Category: Dairy & Livestock

Sheep Carcase Classification

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.

Dairy Roundup

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’.

Farm Incomes in Ireland

On 22nd May, Teagasc (Ireland’s Agriculture and Food Development Authority) released preliminary results from its 2017 National Farm Survey.  Average family farm income is estimated at €31,374, a 32% increase on the previous year.  Dairy incomes are up 65% primarily due to increased milk prices which averaged 27.9 cents/litre in 2016 and 36.9 cents/litre in 2017.  Incomes from tillage (arable) farms are 20% higher whilst sheep farming incomes rose by 8%.

Beef farming incomes remained virtually unchanged however and is partly a reflection of lower prices during the latter half of 2016 and the first half of 2017 as a stronger Euro (versus Sterling) eroded prices as can be seen in the chart below. This contrasts with the UK (GB) where prices have remained relatively steady in Euro terms (and increased in Sterling terms) which have had a positive influence on incomes.

Source: Bord Bia

Further information on Ireland’s National Farm Survey is available via: https://www.teagasc.ie/media/website/publications/2018/NFS-slides-for-Web.pdf

Meat Markets Outlook

Beef

The UK cattle price has been above year-earlier levels so far throughout 2018.  Similar to 2017, the price fell steadily from the turn of the year until the end of February, since when it has risen through March, April and into May.  As of mid-May the AHDB all steer deadweight weight price was 4.2p per kg more than the price at the turn of the year and 13p per kg more than for the same week in 2017.  Demand is expected to stay ahead of supplies helping to support prices through the summer.  The latest AHDB beef and veal forecasts (see table below) were released in April and see a marginal increase in production (0.4%) for 2018 compared to 2017.  This is mainly due to higher slaughterings of prime cattle, although fewer cows are expected to be culled.  Both imports and exports are forecast to increase slightly, together with a modest 1% rise in domestic demand.  Looking further ahead, lower calf registrations and increased calf losses due to the adverse weather conditions earlier in 2018, could impact on production in 2018 and 2019, but the uncertainty surrounding Britain’s trading relationship with the rest of the EU is likely to impact on herd investment decisions.

Actual and forecast supplies of beef and veal in the UK – source AHDB
000 tonnes 2017 2018 (f) 2019 (f) 2020 (f)
Production 893 897 886 876
Imports 441 460 456 451
Exports 141 153 125 101
Total Consumption 1,194 1,204 1,217 1,226

Lamb

The UK sheep meat price for Old Season Lamb (OSL) has reached record levels in 2018.  Despite a high carry-over from the 2017 crop, lower imports from NZ and increased export demand helped by strong French farmgate prices, has seen UK values rise to unprecedented highs in the first quarter of 2018.  Global markets remain strong, which should help to keep domestic prices elevated over the next few months.  Looking further ahead, the table below shows the latest forecasts from AHDB.  This shows supplies available for consumption to decline sharply in 2018, and again in 2019 and 2020, albeit at a slower rate, mainly as a result of increased exports whilst imports are forecast to decline.  Imports from NZ are expected to remain much lower than historic levels as it concentrates on exports to China and the US.  In contrast exports are forecast to grow by 3% in 2018; all of which should continue to support prices.

Actual and forecast supplies of mutton and lamb in the UK – source AHDB
000 tonnes 2017 2018 (f) 2019 (f) 2020 (f)
Production 297 298 305 296
Imports (a) 95 84 81 83
Exports (a) 94 97 101 98
Total Consumption 298 285 284 280

(a) Carcase weight equivalent and including processed products

Pig Meat

The UK pig price has seen a steady decline since its high of last summer, but is starting to stabilise; whether this can last remains to be seen.  The EU average pig reference price has declined over the past month due to weak demand both domestically and for export.  Over-supply in China is putting pig prices under pressure and this seems likely to remain the case for the rest of 2018.  The UK and EU average reference price has widened over the last month, recording the largest difference since February.  However, it still remains below that calculated throughout the last quarter of 2017.   As domestic productivity is forecast to improve, an increase in demand is required to lift prices.  The table below shows the AHDB’s latest forecasts.

Actual and forecast supplies of pork in the UK – source AHDB
000 tonnes 2017 2018 (f) 2019 (f) 2020 (f)
Production 905 931 958 983
Imports 1,075 1,060 1,051 1,053
Exports 264 278 291 304
Total Consumption 1,716 1,712 1,718 1,733

Scottish Beef Payments

Payments under the 2017 Scottish Suckled Beef Support Scheme (SSBSS) commenced from the 2nd May with funds totalling £38m expected to be made over the coming weeks.  The payment rate for a Mainland animal this year is £99.49 per head (£92.05 in 2016) and for the Island category it is £144.22 (£140.71).  Around 6,500 businesses should receive payment.

Muller Lifts Milk Price

The slide in UK farmgate milk prices looks to be over, with the announcement of a price increase from one of the UK’s major buyers.  Muller will be increasing its standard milk price for its Muller Direct producers by 0.75ppl from the 1st June.  This takes the price to 26.75ppl.

 

Sheep Meat Trade

The sheep meat price has risen sharply since the start of the year.  In the week ending the 14th April the GB deadweight OSL average SQQ broke the £6.00 per kg barrier for the first time ever, to reach 601.9 p per kg; some 189.9 p per kg more than for the same week in 2017.

The dramatic increase in price has been a surprise to many, especially as forecasts were for production to be higher in the first quarter of 2018 than in 2017 (typically exerting downward pressure on prices).  In fact, this has been the case, although not by as much as expected; production was up by 2.7%, but fewer ewes came onto the market than forecast.  But other factors have played their part in the price rise.  In 2017, both the Australian and New Zealand price rose sharply, the GB price did not follow at that time and therefore the gap between GB and New Zealand lamb narrowed.  Imports of NZ lamb into the UK (and the rest of the EU) have consequently fallen, partly due to the decline in supplies in NZ but also due to the narrowing of the price difference, meaning other markets have been more attractive for New Zealand.

GB export demand has also strengthened; in the first two months of 2018 there has been a 16% year-on-year increase which has seen a tightening of domestic supplies.  In addition, the French farmgate price has risen at the same time as the GB price, this is unusual, as typically the French price acts as a ‘ceiling’ to the GB price, but with both rising at the same time this has not been the case.

Looking ahead as to whether prices will hold over the coming months we can see values have already started to fall.  In the week ending 21st April, prices declined to average 578.8p per kg but this is still 168.6 p per kg more than last year’s levels.  It is typical for prices to fall at this time of year as more lambs come to the market, but we are not expecting the price to collapse.  Slaughterings are expected to increase during quarters two and three, applying some downward pressure on prices.  However, the poor weather during lambing across Britain will mean the lamb crop will not be as large as it might have been, given the growth in the national breeding flock.

In addition, imports seem unlikely to pressurise prices greatly.  Although the price difference between NZ and GB lamb has begun to widen since the domestic price rally, import value per tonne into the GB remains less attractive than other markets and therefore volumes from NZ are not expected to recover in the short to medium term.  By contrast, export demand is expected to remain strong in the coming season, and, with reports that domestic frozen stocks commenced 2018 lower than historical values, supplies for the domestic market are forecast to remain tighter than usual over the coming months .  All this should help to support prices.

Dairy Roundup

Global Prices

The latest Global Dairy Trade (GDT) auction on the 17th April saw prices rise for the first time in two months.  All categories of product recorded increases, with the overall index rising 2.7% to $3,587 per tonne.  The previous auction on the 3rd April saw prices decline by 0.6%.  The next event on the 1st May will give a better indication of whether markets have turned, or if the last sale was a ‘blip’.

UK Prices

UK farmgate prices are still generally heading in a downwards direction.  Some of the price changes announced as from the 1st May include;

  • Waitrose suppliers to see a 0.6ppl cut to 30.94ppl
  • 0.5ppl reduction fro Muller Direct suppliers to 26.2ppl
  • Dairy Crest to reduce prices by 1ppl, giving a manufacturing price of 28ppl and a liquid price of 26.9ppl
  • an increase for Tesco suppliers of 0.32ppl due to increased costs.  This results in prices of 29.8ppl (Muller) and 29.6ppl (Arla)

However, there are signs that the downwards momentum is running out of steam, and the next couple of months may see some stability in milk pricing.

UK Production

According to provisional AHDB figures, milk deliveries for the 2017-18 year were up 2.9% compared to the previous year at 12,402m litres.  This is an increase of 349m litres.  The rise would have been more, but for the poor weather in February and March which left an estimated 19m litres uncollected due to snow, and production down overall due to low temperatures and poor grass growth.  Output in 2017-18 was still slightly behind the recent-record year of 2015-16.

New Muller Fixed Pricing Offer

Dairy farmers supplying Muller under a Muller Direct contract will be offered the chance to fix their milk price for a period of up to three years.  Under a long-term partnership with Lidl, producers will have the option of contracting at a price of 28ppl for a period of either two or three years.  Up to 50% of a farmer’s production can be fixed.  There is a minimum commitment to the scheme of 10,000 litres per month.  The mechanism will operate from June 2018.  The volatility of the UK milk price has been clear for a number of years, with swings in farmers’ incomes causing significant problems in managing businesses.  Hopefully this initiative will prompt other milk buyers to look at mechanisms to smooth out the swings in markets.  Producers will have to recognise that

First Milk Restructuring

First Milk has put up for sale its two Scottish creameries.  The facilities, on Arran, and at Cambeltown on the Mull of Kintyre, produce quality branded cheddar.  However, they are small-scale and First Milk has reportedly struggled to make them financially viable for a number of years.  Unless a buyer can be found to continue operating the creameries, the future of milk production in these regions look bleak, as transport costs to other facilities would be prohibitive.  First Milk has also consolidated its milk pricing with just two prices replacing its previous ‘regional’ prices.  Following price cuts from the 1st April, the liquid price will be 26ppl and the manufacturing price 26.9ppl.

Livestock Information Service Launched

Michael Gove has announced the development of a new Livestock Information Service.  The system will identify animals and track movements when it is launched in 2019.  There will be a single multi-species database that covers cattle, sheep, goats and pigs, rather than several animal identification and tracking services seen at present.  The new system will identify and track animal movements via electronic IDs meaning the industry will be better placed to respond in the event of a disease outbreak.   It will also mean the UK meat industry will be a world leader in livestock traceability in preparation for a global trading environment post-Brexit.

Arla Price to Stand-on

In a significant boost to the dairy industry, Arla has announced it will not be cutting its conventional milk price in April.  In fact, due to the April to June ‘currency smoothing’ mechanism the April price will actually increase by 0.32ppl.  Readers will recall Arla cut its price by 2.16ppl in March, which was a huge blow.  But it looks like that could possibly be the last cut for the processor for now as commentators believe its next movement will be a price rise.  As Arla is usually a ‘trend setter’ this should mean fewer (if any) price cuts for May.