Category: Dairy & Livestock

The AHDB has released its latest forecasts for red meat production.

Beef

Beef production is forecast to decline in 2019, although this is more due to a drop in cow slaughterings after a particularly high number in 2018 rather than fewer prime cattle slaughterings.  However, prime cattle supplies are expected to tighten from the second half of 2019 and into 2020.

The extreme weather in 2018 and strong demand for cow beef has seen producers cull any marginal or unproductive animals; cow slaughterings increased by more than 30,000 head in 2018.  Cullings are expected to return to normal in 2019.  But the weather conditions in 2018 also resulted in high on farm mortality and, together with higher than normal culling, the forecast is for the overall breeding herd (dairy and beef) to experience a decline by 2% in 2019.  The majority of prime cattle supplies in 2019 will have been born in 2017 and BCMS registrations show supplies should be similar to 2018.  But around 30% of prime cattle production usually comes from the previous year’s calves (i.e. 2018); predominantly male dairy calves which finish between 12-15 months.  The poor weather resulted in increased mortality and fewer registrations during the early part of 2018.  This is likely to effect production in the second half of 2019.  The decline in registrations in 2018 is expected to have more of an effect on prime cattle slaughterings in 2020.

The trade forecast is for a small reduction in both imports and exports (this assumes the UK continues to have access to EU markets after Brexit).  Around 71% of all imports in the first 8 months of 2018 came from Ireland.  But Irish production is expected to be lower in 2019 and consequently imports to the UK are expected to fall.  However, trade from Poland to the UK has been increasing and it could take advantage of lower availability from Ireland.  UK exports are expected to decline in line with lower production.  The table below summarises the AHDB actual and forecast supplies.

Actual & Forecast Supplies of Beef & Veal in the UK – source AHDB
‘000 tonnes	2017	2018 (f)	2019 (f)	2020 (f)
Production	895	907	886	874
Imports	443	463	455	450
Exports	140	153	146	143
Total Consumption	1,198	1,217	1,195	1,181

Lamb

The severe weather in 2018 has had a negative impact on lamb production.  High ewe and lamb mortality has resulted in a decline in the 2018 lamb crop.  The AHDB is forecasting a one million head year-on-year decline to a lamb crop of 17 million head.  The lack of forage, due to the hot dry summer, has made finishing lambs difficult; the number of lambs killed from January to September stands at 9.1 million head, 4% down on 2017 and this includes an 8% increase in quarter one (old season lamb carry over).  The unusual weather conditions resulted in a 15% decline in slaughterings in the second quarter of the year and 3% year-on-year fall in the third quarter.  Looking ahead, the number of lambs killed in the fourth quarter of 2018 is expected to be around 3.6 million head, down 7% on the previous year.  Even so, the carryover into 2019 is expected to be smaller than 2018 due to the decline in the overall lamb crop, resulting in Q1 2019 slaughterings down by 12%.

Looking ahead to 2019, the lamb crop is expected to be similar to 2018, as, although the rearing rate is expected to be better, the breeding flock is forecast to decline, due to higher than normal mortality levels in 2018 and uncertainty surrounding Brexit.  In addition, lack of grass and high feeding costs at tupping time is expected to affect ewe fertility.  Assuming more normal weather patterns, lamb kill seasonality is expected to return to a more typical finishing pattern in 2019, although there have been reports of some early lambing flocks moving to lamb later in the year.

Looking at trade, exports are forecast to decline by 12% this year, mainly due to the fall in UK production.  In 2019, shipments are expected to remain steady, although this is based on a similar trading relationship with the EU and the rest of the world after Brexit and also the value of Sterling against the Euro remaining favourable.  UK imports declined sharply in 2017, partly due to the relationship between the New Zealand Dollar and Sterling.  Shipments at the beginning of 2018 were also down, but have risen over the summer due to high UK prices.  Imports are forecast to fall slightly in 2019, due to a decline in global lamb production; Australia and New Zealand are forecasting a contraction in output.  The table below summarises the AHDB’s latest UK production forecast.

Actual & Forecast Supplies of Mutton & Lamb in the UK – AHDB
000′ tonnes	2017	2018 (f)	2019 (f)	2020 (f)
Production	297	285	286	291
Imports (a)	95	96	92	92
Exports (a)	94	82	83	91
Total Consumption	298	299	295	292

(a) Carcase weight equivalent and including processed products

Pig Meat Supplies

UK pig meat production is expected to increase in 2019, but the trend in lower imports may compensate to some extent for this.  Clean pig slaughterings are forecast to rise again in 2019, although probably by about 2-3%, compared to over 3% growth expected in 2018.  Sow productivity has been rising, although there was some disease outbreaks in the winter and challenges with slow growth rates and fertility levels due to the hot summer.  Performance is expected to continue to increase, albeit at a slower rate than in previous years at, 0.3 pigs sold per sow per year.  Increases in carcase weight is a long term trend although is only expected to rise marginally in 2019 and sow slaughterings are forecast to decline compared to 2018, which means growth in pig meat production will mainly be due to the increase in clean pig slaughterings.  Turning to trade, imports are expected to continue to decline, by about 2% in the coming year as production increases.  Exports have been difficult in 2018; very low Chinese pork prices has seen a decline in shipments to China and Hong Kong, but the presence of African Swine Fever in the Chinese herd could affect its import demand next year. The table below summarises the AHDB’s latest UK production forecasts.

Actual & Forecast Supplies of Pork in the UK – source AHDB
000 tonnes	2017	2018 (f)	2019 (f)	2020 (f)
Production	903	934	957	981
Imports	1,083	1,055	1,033	1,019
Exports	263	261	267	277
Total Consumption	1,722	1,712	1,722	1,723

Muller has been the first to announce a farmgate milk price cut.  As of 1st December, the processor will cut its standard litre by 1ppl, reducing the Muller Direct price to 28.5ppl.  The company has cited the significant declines in the commodity market and better than forecast milk production as the reason for the price cut.  As our Milk Markets article at the end of October reported, a reduction in the farmgate price seemed inevitable and as a non-co-op, and one of the milk purchasers who comply with the Voluntary Code and gives its suppliers one month’s notice, Muller were always likely to be one of the first.  It is likely that others will now follow suit over the coming month.

Have milk prices peaked?  That seems to be the opinion of many, but as commodity prices tumble, UK and global production is also in decline.  Most farmgate milk prices have remained unchanged for November, but price cuts now seem inevitable and some think as early as December.

EU commodity prices, which were on the increase over the summer months, are now firmly in decline.  Butter in particular, after reaching highs of €5,890 per tonne was down to €5,100 per tonne in the first week of October and it has been suggested could even fall as low as below €4,500.  The UK cream price has also seen dramatic falls over recent weeks.  Cheese is holding on for now, but it only seems to be a matter of ‘when’ not ‘if’ there is a decline.  The global market outlook doesn’t look any better.  At the latest Global Dairy Trade (GDT) event held on 16th October the average price index fell again.  Albeit by only 0.3% but it has not seen a rise since 15th May.

In New Zealand, good grass growing conditions have seen milk production up in August by 4.7% compared to year earlier levels.  On the back of this, Fonterra has increased its production forecast for the year by 1.3% and reduced its forecast milk price for the current year.  Lower milk prices aren’t expected to reduce production during New Zealand’s peak period, September to December, when it produces in the region of 53% of its total annual output.

However according to Rabobank’s latest report, the growth in global milk production continued to slow in the third quarter of 2018 due to the drought conditions experienced in the EU and Australia.  And it expects growth to slow further during the coming year due to an increase in culls as producers try to control feed costs in the wake of a lack of winter forage.  It seems momentum has been building towards a farmgate milk price cut, but production over the winter months looks likely to control how deep the cut is.

First Milk

First Milk has announced three initiatives aimed at recognising the loyalty of its long-standing members, removing some of the barriers to on-farm expansion and providing a simple and transparent way to trade shares;

• a 13th payment will be introduced from April 2019 with the first payment being made in April 2020.  The rate will be 0.25ppl but adjusted according to each member’s capital target i.e 50% of target reached will mean 0.125ppl payout.  The maximum is 0.5ppl; 200% of target.
• capital contributions will be fixed with immediate effect, based on milk production levels at March 2018.  This will mean those wishing to undertake on farm expansion do not have to increase capital contributions as well.
• an independent trading platform will be available from 1st December 2018 for transparent member share trading, free of charge.

Arla Foods

Arla Foods has launched a new production standard, higher than the basic Red Tractor rules.  The ‘Arla UK 360 – a farming approach that benefits everybody’, covers six areas which it believes are essential to building ‘a profitable, responsible dairy farm’;

• animal health and welfare
• people development
• environment and natural resources
• community engagement
• economic resilience and reinvestment
• research and development

In return for adhering to the standards, producers will receive a premium to cover their additional costs, although Arla has not disclosed the premium levels yet.  The co-op wants retailers and food chain partners to part in the 360 programme.  Aldi is the first UK supermarket to sign-up and will fund a premium paid to a group of Arla suppliers.

The launch follows a six month trial involving 79 Arla farmers.  The 360 scheme builds on the Arlagarden assurance scheme standards which all members have to adhere to.  This scheme already includes 16 standards to be met in addition to the Red Tractor requirements.

A new scheme has opened for dairy farmers in Wales to help improve herd health.  HerdAdvance focuses on cow health management and disease control with the aim of improving profitability.  The scheme has funding of £6.5m and farmers have until the 30th November to register an interest.  More details can be found via – https://ahdb.org.uk/news/free-support-for-herd-health-and-disease-control

A case of BSE has been confirmed at a farm in Aberdeenshire.  This is the first incident of the disease in Scotland for 10 years and was found after the five year old animal died on farm.  Under the BSE surveillance system, all animals over 4 years old which die on farm are routinely tested for BSE; which is how this case was identified.  A precautionary movement ban has been placed on the farm whilst investigations take place to try and identify where the disease has come from.

The incident means Scotland will lose its ‘negligible risk status’ which it gained in May 2017.  This is the safest level available.  It will now drop back down in line with England and Wales who are classified as having ‘controlled BSE’ risk status.  This will undoubtedly be a blow to Scotland especially with the prospects of entering new markets and trade deals post Brexit.

Defra has released its provisional results for livestock populations in the UK from the 2018 June Survey of Agriculture.  The final results are scheduled for publication on 20^th December.  The table below shows the key findings.

The total number of pigs is the only category to show an increase compared to 2017 numbers.  However after a couple of years of increasing, the breeding herd has now experienced a decline by 1.6%.  The rise in total pig numbers comes from the continued increase in fattening pigs, a further 1.3% for 2018,which suggests production per pig is rising.

UK JUNE CENSUS (LIVESTOCK)
NUMBERS – ‘000 Head	2015	2016	2017	2018	% Change 17-18
TOTAL CATTLE & CALVES	9,919	10,033	10,004	9,891	-1.1%
Of which      Total Breeding Herd	3,472	3,493	3,481	3,441	-1.1%
Dairy Herd	1,895	1,897	1,891	1,883	-0.5%
Beef Herd	1,576	1,596	1,589	1,558	-1.9%
TOTAL SHEEP & LAMBS	33,337	33,943	34,832	34,302	-1.5%
Of which      Breeding Flock	16,024	16,304	16,669	16,497	-1.0%
TOTAL PIGS	4,739	4,866	4,969	5,018	+2.0%
Of which      Breeding Herd Total	408	415	417	410	-1.6%
Source: DEFRA

The total number of cattle and calves has fallen back below 10 million head, although still higher than 2015 levels.  The breeding herd has declined by 1.1%, mainly due to a reduction in the beef breeding herd.  Further analysis of the figures shows an increase in female beef cattle of breeding age which appear not to be entering the breeding herd, suggesting these will be sold for consumption and therefore further reductions in the beef breeding herd are likely.  In the dairy herd, females aged between 1 and 2 years have seen a decline of 8%, this could see replacements difficult to source.

The total number of sheep and lambs and the sheep breeding flock, after recent year-on-year increases have both seen declines.  The difficult weather conditions at lambing time, saw higher than normal levels of ewe and lamb casualties.  Lambs under 1 year are down by 2.3%, but other sheep over 1 year are up by 11.7%.  The strong hogg trade, in spring and summer, saw some ewe lambs originally intended for breeding, being switched and slaughtered for sheepmeat.  Ewes intended for first time breeding recorded a 4.5% drop, suggesting further contraction of the breeding flock.  The full Survey results can be found at – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/747210/structure-jun2018prov-UK-11oct18.pdf

Deadweight cattle prices have seen a strong increase since the middle of August.  The deadweight all steer price has increased by 15p per kg over this time.  It is now just 4p per kg below last year’s levels compared to a 15p per kg gap in mid-August.  The prime heifer price has seen a similar increase.  The deadweight average lamb price stabilised through to the end of August, having fallen sharply between the middle of June and the end of July.  However, with an increase in supply, the lamb price has now started to fall again.  The latest SQQ for the week ending 15th September was 412.8p per kg, although it is now back above last year’s price (+9.1p per kg) for the same week, having fallen below year-earlier levels from the middle of July to mid August.

There are mixed signals within the dairy markets at present and it is difficult to forecast which way domestic milk prices will go.  Farmgate prices have been rising, largely due to fears of a drought-induced shortfall in supply.  However, domestic output has not been affected by as much as seemed likely.  And the latest milk deliveries for the week ending 15th September show GB production is up 0.4% on the week and is now running at 1% above the same week last year.  But this could all change when cows are housed for the winter and put onto less-than-ideal winter rations.

However, European butter and cream prices have seen significant falls in recent weeks as processors take the view that milk production is not going to be affected as much by the drought across Europe as first thought.

On the global markets, the latest GDT auction recorded yet another decline in the average price index, down by 1.3% since the previous event held earlier in the month.  The index has been in decline since May and is now at its lowest since October 2016.  Whilst major milk production countries such as Australia and the EU have been affected by drought, production in New Zealand and Argentina remain ahead of last year.  Overall, global supplies are still higher than last year, but they have been slowing over recent months, with July recording the smallest year-on-year increase for 2018 at 1% growth, compared to 2.7% in January.

The summer drought is set to reduce dairy profits by around 3ppl on Andersons’ Friesian Farm model.  This is one of the results seen in the latest figures from Andersons’ Friesian Farm model.

Andersons have been using Friesian Farm to track the fortunes of dairy farming for well over a decade. It is a notional business, that has recently expanded to 200 cows (from 150) to keep track of changing trends within the sector.  It has a year-round calving pattern like 80% of the GB industry, but it is moving towards a more forage-based production system.  The farm comprises 130 hectares (of which 60 hectares are rented on an FBT).  The proprietor provides labour along with one full time worker (plus casual/relief).  The table below shows the farm’s performance for the previous milk year, based on actual returns and costs.  Two budgets are provided for the present 2018/19 year; one before the effects of the weather, and then a current one.  Finally, there is a forecast for 2019/20.

Friesian Farm Model – source The Andersons Centre
ppl           Milk Year –	2017/18	2018/19 (pre-drought)	2018/19 (current)	2019/20
Average Yield	7,850	7,770	7,650	7,700
Milk Price	29.0	28.5	29.1	28.5
Total Output	31.0	30.7	31.3	30.9
Variable Costs	12.8	12.1	15.3	12.3
Overhead Costs	9.3	9.3	9.6	9.9
Rent, Fin. & Drawings	6.4	6.3	6.4	6.3
Cost of Production	28.5	27.7	31.3	28.6
Farming Margin	2.4	3.0	0.0	2.3
Basic Payment	1.9	1.8	1.8	1.8
Business Surplus	4.3	4.8	1.8	4.1

Returns in 2017/18 were good, following losses from production in the previous two years due to the milk price slump.   Things were looking positive for profitability in the current 2018/19 year until the weather took over.  The current budget shows a sharp upturn in costs as a result of low forage stocks and a forecast reduction in yield.  This is only partially offset by better prices resulting in a break-even position before receipt of the Basic Payment.

Long-term forecasts are fraught with danger, but the prospects for 2019/20 currently look reasonable. Costs should (hopefully) return to a more normal basis, but milk prices could well weaken.  Overall the profitability forecast is quite solid – but this assumes an orderly Brexit.

A No-Deal Brexit is also still possible. This would cause chaos in many markets, including milk products, in the period up to and after ‘Brexit Day’ on the 29^th March 2019.  It should be remembered that the UK is a net importer of dairy products, so there might be opportunities for import substitution in the longer-term.  Prices might even rise in a protected domestic market.  But the UK processing sector would have to be re-orientated to adapt to these new demands

Following the publication of the Agriculture Bill (see other articles) we know that the BPS will continue largely unchanged for the 2019 and 2020 years – providing dairy farmers with some stability.   But, with the days of the BPS clearly numbered, producers will need to think about how they will replace this lost margin in their accounts.