Category: Dairy & Livestock

A typical lowland mixed family farm continues to struggle to make money from farming.  This is the finding from the latest update from Andersons Meadow Farm Model, and illustrates the sizeable adjustments that will be required after future changes in support.

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 above 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.

The figures for the past 2017/18 year show an improvement in business performance compared to the previous year.  This was largely due to better sheep and beef values.  Cereals values were also higher, but the arable gross margin was affected by areas of the farm being taken out of production so the business could enter a Countryside Stewardship Scheme.  This increased support income, along with the weaker Pound boosting the BPS.

Initial budgets for the current year saw it matching 2017/18 for profitability.  However, a number of weather-related adjustments have meant that the latest set of figures show a reduced level of returns.  The late, wet, spring followed by the extended period of hot dry weather has seen forecast cereals yields reduced (not fully offset by higher grain prices), later finishing of stock (with lower prices for lambs), and higher costs – especially straw and increased animal feed.  Consequently, the loss from production rises.

The forecast figures for 2019/20 are relatively unchanged, but it will be noted that overhead costs continue to edge up.

Whilst the margin from production is negative, the business does make a surplus once support payments are factored-in.  And this is after drawings have been taken out of the business (albeit at fairly low levels – £36,500).   Therefore, at current price and efficiency levels, the business is sustainable, but only as long as support continues to be paid as it is currently.  It seems clear, in England and Wales at least, that this will not be the case by 2025.  The move to payments for Public Goods is likely to severely test these types of farms.

China has lifted its ban on British beef which has been in place since the BSE outbreak in 1996.  The landmark move follows a number of years of site inspections and negotiations between the UK and China.  The AHDB estimate the lifting of the ban could be worth £250 million in the first five years to British producers.  There is still work to be done though; this milestone only allows official market access negotiations to begin, typically this takes around three years.  The UK has approval to export pork and malting barley from the UK to China.

Population

Latest data from the British Cattle Movement Service (BCMS) show that the GB dairy herd was 50,000 head (1.8%) less in April 2018 than year-earlier levels.  The move away from dairy to beef inseminations over the last few years, sees a 7.6% reduction in the number of heifers aged between 1 and 2 years, compared with last year, which will have an affect on the availability of herd replacements going forward.

Even so, figures show that the actual milking herd is only 0.4%, or 8,000 head, fewer.  However, the data shows that the number of cows, aged 4-6 years, at the peak of their production, fell by 26,000 head over the year.  These have been replaced by younger cows, 2-4 years, but are likely to be yielding less and therefore although cow numbers are similar, production is likely to be affected.

Production

Daily delivery data shows that GB milk production peaked on 19th May, with a seven-day average rolling production of 36.6 million litres.  The peak was later than usual, but was expected following the cold, wet spring.  In April production was running about 2% behind last year, but the better weather saw grass growth improve in May and by 19th production was only about 0.2% behind earlier levels.  But pastures are now drying out following the recent hot, dry weather, particularly on lighter land which is already beginning to burn up; all are in need of some rain if future volumes are not to be significantly affected.  Maize is also expected to be affected by heat stress.  There is anecdotal evidence that some producers are drying off autumn calvers now in a bid to save pastures for those that calved in the spring.  Production figures are reported monthly in Key Farm Facts.

Prices

Commodity markets for butter, SMP, mozzarella and mild cheddar all remain firm.  Both butter and SMP prices appear to be having a ‘pause’ but they are expected to increase again, with butter perhaps reaching its previous peak price of €7,000.  Mozzarella supplies remain tight (see last month’s article) and mild cheddar also looks like it is heading towards its peak set last summer.  Farmgate prices are also continuing to rise; some of the more notable increases announced for 1st July include:

• 1.92ppl increase for Arla Members.  This takes their standard liquid milk price to 29.31ppl and the maufacturing standard litre to 30.5ppl, topping the milk price league table.
• 2ppl increase for Arla Direct suppliers
• 1.25ppl increase for suppliers of Graham’s Dairies
• 1.2ppl increase for First Milk members
• 1ppl increase for South Caernarfon Creameries suppliers and also Meadow Foods
• following their quarterly cost checker review, Sainsbury’s Dairy Group suppliers will receive a 0.36ppl increase, mainly due to an increase in the cost of feed.

DEFRA has announced a £5.4m funding package to help farmers in England tackle Bovine Viral Diarrhoea (BVD).  Available for three years through the Rural Development Plan for England (RDPE), farmers will be able to apply for funding for one-to-one advisory visits from a registered vet and screening for BVD.  The funding package will also support vet training and the formation of local ‘cluster’ groups to work together to eradicate the disease from their herds. The project, called ‘Stamp out BVD’, will be delivered by SAC Consulting who are part of Scotland’s Rural College and have delivered a similar programme in Scotland.  SAC will recruit local vets to deliver the programme at farm level.  The highly contagious disease is estimated to cost UK farmers £60m per year.

Scotland is expected to announce a the Highland Show how it plans to introduce compulsory cattle EID tagging.  It is likely that all newborn calves will have to be Electronically Identified by 1st January 2020.  All cattle leaving the holding will require EID tags by 1st June 2022 – with all youngstock already having being tagged for the preceding 30 months, only breeding stock would have to be retagged at this point.  The aim is to make paper records redundant, reduce workloads, mistakes and make full traceability easier.

Back in 2014, the EU told Member States to prepare their traceability systems to be compatible with EID, with compliance by the end of 2019.  Scotland is much further ahead than England and Wales who are still consulting on the new multi species Livestock Information Service (see article in April ) the replacement to the Cattle Tracing System (CTS).

The Welsh Government has announced a £2.15m package of funds to help the red meat sector prepare for Brexit.  The money has been made available through Wales’ £50m EU Transition Fund and will support Welsh farmers to identify improvements to their business to help them prepare for a post-Brexit world.  Funding will also be available to identify product substitution and to encourage companies based in the EU to come and set up their operations in Wales.  No details have been given on how the funds will be distributed yet.

DEFRA is proposing that all sheep slaughtered will be graded via a mandatory carcase classification system.  At present, a number of abattoirs undertake a voluntary system, but the proposal is to make such grid grading compulsory and bring it in line with the beef and pig sectors.  Two options are being proposed, either using the existing ‘Europ’ grid, or creating a bespoke ‘Brexit’ grid to reflect the specific needs of the domestic sheep industry.  It is claimed that making classification mandatory, and linking this to payments received, will make pricing more transparent and drive productivity improvements.  The requirement will only apply to ‘commercial’ abattoirs – those small plants slaughtering less than 1,000 sheep a year will be exempt, in a measure designed to prevent higher costs accelerating closures.  The consultation can be found at – https://www.gov.uk/government/news/sheep-carcase-classification-changes-revealed.  The consultation only applies to England, although Wales is conducting a parallel consultation.

Prices

Milk prices look to be on the rise.  Wholesale prices for most, if not all, products are strengthening and the weather has caused a reduction in production both in the UK and Europe.  However, the better weather recently is expected to see domestic production start to catch up with last year.

At a global level, the GDT auction saw a strong trade in mid-April, the first rise since the beginning of February (see last month’s article).  At the first event in May the average index fell back again by 1.1%, but at the latest event held on 15th May it increased again by 1.9%.  It will be interesting to see if the index rises again at the next event to be held on 5th June; the expectation is that it will.

Currently the main driver in the upturn of commodity prices is SMP.  EU average SMP prices have seen a week-on-week steady increase since the beginning of April and UK wholesale SMP prices also saw a marginal upturn in April; but the sense from many is that the market is now starting to pick up some real momentum, the next few weeks could be telling.  Volumes of SMP sold out of EU Intervention have also gathered pace.  At the last tender, held in mid-May, 42,000 tonnes were sold at a minimum price of €1,155 per tonne, some €100 per tonne more than at the previous month’s tenders (although still below the average EU price for feed grade SMP).  Over the last two months 66,000 tonnes have been sold out of intervention.

In addition, wholesale butter and cream prices have also made strong gains since the turn of the year.  Perhaps a surprise to most though is the performance of Mozzarella, which has seen a 30% increase in the wholesale price since January.

The improvements in the commodity prices looks like stabilising the farmgate milk price, with only a few changes being announced for June.  Meadow Foods has announced a 1ppl price rise, whilst Graham’s has cancelled it’s 0.5ppl price cut for May.

New Zealand

The new Labour Party Environment Minister in NZ, David Parker, has made a bit of a stir by announcing plans to set a limit on dairy cow stocking rates in the country, for which dairy farmers would not be compensated.  Parker, who is has also been appointed Minister of Economic Development and Minister for Trade and Export growth, has said that ‘in some areas, the number of cows per hectare is higher than the environment can sustain’.  However, Simon Bridges, the National Party leader has described the plans as ‘ill thought-out’ and ‘political grandstanding’.