Category: Dairy & Livestock

Muller / Lidl Deal

The discount retailer, Lidl, has switched the majority of its fresh milk supply to Muller Dairies.  This is at the expense of Arla and Medina.  Grahams will continue to supply Lidl with milk and cream in Scotland whilst Trewithen Dairy retains the Cornish contract.  Such swaps are relatively common in the milk market and normally perhaps would not be regarded as especially newsworthy.  However, in announcing the deal, Muller indicated that part of the arrangement would see farmers given the opportunity to lock-in a milk price for part of their production for up to three years.  The details are still awaited, but a price of around 28ppl has been suggested.  This would be an important step in getting innovative pricing mechanism into the UK dairy market and dealing with the inherent volatility.  Lactalis currently offer a one-year deal at 27.5ppl and, in Ireland, Glanbia have a five year contract option at around the same level. 

GDT Auction & Farmgate Prices Fall

The GDT average index price fell by 1.2% at the auction held on 20th March to $3,632.  This follows a 0.6% drop in the event held on 6th March and is the third consecutive decline.

After seeing a 0.8% fall at the auction held at the beginning of March, the first drop in 2018 for WMP, the product actually saw a 0.1% increase at the latest event.  WMP made up over half of all the products sold, but SMP, contributing to a about a quarter of the products sold, was down by 8.6% compared to the event earlier in the month to $1,887.  However, this was perhaps more of a re-balancing exercise after the product rose by 5.5% at the previous event.  It is now back in line with February’s prices which averaged $1,882 per tonne.  At the beginning of March the EU Commission sold 4,337 tonnes of intervention SMP for only €1,100 per tonne, this is below the feed grade price of SMP and will do nothing to help current markets.  The Commission has around 380,000 tonnes still in stock.

Often seen as the bellwether for the dairy industry, the recent declines in the GDT will not support UK farmgate prices.  Further reductions have been announced, some of the more notable ones include:

  • Muller and Arla Direct contracted producers will both receive a 1.5ppl price cut as from 1st April.  This could mean Arla producers will be receiving the lowest GB farmgate milk price as from the beginning of next month.
  • Glanbia Cheese and suppliers to Belton Cheese will also see a 1.5ppl price cut, as will suppliers to Yew Tree Dairy and Joseph Heler Cheese
  • Dairy Crest Davidstow and Crediton Dairy have both announced a 1.25ppl reduction as from 1st April.

Livestock Populations

DEFRA has released its latest statistics on Livestock Populations as at 1st December 2017 for the UK.  The total number of cattle and calves has remained similar to earlier levels at 9.8 million head; just a 0.2% decline.  The dairy breeding herd has increased marginally, by 0.3%, to just over 1.9 million.  However the number of dairy cattle aged between 1 and 2 years is down by 6.1% which will have an impact on replacements entering the herd.  Dependent on what milk prices do going forward, we could see a contraction in the herd.

Total beef supplies in the UK were forecast to be higher in 2018 through the availability of more clean cattle slaughterings.  The December survey results support this to a degree, with female beef cattle numbers aged between 1 and 2 years up by 3.1%.  However male cattle between 1 and 2 years of age are down by 1.4%, which may see 2018 production forecasts still higher than 2017, but not by as much as originally expected.

For sheep, the UK female breeding flock has increased marginally, by 0.1% to 14.7 million head, the largest flock size since 2007.  This should mean a large lamb crop in 2018.  However, the AHDB is forecasting a decline in the lamb rearing rate compared to 2017, although still high compared with previous years.  Other sheep and lamb numbers are down by 4.2% on the year, but this is still historically high.  Finished lamb prices have been strong ahead of the Easter market, some 40 to 50p per kg liveweight more than last year.  The deadweight Old Season Lamb (OSL) SQQ broke through the £5 per kg barrier in the first week of March and stands at £511.2p per kg for the week ending 17th March, some 117p per kg more than for the same week in 2017.

The total number of pigs has increased by 3.9% to 4.7 million.  This is mainly due to the number of fattening pigs on farm which has increased by 4.4% compared to year earlier levels.  These figures support the continuing rise in production we are seeing, which is putting downward pressure on prices.  Supplies for the week ending 17th March were 16% above 2017 levels, according to the AHDB.  After two weeks of relative stability, prices fell on the week.  The UK-spec SPP stood at 142.73p per kg for the week ending 17th March, around 6 p per kg less that year earlier levels.

 

Irish Milk Deliveries Soar

Milk production in Ireland is expected to rise again this year.  Industry sources are estimating a further 5% increase to put annual production at 7.6 billion litres.  This will be a 40% rise in deliveries over the past 5 years.  Since the end of milk quotas, the dairy herd has increased by 350,000; these cows are now maturing and entering their prime production years and therefore ‘extra’ milk is expected.  Furthermore a 2% rise in cow numbers is forecast again this year.  Meanwhile, according to Teagasc economists, the milk price in Ireland is forecast to drop by 10% in 2018 as the butter price falls and due to ample intervention stocks.

Bovine TB

There has been a number of announcements from Government regarding Bovine TB over the month:

Bovine TB Strategy Review

A review of the 25 year Bovine TB strategy is take to place.  The Strategy was put in place just over four years ago, with the aim of achieving Bovine Tuberculosis Free status in England by 2038.  It outlines the interventions to be used to eradicate the disease, including tighter cattle controls, culling of infected cattle, improved diagnostic tests, enhanced biosecurity measures, culling & vaccination of badgers and the development of a cattle vaccine.

The review will look into what the Government should prioritise in the next phase of the Strategy.  The first phase has concentrated on cattle movements, culling of infected cattle and the badger cull.  Michael Gove and Farming Minister George Eustice, would like to see other ‘tools’ available, such as cattle vaccination or developing gene resistance to keep the Strategy moving to the next stage.  Sir Charles Godfray will chair a small working party.  The review is due to end in September 2018.  It expected that 5 yearly reviews will take place going forward.

Consultations

Two consultations have been launched.  Firstly, DEFRA is consulting on lifting the ‘ten year limit’.  This currently only allows 10 new areas to be licensed to cull badgers each year.

The second consultation is on the proposal to extend the control of badgers into the Low Risk Area (LRA) of England.  This would be where the disease is found in badgers and is linked to infection in cattle.  The proposals to control badgers includes culling.

Both consultations close on 15th April 2018 and can be found at https://consult.defra.gov.uk/bovine-tb/bovine-tb-badger-control-areas/  and https://consult.defra.gov.uk/bovine-tb/badger-control-in-low-risk-area-england/ respectively.

TB Surveillance in Wildlife

The final announcement from DEFRA is the results from the 2016 TB surveillance of badgers in the nine areas where badger culling has taken place in the High Risk Area (HRA) of England.  The release also includes data from the on-going surveillance in eastern Cumbria, a LRA, which also has information on the TB surveillance of ‘found dead’ in the same area.  Infected badgers have been found and the collection of carcasses remains on-going.  Further information and the results can be found at https://www.gov.uk/government/publications/bovine-tb-surveillance-in-wildlife-in-england-2016-to-2017

GB Milk Production

The AHDB has said that GB milk production has the ‘underlying potential’ to reach a record high this spring; however, it doesn’t expect it to do so.  The main reason being the move from dairy to beef inseminations, back in 2015 when farmgate prices were particularly low.  In addition at the same time there was a reduction in the proportion of sexed semen used.  This means we are now seeing a reduction in the number of herd replacements coming through and in turn milk production is expected to take a hit.

Whilst the levy board acknowledges the milk to feed price ratio is at a record high level, farmgate reductions and a downturn in the wholesale markets at the back end of last year has seen dairy farmers less inclined to push for more production.

GDT Results

The average index price for the Global Dairy Trade (GDT) auction held at the beginning of February increased by 5.9%; the third consecutive rise.  However, the latest event, held on 20th February, recorded a small decline; -0.5%.  SMP, which made up about a quarter of all product sold, was down by 3%, compared to the price earlier in the month.  Only a small amount of butter was traded and this saw an increase of 1.1%.  WMP, which made up just over half of all the products sold, was marginally higher, by 0.3% compared to the auction on 6th February.

Arla Cuts Milk Price

Arla Foods has announced it will be cutting its milk price for its manufacturing litre by 2.16ppl from the 1st March, taking it to 27.11ppl.  This is a big drop and a significant blow to the industry – as one of the ‘big two’ processors Arla’s milk price tends to have a large influence across the sector.  Arla Foods amba board director, Jonnie Russell has cited the ‘dramatic falls’ in the commodity markets.  In addition, protein prices are now at an historical low after falling since the beginning of 2017.  The processor says it sees little prospect of recovery due to the large stocks held by the EU.  Although cheese and butter prices have started to pick back up again, it says the combined fat and protein is still lower than this time last year.

Other notable price drops for March include:

  • A 1ppl cut for Muller Direct milk suppliers. Taking their standard litre to 29.45ppl
  • First Milk has announced a 1.25ppl fall
  • A 0.75ppl cut for suppliers to South Caernarfon Creameries, bring their standard litre price to 28.32ppl
  • A 1ppl cut for Belton Farm suppliers. Taking their standard litre down to 27.26ppl

Average Farmgate prices and monthly production figures are all included in out monthly Key Farm Facts.

Russell Hume

The meat trading business, Russell Hume has gone into administration.  This follows a suspension in production back in January after Food Standards Agency (FSA) inspectors found ‘serious non-compliance with food hygiene regulations’ following an unannounced visit.  It is reported that the main issue centres around use-by dates.  The meat supplier’s headquarters are in Derby and it operates from six production sites; Liverpool, Birmingham, London, Boroughbridge, Exter and Fife.  Wetherspoons and Jamie Oliver’s Italian Restaurant were among its customers.  Administrator, KPMG, has said the halt in production and recent product recall has caused significant trading difficulties, leading to the directors placing the company into administration.  It is hoped that a buyer will be found for the business and its assets.

Arla & Yeo Valley Partnership

Arla Foods Limited has announced it is acquiring Yeo Valley Dairies Limited, a subsidiary of the Yeo Valley Group.  The acquisition will mean that Arla will have the rights to use the Yeo Valley brand in milk, butter, spreads and cheeses under an intellectual property licence with Yeo Valley.  Arla’s aim is to encourage customers to trade up from standard to organic milk, butter and cheese.  According to the farmer-owned dairy cooperative, Arla Organic Free Range milk has driven 60% of all growth within the organic milk category over the last year and it believes through its licence to use the Yeo Valley brand, organic milk can make further penetration into the milk market.  The Yeo Valley yoghurt, ice cream, cream and desserts business will continue to be run separately by the Mead family owned Yeo Valley Group Ltd.  The deal must first obtain approval through the UK Competition and Markets Authority.