Category: Dairy & Livestock

Goat Farmers Served Notice

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.

Avian Flu Reappears

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.

 

Dairy Markets

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.

Animal Welfare

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.

Muller Price Cut

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.

Meadow Farm Update

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.

MEADOW FARM MODEL – Source: The Andersons Centre
£ per Hectare 2015/16 (Result) 2016/17  (Result) 2017/18  (Budget) 2018/19  (Forecast)
Livestock Gross Margin* 574 650 736 691
Crops Gross Margin* 520 641 653 643
Gross Margin 564 649 716 679
Overheads 491 480 496 506
Rent, Finance & Drawings 310 318 315 318
Margin from Production (238) (148) (95) (146)
BPS (and ELS/CSS) 194 213 247~ 240
Business Surplus (44) 65 152 95
*on grass/cropped area;    ~ incl. new CSS Agreement
 

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.