Category: Dairy & Livestock

The RABDF has announced it has decided to abandon its September Dairy Event show, opting for an event to be held in February.  After the collapse in discussions with Holstein UK over amalgamating their two existing shows, RABDF has announced a brand new technology-based event.  The first Dairy-Tech event will be held on 7^th February 2018, with a venue change, back to Stoneleigh Park.  In addition the ‘new’ RABDF will focus on encouraging new entrants to the industry via ‘training and awards’ and will also work on promoting dairy resilience.  It has said it will continue with its on-farm learning opportunities and developing the Women in Dairy Initiative.  A re-launch of its flagship RABDF/NMR Gold Cup competition is also expected shortly.  Moreover, the charity would like to get more involved in lobbying the Government and policy making, with plans also in place to hold a Policy Conference in October in association with the Trehane Trust.

Prices have taken a significant fall at the Global Dairy Trade (GDT) auction held at the beginning of March.  The GDT overall price index decreased by 6.3%, mainly due to a fall in milk powder prices.  The SMP price reduced by 15.5% compared to the previous event.  An increase in forecast volumes of WMP and SMP, due to New Zealand raising its production estimates is believed to be the main reason for the drop in values.  As better weather has improved New Zealand’s milk deliveries, Fonterra has increased its forecast, production for the year ending in May 2017 is now estimated to be 5% lower than year-earlier levels, previously Fonterra was forecasting a 7% drop.

Beef Market

Beef prices went on a bit of a roller-coaster in 2016.  Declining from the turn of the year, they reached a low point in May.  But the rise in prices throughout the summer was quicker than many had expected.  The fall in the Pound against the Euro following the UK’s decision to leave the EU had an immediate impact on imports from Ireland, with significant reductions in July, August and September.  But by October imports from Ireland were pretty much back to normal levels.  However, the exchange rate means that UK beef remains more competitive; the gap between British and Irish beef has been as large as 80-90p per kg, but is now about 40p per kg.

Domestic beef production in 2016 was up by 3% compared with 2015, but this was mainly from an increase in cow slaughterings.  Production from prime cattle was up by just 1%.  Problems in the dairy sector has seen an increase in culls and beef production from dairy-bred cows increased by 10% year-on-year; considering 2015 was also a big year for dairy culls, this is significant.  Exports were up by 10% in volume, but only 5% in value.  Imports were down 4% on the year.

For 2017 the AHDB are forecasting overall beef and veal production to ease back by 2%.  Slaughter numbers are expected to rise by 1%, this will take them to just under 2 million head (the UK hasn’t been over 2m for a number of years now).  But cow slaughterings are forecast to be lower this year and with carcase weights trending down across all cattle classes as processors demand lower weights, a reduction in production is expected.  Exports are forecast to be higher this year, helped by the value of Sterling, but imports are also expected to rise.  Irish slaughterings could increase by 100,000 head compared with 2016.  It is possible they could go over 1.7 million head, last seen over 10 years ago.  Overall, the AHDB is forecasting supplies available for consumption to be tighter in 2017, meaning price prospects for the year are looking more optimistic than they were 12 months ago.  Consumer purchasing power will continue to play its part.  In 2016 there was a 5.6% increase in the volume purchased of fresh beef but deflationary pressure has seen only a 3.1% increase in value.  But the reverse could happen in 2017, with inflationary pressure impacting on volumes.

Sheep Meat

Overall production in 2016 was lower compared to year-earlier levels.  Poor weather and pasture growth led to lighter weights and more lambs being sold as stores; these are expected to come to market in the first quarter of 2017.  Reduced slaughterings and the effect of the Referendum meant prices did not see their seasonal fall in late summer and the market held up well into the autumn and winter period.  However, prices have dropped since the turn of the year and are now about 10p per kg liveweight lower than at the same point in 2016.  Overall, imports in 2016 were lower, mainly due to the Brexit vote and lower production in New Zealand.  The 2016 lamb crop in NZ was the lowest for 63 years and the weakening of the Pound has seen the difference between the NZ and UK lamb price fall to its lowest for a number of years.

According to the AHDB, there are some doubts over the data that is available for exports.  Trading conditions were difficult at the beginning of 2016, but following the Referendum in June there was an improvement as the weaker Pound meant domestic lamb became more competitive.  France remains the UK’s main trading partner, importing just over half of all the UK’s exports.  it should be noted though that shipments to France have been in decline, with the French consuming less lamb.

The outlook for 2017 will probably be determined by the carryover from 2016.  The AHDB forecast the breeding flock to increase by 1%, although it expects the lamb crop to be smaller in 2017, partly due to ewes being in a poorer condition at tupping time and disease pressures such as Schmallenburg.  But assuming more ‘normal’ conditions over the summer there should be higher slaughterings in the second half of 2017 and less of a carry-over into 2018.  Ewe and ram cullings are also expected to be higher in 2017, due to a bigger and older flock.  Production in all four quarters of 2017 is forecast to be higher compared with 2016.  Imports are expected to continue to decline due to lower production in NZ, the strength of the Pound and increased domestic production.  Exports are forecast to increase, as other markets, such as Germany, Poland and Scandinavia grow.  But the reduction in imports and growth in exports is not expected to offset the increased production, with the result of a slight increase in supplies available for consumption leading to downward pressure on the UK market.

Pork

2016 saw domestic prices start the year low, but ending on a high.  Overall production was up year-on-year, but this was due to a strong start to the year as production fell from summer onwards.  Both imports and exports were higher over the year, although there are some questions over the volumes which are said to have come from Denmark.  Producers ended the year back in profit.  On the Continent, the EU price rose rapidly through the spring and summer but started come back in the autumn.  Production also started to fall in the second half of the year.  EU exports also improved; an increase in demand from China being the catalyst, two thirds of China’s imports currently come from the EU.

For 2017 the AHDB are forecasting a slight recovery in the domestic breeding herd.  However, this is coming from its figures which estimate the breeding herd size declined between 2015 to 2016, DEFRA’s official figures show an increase, which the AHDB is questioning.  The number of slaughterings are expected to fall in Q1 and Q2 of 2017 compared with 2016 but recover in Q3 and Q4.  With carcase weights expected to remain stable, production is also forecast to be less in the first two quarters of this year, but increasing in the second half.  Even with increased production in 2017, the AHDB are forecasting supplies available for consumption to be lower which should provide some support to domestic prices.  The weak Pound is expected to see exports increase further and this will not be fully offset by the upturn in production and imports are forecast to be lower.

The UK pork market has therefore entered a period of tighter supply following the low prices seen in 2015 and early 2016.  The EU market balance is also likely to remain tighter in the first part of 2017 which will help both Continental and UK values.  However, an eye must be kept on the global market and China.  Global production is expected to return to growth in 2017, particularly with the USA increasing production.  The growth in the Chinese market has dominated global import trends this year, but increase in competition from other producers and uncertainties over demand from China could have a big impact.

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.

MEADOW FARM MODEL – Source: The Andersons Centre
Pence per litre	2014/15 (Result)	2015/16  (Result)	2016/17  (Estimate)	2017/18  (Forecast)
Livestock Gross Margin	567	574	624	636
Crops Gross Margin	644	520	681	553
Gross Margin	584	564	637	617
Overheads	495	491	475	486
Rent, Finance & Drawings	310	310	318	320
Margin from Production	(222)	(238)	(156)	(190)
BPS / SPS (and ELS/CSS)	229	194	213	235
Business Surplus	7	(44)	57	46

The table above shows the results for the last two years and an estimate for the current year, to the end of March 2017, plus a forecast for 2017/18.  The 2015/16 year saw a small rise in in the livestock gross margin, but this was not enough to offset the lower crop returns.  The business made a loss even after support payments, which were lower in the first year of the Basic Payment Scheme; the ELS contract also finished part way through the year and no Countryside Stewardship (CS) agreement had been entered into.

The figures for the current financial year, ending March 2017, have been recently updated.  The weakening of Sterling, following the UK’s decision to leave the UK, has boosted the short-term prospects of the sectors.  Initial budgets for Meadow Farm saw the business making a loss of £19 per hectare for 2016/17.  As can be seen, this has now improved to a profit of £57 per Ha with better livestock and crop prices.  The situation is not forecast to be quite as good for the following year.  In particular the crop gross margin is budgeted to fall due to lower crop prices and an increase in variable costs.  In addition, a small area has been taken out of production to be put into the new Mid-Tier Countryside Stewardship (CS) Agreement.  The CS payment is not as large as the ELS payment, but the subsidy payments sees a £22 per Ha increase.

As we have said previously, even with an improvement in prices and subsidy levels, the total return, to the proprietors for their management and capital invested in the business, is still very low.  The key point is, like many similar businesses, the overhead structure of Meadow Farm is too large for the output the business achieves.  Over the longer-term, especially if Brexit brings negative impacts on support and prices, such businesses are likely to be unsustainable

Once again, EU Member States have rejected all offers in the latest tender process for the sale of SMP out of intervention stores.  In the fourth round of tenders offers were received for a total of 1,796 tonnes of SMP from five Member States.  Prices ranged from €155/100kg to €185/100kg.  Since the tender process opened at the end of November last year, only 40 tonnes have been sold.  In total 354,000 tonnes were put into storage in 2015 and 2016.  The Commission has said ‘the maintenance of the market balance and price recovery remain its objectives’ but with the EU spring flush getting closer you would expect selling product out of intervention is only going to get more difficult and SMP will only have a limited shelf life.

Prevention Zones to help stop the spread of Avian Influenza (AI) remain in place across the whole of Great Britain until at least 28^th February 2017.  If there is no change to the assessment of risk between now and the end of February, a targeted approach will be put in place in England after that date.  This will mean that for the majority of bird keepers mandatory housing will not be required, although certain criteria will need to be met and strict bio-security measures put in place.

The whole of England remains an area of ‘high risk’, but there will also be areas regarded as ‘higher risk’.  Generally these will be near lakes, coastal areas, marshes or estuaries where wild birds, particularly gulls and waterfowl gather.  DEFRA has put an interactive map on its website which can be found at http://www.gisdiseasemap.defra.gov.uk/intmaps/avian/map.jsp which allows poultry owners to check to see if they will be within the new higher risk area.  The map also shows premises that fall within Protection and Surveillance Zones around any infected premises.  Those that fall within the higher risk area (and protection and surveillance zones) will have to continue to house birds or if they are outdoors, keep them fenced and netted off from wild birds.

For other bird keepers, they will be allowed to let birds out into fenced off areas, although certain conditions will need to be adhered to.  These will include ponds being netted off, wild bird food sources removed and an assessment of the risks of their birds coming into contact with wild ones.   Poultry keepers of more than 1,000 birds will also be required to have predefined restricted areas for non-essential vehicles and people.  These new measures will provisionally stay in place until April 2017.  The introduction of the higher risk areas from 28^th February means that producers in these zones will not be able to label their eggs or products as ‘free range’ from that date as birds will have been housed for longer than 12 weeks, which is the maximum length of time under EU free range laws.  This could have considerable impact on their businesses.  Producers outside the higher risk area will have to weigh-up the risks of AI before allowing birds out and use the next few weeks to prepare their holdings.

In Scotland the Government has said it will not be introducing any higher risk areas.  To minimise the economic impact on the free range poultry industry in Scotland, as from 28th February all keepers will be allowed to let their birds out if they wish, provided they have put in place enhanced bio-security measures.  Wales has not made an announcement yet.

A fifth case of avian influenza has been found in the UK.  The H5N8 strain of the disease has been confirmed at a commercial pheasant breeding operation near Preston.  This adds to the cases seen in two turkey farms and two backyard poultry flocks.  Protection and surveillance zones have been put in place around the Lancashire unit.  Meanwhile, the housing order requiring all poultry to be bought indoors remains in place until at least the 28^th February.  In Northern Ireland this has already been extended to 16^th March.

Production and Prices

Milk production in December was just under 5% less than for the same month in 2015.  But at 1,150 million litres it was similar to production back in December 2014 (1,156m litres).  However, since the turn of the year, daily delivery information from AHDB Dairy shows production has fallen again.  For the first week of January, deliveries were running at 5.6% less than year-earlier levels.  For the week ending 14^th January it was 4.8% below 2016 and 2.5% lower than 2015 levels.  Cumulative production now stands at 6.3% below the previous year at 10,490 million litres.

As documented previously, the fall in production both domestically and globally has resulted in milk price rises.  The average UK farmgate price for December was 26.21ppl; a 2.7% increase on the month and 9.7% (2.33ppl) higher compared with the same month in 2015.  There has been several further significant price increases announced for January and February (some are included in last months article):

• ArlaFoods is increasing its January price by 1.68ppl
• As from 1^st February Muller UK has announced a further increase of 1.25ppl plus a retail supplement of 0.82ppl
• Yew Tree Dairy is increasing its February price by 1.5ppl
• Other price announcements include; a 1.5ppl and 1.65ppl increase in January for deliveries to Paynes and Wick Farms respectively, with Muller-Tesco announcing a 0.14ppl rise in February

Intervention

The EU Commission has held three tenders for the sale of SMP currently being stored in EU intervention but so far only 40 tonnes has been sold.  This was from the first tender held in December but at the latest two tenders the Commission has not accepted any bids.  The latest event saw bids for nearly 7,500 tonnes, but the highest bid was €1,900 per tonne, whereas the average market price recorded by the Milk Market Observatory for 15^th January was €210 more than this.  Buyers are reluctant to buy stock above the market price and are waiting for clearer market signals.  With the spring flush just around the corner, buyers may wait to see whether it looks like it will be a good or bad one before they commit too much.

Free Range Milk

Free Range Milk has been hitting the headlines with Somerset farmer Neil Darwent being featured on Jamie Oliver and Jimmy Doherty’s TV programme.  In addition, Somerset farmer Nick Hiscox has set up the Free Range Milk Marketing Board and is preparing to launch the ‘Enjoy Milk’ brand in full in April, although direct sales are expected to start from February.  But there are mixed messages, as milk from the Free Range Milk Marketing Board is from cows that are kept out at grass ‘as much as is possible and practical’ whereas Neil Darwent’s dairy uses milk from cows that have been out at grass for at least 180 days.  The lack of a single coherent standard and message could well hinder the development of this market.  It remains to be seen if this is just a fad.

A further outbreak of Avian Flu was confirmed on 16^th January in a flock of turkeys at a farm in East Lyndsey, Lincolnshire.  It is the same, H5N8, strain that has been identified in ‘backyard’ flocks in Carmarthenshire, Wales and Settle, North Yorkshire earlier in January and a turkey farm in Lincolnshire in mid-December.  A number of wild birds across England, Wales and Scotland have also been identified with the disease.  There is currently a legal requirement in place to house kept birds or to otherwise separate them from wild birds and follow strict biosecurity measures.  This requirement remains in place until at least 28^th February 2017.

The first period of the Milk Production Reduction Scheme finished on 31^st December.  Those who made a successful application to this first tranche of the scheme must send in a claim for payment by 14^th February.  Further guidance and the two page claim form (MPRS2) can be found on the DEFRA website at https://www.gov.uk/guidance/milk-production-reduction-scheme-how-to-apply .

Proof of actual deliveries must also be sent with the claim.  Proof can be a copy of the milk cheque or purchaser statement for each of the relevant months; you can send photocopies.  The completed form and proof must be sent to; Milk Production Reduction Scheme, Rural Payments Agency, Room 151, Lancaster House, Hampshire Court, Newcastle upon Tyne, NE4 7YH by 14^th February 2017

Claims for payment for the second period (1^st November 2016 to 31^st January 2017) must be received by the RPA at the above address after 31^st January but by 17^th March 2017.  As the first two periods were oversubscribed tranches 3 and 4 never opened for applications.