Category: Dairy & Livestock

Results from the latest GDT auction reveal demand for dairy fats continues to be strong.  The overall GDT price price index increased by 3.2%; the fifth consecutive rise.  The average index is now at its highest point for 3 years.  Notable movements were:

• Butter: 11.2%
• AMF: 8.2%
• WMP: 1.3% – WMP made up almost half of all the product sold
• SMP: 1%

Last month we wrote that Muller and Dairy Crest had announced they would be holding their milk prices through to June even though Arla had announced a price cut.  Now both have announced cuts.  Muller suppliers will receive a 0.5ppl price reduction for non-aligned producers from 9^th June.  Dairy Crest has told producers they will receive a 1ppl reduction for both June and July, although it has announced there will be no further cutsbefore the autumn; the July price will be held for August and September.

Many are questioning these price drops now especially with the current state of the market.  Domestic markets are bullish.  Cream prices are more than double they were a year ago, with strong demand for butter and cheese seeing prices for these increasing.  In addition spot whole milk is tightening, pushing the price up similarly skimmed milk is seeing prices rise.

The table below contains the latest forecasts of supplies of beef and lamb from the AHDB.  Echoing our comments made in last month’s article, domestic production of beef and veal in 2017 is expected to be tight.  The drive for lighter carcase weights has been noticeable over the year and, as this continues, it will inevitably mean less beef will be produced from each carcase.   In contrast, lamb carcase weights are expected to increase in 2017 as are the number of slaughterings, meaning sheep production for 2017 is forecast to be higher than in 2016.  However, we are likely to have seen the largest increases already in quarters 1 and 2 compared to 2016 due to the large carry-over from last year.  The lamb crop for 2017 is actually expected to decline by 1% compared to year earlier levels due mainly to disease problems.  If pasture growth returns to normal levels, slaughterings in Q3 are expected to be similar to 2016 levels with an increase of about 4% in Q4 and then, without such a large carryover, lower in the first quarter of 2018.

Actual and Forecast supplies in the UK

Source: DEFRA, AHDB, HMRC; cwe – carcase weight equivalent; Forecasts in italics

The Co-op has become the first national supermarket to source all of its fresh meat domestically.  Most of the meat it sells already comes from British sources but, as from the start of May, it will no longer sell imported lamb or bacon.  As well as the meat counter, the pledge of 100% British also applies to all the supermarket’s own-label ready meals, pies and sandwiches.

Finished prices for beef, lamb and pigmeat remain relatively robust.  There has been no substantial shift in the value of the Pound, despite a small strengthening of Sterling when the ‘snap’ UK General Election was announced.  With the Pound continuing to trade in the range around €1 = 85p, this continues to help the competitiveness of the UK meat trade.

In the beef market, the months of March, April and May saw significant drops in prices in both 2015 and 2016.  This spring dip has not (yet) manifested itself to the same extent this year.  The market is in good balance.  Supplies of beef are somewhat lower than last year.  At the same time demand is robust; the quantity sold in the 12 weeks up to 28^th March was 3% higher than a year ago.  This is not merely being driven by discounting as prices were down by less than 1%.

The sheepmeat market is still currently dominated by old-season lamb, although significant quantities of new season lamb are now appearing.  Despite a lot of industry attention on the prevalence of New Zealand lamb on shop shelves over Easter, the amount of imports this spring is well down on historic levels.  Prices are currently very similar to those seen at this point in 2016.  Conditions for lambing have generally been pretty good this spring.  This should mean that the number of lambs surviving has been high, and there will be plenty of supply through the remainder of the year.  Whether this exerts downwards pressure on prices remains to be seen.

March and April have seen  further upwards move in pig prices.  Values are now around 40ppkg higher than they were at this time last year – an increase of over a third.  According to AHDB cost of production data, pig producers were making a net margin of £13 per head in the final quarter of 2016 – the highest level of returns seem since 2013.   With the recent increase in prices, the margin may be even greater in Q1 or 2017.  The main reason for improved sale values is constrained supply.  In March, clean pig slaughterings were some 5% down year-on-year.  This situation is expected to continue through into the summer, but with supply growth expected in the second half of the year.

The latest results from the GDT auction held on 18th April showed the average index rose by 3.1% to $3,139.  Movements to note include:

• SMP +7.1%
• WMP +3.5%
• Butter +2.9%
• Cheddar +6.0%

NZ has seen a lift in demand.  In addition recent production has been hit by severe storms, although April and May usually only account for about 10% of a full season’s production.  Closer to home, there are ample supplies of milk in the Northern Hemisphere as we enter the spring flush.  Much of this is expected to find its way into global markets as either SMP or cheese.  This will cap the price of these products.  But the strength in the butter market should limit the amount of milk going in to producing WMP, supporting prices for this product.  Butter prices across the EU have only dropped 1% on average compared to February levels.  By comparison, the EU SMP price has fallen week-on-week throughout March as production continues its seasonal rise, with product now being sold into intervention.

The Small Dairy Farm Scheme opened for applications on 24th April and will close on 31st May 2017.  The scheme is open to all dairy farmers who meet the following criteria:

• annual cows’ milk production for the period 1st April 2015 – 31st March 2016 was less than 1,000,000 litres (or equivalent in Kgs)
• are still active in cows’ milk production
• produce in England.  Cross border farms are eligible if the majority of land lies within England and the RPA paid out the 2016 BPS monies

Eligible applicants need to complete a SDFS1 form which can be found at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/610375/SDFS1_v1.0_Small_Dairy_Farmers_Scheme.pdf  Proof showing total cows’ milk production during the period 1st April 2015 to 31st March 2016 will be required along with proof that the claimant is still active in cows milk production in April 2017.  Further information and guidance can be found at https://www.gov.uk/guidance/small-dairy-farmers-scheme

£8.5m has been made available to fund the SDFS, this was secured back in July 2016.  In total £16m was made available to support dairy farmers in England, the other £7.5m being used previously under the ammonia reduction scheme.  Under the SDFS, eligible claimants will receive a one-off payment depending on the litres produced, capped at 500,000 litres.  The payment will depend on the total number of claimants.  The aim is for payments to be made by the end of July 2017.

DEFRA has announced as from 13th April all poultry in England are allowed outside.  From this date the requirement to keep poultry housed or under enclosed nets in those areas identified as High Risk has been lifted.  However all keepers must continue to observe strict biosecurity measures.  In addition the ban on poultry gatherings remains in force until further notice.

Muller is to keep its standard milk price unchanged until at least the 1^st June.  There had been fears that Arla’s announcement of a price cut from the 1^st April (see last month’s article) would precipitate a round of cuts from other processors.  However, with the other half of the ‘big two’ now holding its price, this is perhaps less likely.  There is some less good news for Muller’s 1,900 suppliers.  Whilst the standard price remains unchanged at 26.7ppl, the ‘top-up’ from the retailer supplements paid by Lidl, Aldi and Morrisons will fall to 0.3ppl – giving a total price of 27ppl.

Dairy Crest has also announced that it will hold its milk prices for April and May.  This means they stay at 28.9ppl for the liquid contract and 30ppl for producers on the manufacturing/cheese contract.

In a blow to the dairy industry, Arla has announced it will be making a price cut as from 1^st April.  The net cut will work out at 0.42p per litre after the processor’s currency ‘smoothing mechanism’ is applied.  This will not only be bad news for Arla suppliers, but will probably affect the whole industry as other processors are likely to follow suit.  The fall in global SMP prices and the approaching spring flush are likely to be the main drivers.  It is possible that a similar cut could be put in place for May as well.

A two-year investigation by the Brazilian federal police has found fraud and corruption in some of the country’s meat processing plants.  In all, 21 processing plants have been implicated in the inquiry; these are mostly facilities producing beef, poultry and pork, although two process horesemeat and honey.  Of the 21, four were eligible to export to the EU, their certification has now been suspended, meaning none of the 21 are now able to export to the EU.  Brazil is the largest exporter of beef and poultry combined and is the EU’s biggest supplier of meat.