Arla UK has announced it will be cutting its milk price by 1.73p per litre as from February 1st. Other purchasers had already announced price cuts, see below, but many others are now likely to follow now that Arla has made its move. Arla’s price cut means it is now bottom of the AHDB milk price league table.
Other price cuts include:
First Milk – 1p per litre cut as from 1st February
Muller’s Co-op Group – 0.52p per litre cut as from 1st February
Dairy Crest Davidstow – 0.75p per litre cut as from 1st March
In contrast Tesco’s cost tracker price has actually seen a 0.07p per litre increase as from February 1st.
DEFRA has revised its milk production figures upwards for each month it has previously reported on in 2017 (January to October). This means the cumulative production for the calendar year to October is now 12,315 million litres, an increase of 332 million litres (+2.7%) compared with the previously published data. Production for the current milk year, April to November, is now reported to be 9,860 million litres(2.8%) higher than previously reported.
AHDB Dairy has voiced concerns on a number of occasions over the figures, but state, despite the adjustments being significant, that the 2017 figures are now inline with its expectations. The levy board does however believe the May 2016 to December 2016 figures are about 20 million litres lower than expected, and therefore cautions using them in making year-on-year comparisons.
The revisions have apparently been made following ‘re-analysis of submitted data’, but it is a worry and begs the question whether there is a lack of detail/care being applied in gathering and analysing the data, or indeed whether the processes have not been updated to take into account the changing structures within the industry (perhaps due to funding cuts). Especially when we hear other statistics are seeing large revisions as well (see meat market article). The problem being that farmers and processors are making decisions based on these figures.
The GDT average index has increased at both auctions held in January. This is the first significant increase since back in September (there was a 0.4% rise in December). At the beginning of January, the index was up by 2.2% compared to the previous auction and at the event held on 19th January it saw a further increase by 4.9%. All products saw a rise, in particular Butter (8.8%), SMP (6.5%) and WMP (5.1%). Drought conditions in New Zealand has seen Fonterra reduce its production estimates for the country by 4%. Consequently Fonterra has reduced the volumes being put forward to auction. The purchaser collects around 85% of New Zealand’s milk.
Lactalis is at the centre of an international salmonella scandal, involving powdered baby milk. It is believed that the outbreak can be traced back to one of its factories in the town of Craon in north west France. At least 35 babies in France and 1 in Spain have so far been affected (but are recovering) although with the product being exported to numerous countries, more cases are expected to emerge. It is reported that 12 million boxes of powdered baby milk from 83 countries has been withdrawn. But there has been anger over reports that the French dairy giant did not act as soon as it could and even tried to ‘hide’ the outbreak.
Both Arla and Abergavenny Fine Foods have given notice to their goat milk farmers to end their contracts. Arla has given 12 month’s notice to all 9 of its suppliers, saying it will no longer be involved in goats milk in the UK once all producers have left. Meanwhile, Abergavenny Fine Foods has given just 6 weeks notice to 4 of its 15 suppliers, to end their contracts as it continues to battle with an oversupply due to a fire which destroyed processing facilities back in 2015. The problems seem to be a lack of communication, as demand has fallen whilst at the same time supplies have increased significantly. Finding an alternative purchaser for those affected is looking very difficult.
DEFRA has announced that the whole of England has been designated an Avian Flu Prevention Zone as the virus has reappeared in wild birds over the last few weeks. This means that poultry keepers must follow enhanced bio-security measures. However, there is not yet any requirement for free-range producers to house their birds. The full range of measures that should be followed can be found at – https://www.gov.uk/government/news/bird-flu-prevention-zone-extended-to-cover-whole-of-england. The H5N6 strain of the virus which has been circulating across Europe in recent months had been found in dead wild birds in Dorset. With confirmation of further cases in Warwickshire, the measures have now been extended across the whole country.
Rising milk production in the EU and globally is putting downward pressure on the dairy markets. Reports from AHDB dairy show that production from the five key exporting regions (EU28, Argentina, Australia, New Zealand and the US) in October were 4.1% higher year on year. This was mainly due to an increase in production by the EU and NZ. Estimated daily deliveries from the EU 28 were 5.2% more than for the same period in 2018, although it must be remembered this time last year production was falling due to the EU milk reduction scheme.
The GDT average price index did show a small increase of 0.4% at the auction held at the beginning of December, but this was the first rise since September. It will be interesting to see the results of the second event in December (this was taking place as professional Update was going to press). The downward pressure on the markets has led to some farmgate reductions being announced. Following Muller’s announcement earlier in the month, as from January;
Meadow Foods will make a 1.25ppl reduction
Glanbia Cheese suppliers will receive a 1.5ppl cut
Sainsbury’s contracted suppliers will receive a 0.11ppl reduction, based on its cost tracker
Dairy Crest has said it will be holding its milk price until February.
The Government is seeking views on the draft Animal Welfare (Sentencing and Recognition of Sentience) Bill. The Bill which was laid in Parliament on 12th December will increase the maximum penalty for animal cruelty offences from 6 months to 5 years imprisonment and will ensure that animals are defined in UK law as sentient beings. The Bill underlines the Government’s commitment to not only maintaining animal welfare standards but also improving them as the UK prepares to leave the EU. The full consultation can be found at https://www.gov.uk/government/consultations/draft-animal-welfare-sentencing-and-recognition-of-sentience-bill-2017. Responses need to be submitted by 31st January 2018.
Whilst not unexpected, dairy farmers will be concerned that farmgate prices are now seemingly headed downwards. The shift in market sentiment has been highlighted by the announcement from Muller that its 700 suppliers on the Muller Direct contract will face a 1.5ppl price cut from the 1st January. This will take the standard litre down to 29ppl. Muller blames the fall in wholesale cream and butter prices since the summer for the cut in prices.
Andersons has updated its Meadow Farm model. 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 2018, plus a forecast for 2018/19. The 2016/17 year received a boost from the weakening of Sterling, following the UK’s decision to leave the EU. The current year is expected to see further improvement, following better than expected livestock values and improved crop prices and yields. In addition variable costs have not increased by as much as expected.
Support payments have increased for 2017/18 as the farm has entered into the Countryside Stewardship Scheme. Although some land has had to be taken out of production to achieve this, it has not greatly affected gross margins as it tended to be marginal areas that were put into the scheme. CSS incomes has helped boost profitability, but makes this farm even more reliant on support for profit than it has been in the past.
The situation is not forecast to be as good for the coming 2018/19 year. Both the livestock and the crops gross margin are budgeted to fall, due to lower prices and an increase in variable costs. The purchase of a new mower also increases the overheads, bringing the margin from production back to around 2016/17 levels. The €:£ exchange rate is forecast to remain in the region of 85p maintaining BPS payments at a similar rate in 2018/19.
