Category: Dairy & Livestock

British beef is set to be exported to China for the first time since 1996.  Farming Minister, Robert Goodwill and the Chinese Ambassador to the UK Liu Xiaoming signed the UK-China Beef Protocol on Monday 17th June, securing market access for UK beef exports by the end of 2019.  China has imposed a ban on British beef since the BSE crisis in 1996.  The announcement follows years of site inspections and ongoing discussions and engagement between UK and Chinese officials, culminating in a successful visit in early June by Chinese officials hosted by Defra, APHA, the Veterinary Medicines Directorate, FSA, DAERA (NI) the AHDB and the UK Export Certification Partnership (UKECP).  It is estimated access to China could be worth £230 million to British beef producers in the first five years.

The EU Animal Health Law has confirmed there will be no change to the use of slaughter tags for lambs up to 12 months of age.  Earlier proposals had seen a change which would have only allowed the single slaughter tag to be used where lambs are going straight from farm to abattoir.  But a slight change in the wording means the single slaughter tag can be used on lambs intended for slaughter irrespective of the number of moves they make prior to that.  Even though we are due to exit the EU this is still important; the Government has said we will comply with EU regulation for a period after Brexit and our trade access into the EU will be reliant on us remaining aligned with EU rules.

The effects of African Swine Fever (ASF) are devastating the Chinese pig industry and, with China being the largest producer and consumer of pig meat, the impact is likely to be felt world wide.  There is not expected to be enough pork in the world to cover China’s decline in production.  Rabobank is predicting an ‘unprecedented’ shift in global protein supply to China to cover the shortfall.  A decline in soybean demand is also expected to felt by feed markets.

Outbreaks of ASF have occurred across Europe and Asia since 2016.  The disease, which is not harmful to humans, spreads very easily between pigs and also via ticks and contaminated feed.  Cheap animal feed in China often contains pig meat and the virus can survive for a long time.  The disease was first reported in China in August 2018, but many believe it had been spreading unreported for many months prior to this.  Even recently, it appears farmers are more likely to sell their animals at the first signs of ASF rather than report, for fear of not receiving any compensation from cash-strapped local governments.

In April, the Chinese Government said that just over 1 million pigs had been culled from a total herd of nearly 500 million pigs; a very low number.  By contrast, Rabobank is estimating that more than 150 million pigs will have either been culled or died due to ASF and that China will lose about a third of its pigs.  To put this into context this is about the same amount of pigs in the US and Europe combined.

In China, the pork price has already risen, although this has probably been curtailed somewhat in short term by the release of frozen products onto the market and also producers culling additional animals for fear of getting the disease and losing their herds.  Pork producers in the US and Europe are already starting to increase their exports to China, it needs to be remembered though, US exports are subject to a 62% tariff because of the trade fight with China.  But imports of pork will not be enough to cover the shortfall and consumers are likely to shift to other meat, this could ultimately see higher protein prices globally.

UK pig prices (the Standard Pig Price – SPP) has risen sharply during May.  It now stands just below 145ppkg – over 5ppkg higher than at the start of the month.  As well as being pulled up by rising EU prices (helped by Chinese demand), UK values are also being helped by the reduction in ‘stockpiles’ of pigmeat built up in the UK in advance of the original Brexit day of 29th March.  Whilst prices are still below the levels seen at this time last year, it seems likely that the momentum of markets will soon see prices moving ahead of 2018 levels.

 

 

According to BCMS data, March saw births to a dairy dams reach 137,000 head, some 3% higher than the five-year average and the most calf registrations in the month of March since recording began in 2003.  There are a number of possible reasons for the increase and the rise is probably a combination of all of them.  Cows were in good physical condition when they came into season last year, having been housed longer due to the bad winter and being put out to pasture when the grass growth was improving but before the drought had impacted.  The increase may also be due to more businesses switching from all-year-round calving systems to spring block and also those already on a spring block system tightening their calving window.

The result has seen an increase in cows at the peak of their lactation during the spring flush.  UK milk production has been at record levels throughout 2019 so far.  Peak delivery may have been reached earlier than in recent years when a long-term high of 37.74m litres was delivered on 26th/27th April.  Throughout April deliveries were running about 4% above last year’s levels.  During the first quarter of 2019, cumulative production was 3.4% higher than for the same period in 2018.  The increase in production is seeing downward pressure being put on farmgate prices as processors are having to sell unplanned increases in milk deliveries on the spot market at 13-15ppl.

However, globally, milk production is tight and is expected to remain so throughout 2019 which appears to be helping UK farmgate prices to a certain extent.  Margins have been squeezed in Australia, the US and the EU through high input costs and low farmgate prices leading to a reduction in production.  In addition, demand is expected to remain strong from China throughout the year due to the impact of African Swine Fever in the country.  It is thought dairy cows might enter the beef market as the price of beef increases due to the demand for alternative protein sources to replace pork, thereby reducing milk availability in the country.  In the second half of 2019, UK production growth is expected to slow, due to a smaller herd and a drop in fertility, a knock-on effect from the hot summer last year.

 

Both the deadweight and liveweight finished lamb price eased in the week ending 11th May for old season lamb.  However, although nowhere near last year’s record levels, the price, which had been hovering around the the five-year average, is now above this and comfortably above 2017 levels.  More new season lambs are coming to market earlier this year compared to last, as the better weather is enabling earlier finishing.

Looking ahead, prices are expected to be supported by a tightening of supplies, both domestically and globally, but a no-deal Brexit could scupper this.  Both New Zealand and Australia are expecting production to below historic levels during the coming year as they rebuild their flocks following drought.  Farmgate prices in these countries are currently around 70p per kg deadweight above their five-year average.  As well as a supply shortfall increasing demand from China is driving prices up.   During March and April the deadweight SQQ in Great Britain is usually about £2 per kg more than the NZ farmgate price.  This year it has only been in the region of £1.  Although this has supported GB prices to some extent, NZ lamb still remains competitive at this level.  In addition, both NZ and Australia have trade agreements with many of the key global lamb importers which allows them either free access or at a reduced tariff, something which the UK does not yet have.

Domestically, the Defra December census recorded a 4% decline in the UK breeding flock, down to 14 million head; the lowest since 2010.  The AHDB is forecasting the 2019 lamb crop to be 16.5m head; down from 17.2 million last year.  This takes into account the smaller flock, but a better lamb rearing rate – although not back to normal as scanning rates showed an increase in empty ewes and singles as a result of last summer’s drought affect ewe condition at tupping.  The number of lambs forecast to come forward for slaughterings in 2019 is 12.5 million compared to 12.8m in 2018; over the past five years this has been nearer 13 million.  Slaughterings of clean sheep in quarter one were 7% less year-on-year at 2.9 million.  Quarter two is expected to see a 5% rise due to the more favourable weather conditions this year, although the majority of the increase is expected in April, with May and June numbers similar or even slightly down on the year.  During the second half of the year, slaughterings are expected to decline reflecting the smaller lamb crop.

However the numbers available for slaughter on the domestic market would increase dramatically in the case of a no-deal Brexit.  Typically the UK exports the equivalent of 3.5 million lambs; if trade is allowed to flow without too much added friction (i.e. a Deal), then exports are expected to remain at this level.  However, a No Deal outcome would see tariffs and non-tariff barriers imposed.  At standard EU tariff rates, the export of lamb to the continent would be rendered uneconomic.   

Irish beef farmers are to receive €100m in support to compensate for the effects of Brexit.  The EU Commission has agreed to fund €50m which the Irish Government will match fund.  The distribution of the money is still to be decided, although famers will have to undertake some actions to be able to access it, under the principle of ‘conditionality’ which is applied to such aid packages.  The Irish Farmers Association has argued that beef farmers have lost €101m since the Brexit vote due to changes in the value of Sterling, and especially reduced prices caused by Brexit uncertainty in the run-up to the 29th March.

The AHDB is investing £1.4m in a marketing campaign to boost domestic consumption of lamb during the peak production season.  The money will go towards billboard posters, press adverts and social media campaigns.  It will be supported by material provided to those in the supply chain from farmers to butchers.  It will run during the summer and early autumn and aims to stress the lamb’s flavour and versatility.

Beef

Have cattle prices finally stabilised?  The deadweight All Steer Price has been below year-earlier levels since October last year (see Key Farm Facts) and has been on a downward trend since, with prices seeing a significant fall during March.  However, through April prices have rallied and are nearly at the five-year average (although still some 20p per kg less than at the same time last year).  During February and March there was anecdotal evidence of plentiful supplies, with processors stockpiling Irish beef ahead of the initial, 29th March, Brexit date.  But demand from processors is now said to be ‘good’ and trade firm.

Lamb

The prime liveweight lamb trade has been hovering around the five-year average since mid-February.  This is about 20p per kg liveweight more than in 2017 but in the region of 20p per kg less than in the record year of 2018.  After a slight drop in value during the Easter bank holiday week, when there appeared to be an oversupply, prices have risen again and are now above the five-year average.  With better weather conditions compared with last year, new season lamb (NSL) throughputs are significantly up year-on-year.  In contrast old season lamb (OSL) liveweight numbers are around 5% lower in the year-to-date following last year’s difficult lambing season and the resulting smaller carry-over.

Pigs

The EU-spec SPP remains 6.6p per kg below year-earlier levels for the week ending 20th April, but signs of a price rise look encouraging.  The SPP has risen by 1.24p per kg since the start of March and an increase in demand is expected to see prices continue to rise.  The EU pig price has seen a sharp uplift recently making imports less competitive on the UK market.  Part of the reason for this is demand from China, as the affect of African Swine Fever (ASF) in the country becomes clearer.  The Chinese Ministry of Agriculture announced an 18% decline in pig numbers in February compared with the previous year.  Both the US and EU have seen an increase in demand for pigmeat from China supporting prices.

In January mid-range forecasts were for a 5% decline in Chinese pork production due to ASF.  However these have now been revised and range from 10% (USDA) to 35% (Rabobank).  To put this into perspective, a 20% fall in Chinese production would be around 10 million tonnes, about the same as the entire annual US production.  Imports are unlikely to make up the shortfall in production and with prices rising the Chinese are likely to switch to alternatives such as fish and chicken.  But the long term worry is that some may switch away from pork indefinitely.

Production

Milk production continues to rattle along at a strong pace.  Latest figures from the AHDB for the first two weeks of April show that GB output is running about 5% higher than the same time last year.  Obviously, the spring of 2018 was cold and wet, but current output is also ahead of the 3-year average.  The AHDB is now forecasting that total output for the 2018/19 year will be the highest for 29 years.  This is quite remarkable given the weather conditions experienced during the season. 

Commodity Markets

The latest GDT auction results (for the event on the 16th April) saw the index rise by 0.5% to $3,447.  This is after a 0.8% rise for the auction at the start of April.  The GDT has now posted 10 successive increases dating back to last November and has risen 26% in this time.  Overall, however, the Index is currently very close to the same level seen 12 months ago.

There has been a divergence between southern hemisphere prices (as indicated by the GDT) and those in Europe.  The GDT has been boosted by dry conditions in New Zealand reducing grass growth and milk output (although it is the tail-end of the NZ production year now).  In Europe, prices have been lacklustre.  The reasons for this are slightly mysterious – although milk production in the UK and Ireland is strong, other major EU producers such as the Netherlands, France and Germany are showing falls in output compared to last year.  It may be partly connected to Brexit uncertainty.  In any event, there are currently signs that EU prices are now starting to move upwards to GDT levels.

UK Farmgate Prices

There have been relatively few movements of UK milk prices over the past month.  As we predicted, processors seem to be largely adopting a wait-and-see attitude as we move through the spring flush.  The two factors outlined above (strong UK output v rising commodity prices) seem to be cancelling each other out at present.  Some of the more notable changes (or non-changes in many cases) include;

• Arla is holding it conventional prices for the fourth month, into May, with a liquid price of 29.06ppl and a manufacturing price of 30.23ppl
• Muller is retaining its liquid price for May at 26.75ppl
• Dairy Crest is also keeping its prices unchanged for May at 29.9ppl for cheese and 28.8 for liquid
• First Milk is following the same pattern – its milk prices remain unchanged for May at 28.7ppl for manufacturing and 27.8ppl for liquid
• Tesco aligned producers will see a 0.34ppl reduction as from the 1st May

Processing Sector

The purchase of Dairy Crest by the Canadian company Saputo was completed on the 15th April.  The cost of acquisition was £975m.

As part of its cost-cutting strategy known as ‘project Darwin’ (see February Bulletin) Muller has announced that it will be cutting the number of products it sells in the UK by up to 40%.  It currently manufacturers 835 separate products at its six processing sites.  The company states that, at a typical factory, 90% of the milk goes into 40% of the most popular products.  The remaining 60% of products take only 10% of milk – indicating relatively small (and inefficient) production runs.

It is reported that Sainsbury’s are to re-tender for its liquid milk contract.  This was due to occur in 2020, but looks set to be brought forward to this summer.  Muller (who supply around half of the supermarket’s own-label milk) have been putting pressure on for a review as rising costs have resulted in losses being made by many liquid milk processors, including Muller.

 

A recent survey by the AHDB suggests there are currently around 8,850 dairy producers in GB; much less than Defra’s data.  Latest figures from Defra (2017) showed that GB had 16,605 dairy holdings.  But Defra data includes all farms with a dairy cow over 2 years old with offspring.  Around 40% of farms included in Defra’s figures had less than 10 dairy cows, suggesting they are more likely to be suckler herds.

More recently, the Foods Standards Agency (FSA) has been the most-used source to track producer numbers, but their figures have been called into question following numbers falling dramatically over recent months.  The FSA figures, for England and Wales only, indicate that there were 8,991 dairy producers in March 2019.  However, the FSA is currently updating its database as it seems that there may be a significant number of producers who have stopped milk production, but have not been recorded by the FSA.

The AHDB surveyed the major milk buyers and the estimate represents the number of producers actively contributing to GB milk production.  Levy data has been used to account for direct supplies.  However, when we look at milk production, which looks like being the highest for 29 years, the ongoing decline in producer numbers is having little affect on milk supplies with cow numbers and yield playing a bigger role.