production is now about 1.8% behind that of last year.  The actions by some farmers to reduce production has prevented the need for milk to be dumped as witnessed at the beginning of April.  Reports suggest production was cut by 23m litres during April, helping to keep within processing capacity and avoid excess milk having to be disposed of on farm. While this may have given the industry some breathing space, these farmers will have seen a financial impact on themselves as a result of the cut-back.

Private Storage Aid (PSA)

The EU PSA scheme, which provides financial support for placing dairy products into storage, opened for applications on 7th May.  As the UK is still in the Transition Period it is allowed to use the scheme.  Limits have been put on the amount of cheese each member state can put into storage.  The UK along with Ireland, Italy and Sweden have all used their allocation for cheese already; the UK used its within a week.

Dairy Campaign

The AHDB, Dairy UK, Defra and the other devolved farming administrations have all come together to fund a £1m dairy industry marketing campaign.  The ‘Milk Your Moments’ initiative aims to increase consumption of milk and other dairy products by encouraging consumers to celebrate and record moments we used to take for granted before Coronarvirus – such as simply having a cup of tea or coffee with friends.  These can then be shared across all the digital platforms and social media.  Consumers will also be prompted to visit the ‘Milk Your Moments’ website which will generate a random ‘moment of inspiration’ and for each one will donate £1, to the mental health charity ‘Mind’.

Consultation

Defra has launched a consultation on managing both vaccination and culling of badgers in the Edge Area.  The aim is to reduce the risk of culling already-vaccinated badgers, balanced with allowing culling to continue where applications meet the licensing requirements.  The proposals would see badgers within active vaccination sites in the Edge Area protected from adjacent culling through the use of no-cull zones surrounding the vaccination sites.  The proposals include minimum criteria for the no-cull zones, including the size of the zones to ensure they are proportionate to the size of the vaccination area, to minimise any reduction in disease control that the zones may cause.  In response to the Godfray Review, the Government set out its ambition to move away from widespread badger culling to wider deployment of vaccination. 

The full consultation can be found at https://consult.defra.gov.uk/animal-health-and-welfare/badger-no-cull-zones-edge-area/   Responses need to be made by 26th June.

Culling Areas

Natural England has licensed and authorised seven new supplementary badger control areas to begin operations in 2020.  These include two areas in Cornwall, two in Devon and one in each of the counties of Dorset, Gloucestershire and Herefordshire.  In addition, it has authorised the resumption of operations in three existing areas in Dorset (year 2), Somerset (year 4) and Gloucestershire (year 4).

The GB finished pig price does not, so far, look like it has been severely affected by the Covid 19 pandemic.  However, with values on the continent falling sharply, will this remain the case?

GB prices have remained firm through May with the EU-spec SPP being 164.34ppkg in the week ending 16th.  This is around 20p higher than the same point last year and 25p  above the five year average.  Reports suggest demand remains steady.  Some processors are reporting disruptions due to Covid 19 which could affect processing capabilities in the short term.  Estimated slaughter numbers are 15% down compared to the same week in 2019 and 11% less than the five year average.  Whilst this helps stem any over-supply issues in the short-term, finished pigs may currently be held back – storing up issues for the future.  It is also reported that that there are currently plentiful supplies in cold storage.  Whilst the GB market is finely poised, it does seem that supply and demand are currently well balanced. 

The picture is quite different in the rest of Europe, with some of the main producers of pig meat finding the market over the last few weeks increasingly challenging as the lockdown measures affect demand.  Germany, Denmark, the Netherlands, Spain, Italy and Poland have all seen their pig meat prices fall sharply during the pandemic.  In Ireland, just two sites are responsible for more than half of the pig slaughter.  The worry is if a Covid 19 outbreak occurred in either of these sites, affecting processing capability, there would be a significant supply chain issue.  The ‘lockdown’ is starting to ease in most countries now, but with social distancing required in restaurants, the holiday season disrupted, and staffing levels in processing plants still affected, it remains to be seen how much the ‘ease’ supports demand and whether there will be a knock-on effect on GB prices.

 

The Welsh Government has announced a scheme to support dairy farmers affected by the Covid-19 crisis.  It is largely the same as the one already outlined for England – dairy farmers who have lost more than 25% of their income in April and May will be entitled to up to £10,000 to cover 70% of their losses.  Further details of the scheme including how to apply are expected shortly.  It will now been seen whether Scotland also introduces such a scheme.

Following intense lobbying, the Government has announced further support for dairy farmers affected by the Covid-19 outbreak.  Businesses which have seen their income drop by more than 25% during April and May will be able to claim under the scheme.  The support will be equal to 70% of the lost income for these months, up to a maximum of £10,000.

More details on the scheme, including how to apply, are still awaited.  The Government announcement can be seen here – https://www.gov.uk/government/news/new-funding-to-support-dairy-farmers-through-coronavirus.

There is also going to be a £1m advertising campaign to persuade the public to consume more milk and milk products – in order to offset the fall in demand caused by the closure of coffee shops, restaurants etc.  The campaign is part-funded by the AHDB and partly by the four devolved UK Agricultural Departments.

Covid-19 has seen some producers having to discard their milk as increased demand from the retail sector has not made up for volumes usually consumed in the food service sector.  But you cannot turn a dairy cow ‘off and on’ and production is expected to continue to rise as we head towards the spring peak.  According to the AHDB, GB average daily milk deliveries to processors for the week ending 11th April, were up 1.4% on the previous week’s average.  This is, however, 2.3% below the average deliveries for the same week in 2019, but remains in-line with the AHDB’s forecast for this year.

These figures include an estimated 800,000-900,000 litres of milk which was not collected during the week ending 11th April and had to be thrown away by producers.  This volume is about 0.4% of the total milk delivered for the week.  Since then, according to the AHDB, there has no further reports of milk not being collected.  However, in some cases, only the fat content has been utilised, with the skim reportedly ending up in anaerobic digesters.  As a result of the over-supply, producers have seen some processors introduce new pricing measures.  This has led to calls for a specific support scheme for the sector. 

At the beginning of April, all Muller suppliers were asked to reduce their supply by 3% until the end of May.  It is unclear what action will be taken if a producer fails to cooperate.  Perhaps the most notable actions have been those of Medina and Freshways – both of which have a significant share of their business in the food service sector.  Suppliers to Medina will see their milk price cut by 5ppl as from the 1st May after the processor announced a further 3ppl drop, after having already said the price would fall by 2ppl.  This will see its standard litre down to 20.75ppl.  In addition payments will also be deferred by 21 days.

Freshways has back-dated its price cut by 13 days and is also extending its payment terms.  Freshways has restricted its A pricing to 60% of a producer’s current A quota, with milk delivered in March being paid 50% at the end of April and 50% by 15th May.  On top of this, the processor is reported to have actually increased its prices to supply Nursing Homes, something which has not gone un-noticed by the national press or some of its customers in the food service, who are looking to distance themselves from the processor’s negative publicity.

Not all processor are cutting their prices though, some of the supermarket aligned contracts have seen rises and Belton Farm (cheese), Barbers (cheese) and First Milk (cheese) have all announced they will retain their current price until at least June.  Before it announced the 3% supply reduction, Muller (see earlier) told suppliers they would receive a 1ppl rise from May 1st, this was rather surprising at the time and will probably be short-lived.

It is estimated around 550 farmers, predominantly those supplying Freshways and Medina are under serious financial pressure.  The RABDF has launched a survey and is asking all those affected by the Covid-19 milk crisis to submit an online daily account of their losses so that it can supply Defra with ‘accurate and credible supportive data’.  The survey can be accessed at www.rabdf.co.uk/survey.

Even though many in the industry have been calling for targeted support, the response from the Government so far has been to relax some elements of competition law to make it easier for processors to be able to come together and work out how to temporarily reduce production to create space in the market.  It has asked the AHDB and Dairy UK to co-ordinate a proposal.  But the industry is claiming this is too late, particularly for those 550 dairy farmers who need urgent support now to help with their cashflow.  A letter has been sent to Defra calling for a targeted grant scheme similar to those being offered to the retail, hospitality and leisure sectors.

In a response to the problems Coronarvirus has caused to markets across Europe, the EU has proposed a new package of measures to support the agri-food sector.  For dairy this will see the opening of Private Storage Aid for SMP, butter and all cheeses that are suitable for storage.  The volume allocations for each country have not been set yet.  Full details are expected by the end of the month.

The results of the December Survey of Agriculture show that numbers of breeding animals declined for all the main categories, albeit by generally small percentages.  The table below summarises the figures;

Whilst dairy cow numbers were broadly stable year-on-year, there was a significant drop in the beef herd.  This is perhaps not surprising given the poor beef prices seen since late 2018 and the ongoing uncertainty over Brexit.  Sheep producers are also likely to have trimmed numbers in light of uncertainty over the future of the vital EU export trade.  It is perhaps slightly surprising that fall is so modest.  The pig breeding herd also showed a very slight decline.  However, with rising productivity in the sector, the breeding herd is generating more pigs for slaughter which is illustrated in the ‘total pigs’ figure.

 

 

 

Reduced global demand and milk products held in distribution depots as a result of Covid 19 continues to put pressure on dried non-perishable dairy products.  The GDT auction has again recorded consecutive declines at its events held during March, following falls at both events in February.  The latest auction held on 17th March saw the average price index drop by 3.9% to $2,980.  SMP fell by 8.1% and WMP by 4.2%.

The closure of pubs, restaurants, coffee shops etc in the UK and the guidance to stay at home will see a shift in demand from the food service sector to the retail sector.  Those milk processors supplying the retail sector will have already seen an increase in demand, although this is likely to ease as ‘panic buying’ slows and managing supplies through this initial period is likely to be challenging.  But those processors supplying the food service sector will have experienced a sudden drop in demand.  It is often not possible to just divert to another sector, so many will be left with selling excess milk on the spot market and as the spring flush approaches, prices are likely to be falling.

Recent farmgate milk prices have been mixed throughout February and March, with only a few announcements for April:

• Belton Farm, Barbers and Lactalis have all announced they will be holding their price for April
• Those suppliers on an M & S contract will see a 0.61ppl reduction from April and suppliers to the Sainsburys cost tracker will have a 0.05ppl cut as a result of its quarterly review.

Following a flying trade for both hoggs and cull ewes last week, the lamb market has suddenly crashed.  Whether this will level and correct itself out over the coming days and weeks remains to be seen.  On Monday 23rd March, the live weight daily GB Old Season Lamb (OSL) SQQ declined by nearly 73p on the week to 188.64p per kg, equating to about £30 per head.  The cull ewe price, after record prices the week before, fell by almost £37 to average £71.70 per head.  This was despite throughput declining sharply.  The fast moving situation surrounding Coronarvirus is causing this volatility.

According to AHDB, the rumours that France was closing its borders to UK exports are not true.  The border between the UK and France remains open to ‘commercial traffic’ (with some extra checks) and food products are on the list for priority entry through EU borders.  Even so, demand for lamb from France (our biggest importer by far) is currently reported to be very low.  Coronavirus restrictions in the country, which has seen open-air city markets close will have a large effect on demand from wholesalers.  Those that have stockpiled are now using this, further restrictions could see more stockpiling but it is expected many will turn to cheaper products such as chicken and pork.  Easter usually sees increased demand for lamb throughout Europe, but many have suspended their Easter marketing campaigns.

Domestically, demand for lamb is also expected to decline now pubs and restaurants have closed; less lamb is eaten in the home.

The beef situation does not currently seem quite as volatile, probably as it relies less on export demand and the price has been ‘struggling’ anyway compared to lamb.  However, the finished beef price had been steadily rising in March and moving above last year’s levels, but latest reports show an easing of prices.  Again, it is likely that demand for the cheaper cuts of beef and mince will be in strong and less so for the more expensive and roasting joints, as demand switches from restaurants to home cooking.

Livestock markets are currently still allowed to operate but under very strict guidelines; some have decided to close.  The Livestock Auctioneers Association is keeping its Members informed of the requirements, more information can be found at https://www.laa.co.uk/news/