Dairy Markets

The two GDT (Global Dairy Trade) auctions in November showed similar results, with the average index price falling 3.5% and 3.4% on the 7th and 21st November respectively.  This leaves the index at $2,970 per tonne.  This is the first time the price has dipped below $3,000 per tonne since October 2016.  At that point, prices were firmly on the up.  Now, there appears to be a downwards trend with prices falling for four auctions in a row.  New Zealand is currently in its peak production period and, although output this year hasn’t been as good as in 2016, deliveries are expected to show some improvement as the weather conditions improve, which probably explains part of the reason for the decrease.

With commodity prices seemingly under pressure, UK farmgate price increases are starting to slow with the market.  Arla has frozen its prices for November and the Muller direct November price is to remain the same for December.  Many of the other increases for November have been for less than 1ppl (see last month’s article).  Muller Tesco suppliers are the only ones to receive a price cut so far, decreasing by 0.13ppl. 

If wholesale prices continue to fall, farmgate prices will inevitably decrease.  However commodity prices seem to have fallen significantly without much of a change in market dynamics.  Milk production is higher compared with last year, but the EU’s Milk Production Reduction Scheme commenced this time in 2016.  In the UK, cumulative production for 2017/18 up to September stands at 7,323.6m litres.  This is 174.7m litres more than 2015/16 but 296m litres less than in 2015/16 and 79.8m litres less than at the same time in 2014/15.  Stocks, apart from SMP are also relatively stable and although they have fallen recently are still relatively high compared to historic levels.  It does appear though that buyers have seen production rising and are now waiting to see if prices fall any further.

Dairy Markets

The latest GDT (Global Dairy Trade) results show the average price index has fallen for the third consecutive event in a row.  At the auction on 7th November the price index fell by 3.5% to $3,105, this was mainly due to a 5.5% fall in WMP which made up over half of the product sold.  Both the butter and cheddar indexes also recorded a decrease by -3.6% and -2.8% respectively.  SMP bucked the trend, accounting for nearly a quarter of all product sold, its price index increased by 7.2%.  New Zealand is currently in its peak production period and, although output this year hasn’t been as good as in 2016, deliveries are expected to show some improvement as the weather conditions improve, which probably explains part of the reason for the decrease.

With commodity prices seemingly under pressure, UK farmgate price increases are starting to slow with the market.  Arla has frozen its prices for November and the Muller direct November price is to remain the same for December.  Many of the other increases for November have been for less than 1ppl (see last month’s article).  Muller Tesco suppliers are the only ones to receive a price cut so far, decreasing by 0.13ppl.

If wholesale prices continue to fall, farmgate prices will inevitably decrease.  However commodity prices seem to have fallen significantly without much of a change in market dynamics.  Milk production is higher compared with last year, but the EU’s Milk Production Reduction Scheme commenced this time in 2016.  In the UK, cumulative production for 2017/18 up to September stands at 7,323.6m litres.  This is 174.7m litres more than 2015/16 but 296m litres less than in 2015/16 and 79.8m litres less than at the same time in 2014/15.  Stocks, apart from SMP are also relatively stable and although they have fallen recently are still relatively high compared to historic levels.  It does appear though that buyers have seen production rising and are now waiting to see if prices fall any further.

Future of UK Dairy

The UK dairy supply chain needs to work together more closely if it is to prosper after Brexit.  This is one the main findings of a report recently published into the future of the sector.  Commissioned by the Trehane Trust, and produced by Mike Houghton of Andersons Midlands, the report, titled ‘Identifying a Strategy for the UK Dairy Industry Post-Brexit’, sets out a number of recommendations.  Price volatility is seen a being an issue for the dairy sector with the need to develop new risk management tools.  Part of the solution would also be better communication between processors and producers about milk supply and demand.  The report states that the possible removal of direct support should not necessarily be seen as a negative – 40 years of subsidy have not helped the dairy sector improve productivity.  One possibility is to replicate the success of Producer Organisations in the fruit and vegetable sectors in improving productivity.  Also the network of monitor farms could be expanded to help producers understand production economics.  The report estimates that the industry would save £60m each year if every cow could produce 3,000 litres from forage.  Lastly, the dairy industry needs to improve its marketing, both domestically, and to generate new export opportunities.  The full report can be accessed via – http://www.trehanetrust.org.uk/trehane-scholars/2017/10/18/tackling-longstanding-issues-could-make-brexit-good-for-dairy-farmers

Cargill & Faccenda J V

Further consolidation is to take place in the poultry meat sector.  Following 2 Sisters Food Group acquiring Grove Turkeys & Bernard Matthews, and US based Pilgrim’s Pride’s acquisition of Moy Park, Cargill & Faccenda Foods have announced plans to establish a Joint Venture (JV).  The new company will be a standalone business, with Cargill and Faccenda taking an equal shareholding.  The JV is subject to clearance by the relevant regulatory authorities; once the deal has been completed the JV will be named.  Cargill (which used to trade under the ‘Sun Valley’ brand) and Faccenda are currently the third and fourth largest poultry processors in the UK.  The new merged venture will stay in third place, behind 2 Sisters as the largest and Moy Park in second. 

Meat Markets

Finished cattle prices have continued to fall through October.  The GB All Steers average deadweight price for the week ending 21st October stood at 361p per kg.  At the beginning of September the price was 375p per kg, 24p per kg above year-earlier levels, this gap has narrowed to just 9p per kg.  Demand is expected to increase as we head towards the Christmas procurement period, but over recent years prices have rather plateaued between now and Christmas.

The deadweight sheep market is now trading at a similar level to last year.  After a significant price improvement in mid-May, the market traded above year-earlier levels throughout the summer but fell below those obtained in 2016 in mid-September.  The average SQQ for the week ending 21st October is 386p per kg; just rising back above the equivalent week last year by 5p per kg.  The market remains pretty directionless.

The GB pig price continues to decline.  The EU-spec SPP has fallen for 9 consecutive weeks and for the week ending 21st October stands at 157p per kg, the lowest since April, although this is still 11p higher than year-earlier levels.  Ample supplies and heavier carcase weights are affecting prices.  Even so, UK prices have not fallen by as much as EU values, which have declined significantly over the last four weeks.  In Euro terms this means the gap between the UK and EU reference price has grown over the last month to €25.50/100kg, the largest since the start of 2017.

Milk Production & Prices

There have been more milk price rise announcements (see below) over the month but there is a sense that the market is maybe peaking.  However, a couple of recent announcements may prevent production going into to oversupply.

As key export regions showed signs of a recovery in production, the Global Dairy Trade (GDT) auction recorded a decrease in its average index of -2.4% and -1.0% to $3,204 in the last two auctions held on 3rd October and 17th October respectively.  At the latest event, SMP was down -5.6%.  Over half of the product sold was WMP and the price for this fell by -0.1% with butter and cheddar both seeing a decrease by -2,5% and 0.1% respectively.

According to the latest figures from the AHDB, milk production from the five key global exporting regions (EU-28, Argentina, Australia, New Zealand and the US) for August was 2.2% higher than last year.  Estimated daily deliveries from the EU were up by 3.6% compared to year-earlier levels.  France recorded growth for the first time this year and Germany is also starting to show signs of recovery.  Poland, Ireland and Italy continue to demonstrate significant rises.  Looking further afield, in the US, favourable weather conditions has seen higher production, Australia is expecting to see a recovery this year after a difficult 18 months and both Brazil and Argentina are experiencing higher production.

In contrast though, Fonterra has made a significant cut to its milk production forecast for New Zealand; from 3.2% growth down to 0.9% for its 2017/18 season (June to May).  Poor weather conditions in August and September has seen production 2% lower than last year for each of these months.  In addition, Chinese production forecasts have also been revised downwards and with increasing demand in China this should lead to a rise in imports.  These latest announcements from New Zealand and China should provide some support for global markets and hopefully prevent a sudden change in direction for milk prices.

Recent UK milk price announcements as from 1st November include:

  • 0.5ppl increase for First Milk suppliers
  • 0.75ppl increase for suppliers to Belton Farms
  • South Caernarfon Creameries have announced a ‘winter premium’ of 0.5ppl from 1st November to 28th February
  • 0.5ppl increase for Dairy Crest, Davidstow suppliers
  • 0.8ppl and 0.36ppl increases for Waitrose and Marks & Spencer suppliers.

Farmer Training Scheme

The AHDB is inviting applications from farmers to take part in a management training course.  The ‘Professional Manager Development Scheme’ (PMDS) starts in January 2018 with applications needing top be submitted by 15th November.  The course is run by Cedar Associates and leads to a formal qualification from the Institute of Leadership and Management (ILM).  Fees for the programme are usually £3,950 (+ VAT), but due to AHDB support, levy-paying farmers will be charged £950.  More details can be found via – https://dairy.ahdb.org.uk/news/news-articles/october-2017/ahdb-launches-management-training-scheme-for-farmers/#.We2VjGzmrcs

Inconclusive Reactors

As from 1st November new bovine TB control measures will be introduced which will mean that ‘resolved’ Inconclusive Reactors (IRs)  will have to remain on the holding where they were found for the remainder of their life.  They will only be allowed off directly to slaughter or via an Approved Finishing Unit unless the owner pays for an interferon gamma blood test which returns negative.  Inconclusive Reactors are when an animal shows a reaction to the ‘skin test’, but it is not strong enough to be classified as a reactor.  An IR can be re-tested after 60 days.  If it fails or is found to be inconclusive again, the animal is slaughtered.  If it passes it is known as a resolved IR.

Studies in the Republic of Ireland, have shown that resolved IRs are 12 times more likely to be a reactor at the next test compared to other cattle in the national herd.  In addition, between 11.8% and 21.4% of IRs slaughtered prior to re-test showed visible lesions associated with bovine TB, compared with less than 0.5% of non IR animals.  The new rules aim to reduce the risk of spreading the disease via these animals.

Livestock Populations

DEFRA has released its provisional results for livestock populations in the UK from the 2017 June Survey of Agriculture.  The table below shows the key findings.  Both the dairy and beef breeding herds have remained pretty stable, just declining marginally compared with last year.

UK JUNE CENSUS (LIVESTOCK)

NUMBERS – ‘000 Head

2014

2015

2016

2017

% Change 16-17

TOTAL CATTLE & CALVES

9,837

9,919

10,033

10,004

-0.3%

Of which      Total Breeding Herd

3,411

3,472

3,493

3,481

-0.4%

                      Dairy Herd

1,841

1,895

1,897

1,891

-0.3%

                      Beef Herd

1,569

1,576

1,596

1,589

-0.4%

TOTAL SHEEP & LAMBS

33,743

33,337

33,943

34,606

+2.0%

Of which      Breeding Flock

16,026

16,024

16,304

16,623

+2.0%

TOTAL PIGS

4,815

4,739

4,866

4,965

+2.0%

Of which      Breeding Herd Total

406

408

415

417

+0.5%

Source: DEFRA

The sheep flock continues to increase.  Both the breeding flock and the number of lambs have increased by 2.0% and 1.9% respectively on the year.  The total number of sheep and lambs in the UK is now the highest since 2006 at 34.6 million head.   And, following another year of better trading conditions, the pigbreeding herd is showing further recovery, although still not quite back up to 2013 levels (423,000).  The full Survey results can be found at – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/651173/structure-jun2017prov-UK-12oct17.pdf

NVZ Derogation

The Nitrate Vulnerable Zone 2018 derogation for grassland farmers is now open for applications. A derogation can only be applied for by telephoning the Environment Agency on 03708 506 506.  The closing date is 29th December 2017.  The phone line will be open Monday to Friday from 8am to 6pm, excluding bank holidays.  Derogations must be applied for annually, those who currently hold one for 2017, must reapply for 2018.

Those within NVZs are normally subject to a limit of 170kg nitrogen per hectare per year from livestock manure averaged across the area of the farm.  However a derogation can be granted to allow up to 250kg nitrogen per hectare per year from grazing livestock, if at least 80% of the agricultural area of the holding is down to grass and the nitrogen comes from grazing livestock manure (i.e not pigs, poultry or veal calves).

When applying farmers will need information on the area of grassland on the holding and the amount of manure nitrogen produced on the holding by various categories of livestock.  For more information on what is required please go to: https://www.gov.uk/guidance/grassland-derogations-for-livestock-manure-in-nitrate-vulnerable-zones