Category: Dairy & Livestock

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/

In a policy U-turn, Defra has announced that the culling of badgers to control bovine TB will be phased-out in England.  Instead, a vaccination will be developed for cattle to tackle the disease in order to minimise the current slaughter of over 30,000 TB-infected cattle in England each year.  Defra has outlined that badger culling was only meant to be carried out over a short period of time.  In areas where the four-year cull cycle has ended, pilots for badger vaccinations are intended, with continued monitoring of the disease in badgers in the area.

While ultimately culling of badgers will be phased out, the Government will still introduce new areas in which culling of badgers can take place if there is the epidemiological evidence that the badger population in the area has a high incidence of the TB.  Areas that have evidence that culling is required, but have not yet joined the culling programme ,will be encouraged to do so within the next few years, with a vision to phase-out badger culling by the late 2020’s.

Cattle vaccines are encouraged by the Government and it is hopeful that these will be available to farms within five years.  Cattle vaccines will introduce a new method of tackling bovine TB.  The Government’s target is for bovine TB to be eradicated in England by 2038.  George Eustice, Defra Secretary said in the foreword of the government document published, that there is unlikely to be one single-way of achieving this; it will have to be done through various methods.

Defra recognises that cattle test needs to be sensitive enough so that infected animals are not missed out, while not being too sensitive to pick-up false positives.  The current BCG vaccine available offers some protection against bovine TB but not indefinite protection.  Those cattle which have been vaccinated often read positive on current tuberculin-based tests which, if BCG vaccines were used throughout the industry, would compromise the current surveillance on the disease.  The Government has stated that it will move quickly to develop a test that will be able to differentiate between the disease and the vaccine.

As well as improving tests, the Government is committed to increasing the frequency of testing.  This will enable earlier detection of the disease.   Shropshire and Staffordshire will see six-monthly testing later this year, with the rest of HRAs to receive six-monthly testing from 2021.

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.

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.

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.