Category: Dairy & Livestock

All the main categories of farm livestock showed a decline in numbers in December versus a year earlier.  The figures from Defra’s Livestock Population are shown in the table below;

 

UK December Survey (Livestock) – source DEFRA
Numbers – ‘000 Head	2015	2016	2017	2018	Change 17 to 18
TOTAL CATTLE & CALVES	9,816	9,806	9,787	9,610	-1.8%
TOTAL BREEDING HERD	3,469	3,451	3,443	3,382	-1.8%
Dairy Breeding Herd	1,918	1,898	1,904	1,879	-1.3%
Beef Breeding Herd	1,551	1,554	1,539	1,503	-2.4%
TOTAL SHEEP & LAMBS	23,106	23,671	23,239	22,506	-3.2%
BREEDING FLOCK	14,622	14,680	14,659	14,084	-3.9%
TOTAL PIGS	4,422	4,538	4,713	4,648	-1.4%
BREEDING HERD	401	409	407	406	-0.4%

Cattle numbers are reduced, with the lack of forage in the late summer seeing higher-than-usual levels of cullings.  In terms of the breeding herd, it can be seen that this has had a larger effect on the beef sector than in dairy.  Relatively subdued prices and the uncertainty of Brexit are also likely to have played a part.

Sheep breeding ewe numbers are also back, despite lamb prices in 2018 generally being quite good.  The lack of grass at the time of the autumn sheep sales saw fewer breeding animals being retained, and the reduced 2018 lamb crop also reduced availability of replacements.  As the sector that would be most affected by a No-Deal Brexit, sheep farmers may also have retrenched until the situation came clearer.

Pig numbers show less change, although with profitability in the sector once again under pressure, there may be a further decline through the next few months.  More details can be found at – https://www.gov.uk/government/statistics/farming-statistics-livestock-populations-at-1-december-2018-uk

Production and Prices

Strong domestic production and a fall in European commodity prices are pointing towards possible farmgate price reductions.  After fearing there would be a UK milk shortage in the 2018/19 milk year due to weather conditions in 2018, it now looks like we are looking at record supplies for the year.  Latest figures from Defra show UK production in January was 1,255m litres.  At 1.7% more than year earlier levels it is the highest January production on record.  Output does not look like slowing down too much either as favourable spring weather conditions enable those who were running short of winter forage to get cows turned out in a timely fashion.

The latest average GDT index recorded another rise, up 3.3% since the last event and the seventh consecutive rise since December.  Even though production in New Zealand is strong, there are increasing concerns of a drought (Australia is already in drought) and strong demand from China is supporting the GDT.  Usually the GDT is the bellwether for Europe, but this is not the current situation.  Commodity prices across Europe are falling, with strong production in the UK and Germany increasing week-on-week.  In the UK, cream prices have fallen significantly, as manufacturers with nowhere to store butter, switch to cream.  The cream price is at its lowest level since July 2016.  Butter is faring slightly better, at about £3500 per tonne.  However, uncertainty over Brexit is affecting markets with little product currently being traded.  This is another factor putting pressure on UK prices.

Farmgate Prices

Muller, after announcing a huge 1.25ppl price drop for last month has said prices will stand-on for April.  Dairy Crest and First Milk have both said they will also be maintaining their prices for April.

Other notable announcements for April include:

• Suppliers to Glanbia Cheese will see a 1ppl price cut
• Meadow Foods is reducing its price it gives to suppliers by 0.75ppl
• Belton Cheese has announced it will be holding its price
• Suppliers to Marks and Spencer will receive a 0.54ppl increase from 1st April

Andersons have updated their Meadow Farm Model.  The results are outlined in the table below.  To recap, Meadow Farm is a notional 154 hectare (380 acre) lowland mixed beef and sheep business typical of many family-run livestock operations across Great Britain.  The farm runs a 60 cow suckler herd and a 500 ewe mule sheep flock; in both cases finishing all progeny.  There is also a small dairy-cross bull-beef enterprise and 32 hectares (80 acres) of feed wheat and feed barley is grown.  The model is managed on a real-time basis and provides an accurate representation of business structures and changes in annual performance.  The table below shows the results for the last two years and an estimate for the current year, to the end of March 2019, plus a forecast for 2019/20.

Meadow Farm Model – source The Andersons Centre
£/Ha                       Year –	2016/17 (final)	2017/18 (final)	2018/19 (est.)	2019/20 (f’cast)
Livestock Gross Margin	646	717	655	676
Arable Gross Margin	649	647	768	729
Total Gross Margin	648	700	677	686
Overheads	480	496	505	513
Rent & Finance	84	84	82	82
Drawings	234	233	236	240
Margin from Production	(149)	(112)	(146)	(149)
BPS & CSS	213	250	250	241
Business Surplus	64	137	105	92

The results for 2017/18 showed a better performance compared with the previous year, mainly due to higher beef and sheep prices.  The current 2018/19 financial year has seen a decline in profits.  The wet spring, followed by the drought in 2018 affected yields and grass growth, contributing to lower income and higher costs.  Beef and sheep prices have also been declining.  In contrast, overheads have increased, a trend that is forecast to continue.  The business is dependant on the Basic Payment and the additional income resulting from a successful application to the Countryside Stewardship Scheme (CSS) in 17/18 for profitability.  Looking to 2019/20 the gross margin improves slightly because of forecast better beef values later in the year and a reduction in drought-related costs, but higher overheads leave the business in a very similar position to 2018/19 overall.

Meadow Farm is typical of many mixed livestock farms; although there is a business surplus, which after drawings is £37,000, it is reliant on the support from the BPS and Countryside Stewardship.  In the next decade it is clear this level of support will not continue and the change to ‘public money for public goods’ will mean land managers will have to do something to be able to access future funding.  At the moment the BPS has been almost all profit, this will not be the case under the new Environmental Land Management Scheme (ELMS).

Muller announced at the end of January it would be reducing its milk price by 1.25ppl from 1st March.  The move, especially such a big one, was completely unexpected by the industry, but Muller has said the main reason for the drop is the strong milk production in the UK, which was not forecast (see earlier article).  Since the announcement, eyes have been on Arla to see what it would do.  Citing ‘stable European commodity markets’, and the fact that, in general, European milk volumes remain under pressure, it has announced it will be holding its price for March.  This means those producers supplying Muller are now receiving about 2.8ppl less than Arla suppliers.

According to Defra’s statistics, UK milk production fell in January by 2.4% compared to December’s deliveries to 1,209m litres.  But the drop was unexpected and the AHDB are querying the figures.  The Levy Board conducts a weekly survey of the largest milk buyers, which covers about 75% of the milk deliveries in GB, it is then scaled up to produce an overall figure.  According to the AHDB, GB production for the week ending 16th February was 0.4% ahead of the previous week, with deliveries now 2.2% above the same week last year.  Despite many in the industry (including us) expecting milk production to be challenged over the winter months this has not materialised so far.  The current good weather should even see some grass growth, which will make up for any shortfall in forage stocks.  The 2018/19 milk year may well see slightly higher milk output than 2017/18, despite all the weather difficulties experienced.   

The organic dairy co-operative OMSCo has announced a 1ppl milk price reduction as from 1st March.  It also looks set to introduce an A & B milk pricing mechanism, depending on how much of its organic milk may have to be sold into the non-organic market as a result of Brexit.  Over the last few years OMSCo has secured valuable export contracts for both cheese and butter with the US, but it is facing an export ban unless it can agree equivalence standards by 29th March.  Orders are already being cancelled and 200 tonnes of organic butter destined for the US market will not now be delivered.

 

Dairy Crest has agreed to a purchase by Canadian dairy processor Saputo.  The price is 620p per share which values Dairy Crest, whose brands include Cathedral City cheddar and Country Life butter at about £975m.  Saputo are now one of the biggest dairy processors in the world having expanded rapidly over recent years, mainly through acquisitions.  In 2017, the company bought Murray Goulburn Co-operative, becoming Australia’s biggest milk producer.  The deal with Dairy Crest is expected to be completed in the second quarter of 2019.  This will mean that out of all the businesses created by the break up of the Milk Marketing Board (MMB) only First Milk remains in UK ownership.

Muller UK is looking to make £100m of savings in its business over the next 12 months to address profitability issues.  The company is looking to simplify its business to turn-around the loss of £132m made in its last set of accounts to 31st December 2017.

An auction mechanism for European dairy products has taken a step closer.  Joint venture partners European Energy Exchange (EEX) and Global Dairy Trade (GDT) have completed an initial consultation period with more than 50 key participants across Europe, the UK and also Asia.  The next phase of development is now being entered into by EEX and GDT with a final decision on the venture expected sometime in the middle of 2019.  If all goes to plan, the first auction could take place in 2020.  This is intended to be a European equivalent to the New Zealand-based GDT auction which, since it started in 2008, has become the de facto world market price for milk products.

With farmgate prices for both beef and sheep remaining rather lacklustre, we take a look at the AHDB’s latest production forecasts for the sectors.

Beef

For beef there has been little change to the forecast reported on back in November (see https://abcbooks.co.uk/red-meat-outlook/).  For 2019, domestic production is expected to decline, due mainly to a drop in cow slaughterings.  In 2018, cow slaughterings were particularly high, finishing the year at 677,000 head, the highest since the over thirty month scheme was abolished and cows were able to enter the food chain again.  In 2019 the number of cows culled is expected to fall, although a prolonged winter could change this.  Prime cattle slaughterings are expected to remain similar to 2018, but there is expected to be a tightening of supply towards the end of the year as lower calvings in 2018 start to take effect with this carrying on through into 2020.  The results from the December survey will be available in March, but early indications from BCMS suggest the cattle breeding herd may have contracted by 2%.

Looking at trade for the year ahead, the forecast is for a slight reduction in both imports and exports.  A reduction in domestic production will mean less supply available to export.  Similarly, in Ireland, production is expected to reduce, meaning less imports into the UK, but there is a possibility this supply gap could be filled by shipments from Poland.  In the midst of this, affecting trade, will be Brexit which could still go a number of ways.

Sheep Meat

Those with store lambs still left to sell will be interested to read the carry-over from 2018 is expected to be slightly lower than first forecast in October, this is mainly due to higher than usual on farm mortality and a slight rise in slaughterings in quarter four of 2018.  The AHDB is forecasting a 6% reduction in the number of old season lambs coming to slaughter between January and May 2019 compared to 2018.  Clean sheep slaughterings in quarter one are expected to be down by 10% on the year to approximately 2.8 million lambs.  There are also likely to be few new season lambs coming forward in Q1 as there is anecdotal evidence that fewer flocks have opted for early-lambing this year.  In contrast, quarter two is forecast to see a 7% rise in the number of slaughterings, although there are doubts over the accuracy of Defra’s 2018 data.

The lamb crop for 2019 is forecast to be lower than 2018.  Although the rearing rate is expected to improve (as long as weather conditions are normal), the breeding flock is forecast to have contracted by 3% year-on-year and industry reports suggest scanning rates are very low this year.   Thus, the second half of the year is expected to see lower year-on-year slaughterings, with overall total sheep meat production for 2019 expected to be about 1% less compared to 2018 at 286,000 tonnes.

However, the big uncertainty again remains Brexit, how we exit the EU will have a big impact on the domestic sheep sector, approximately a third of production is currently exported, a no deal could see prices badly affected.