Category: Dairy & Livestock

Beef

Prime cattle prices have been declining throughout June and July although still remain above year-earlier levels.  The GB deadweight All Steer price peaked at 493.9p per kg for the w/e 20th May 2023.  Since then it has fallen by 26.2p to 467.7p per kg for the w/e 22nd July 2023.  Although still 27.3p per kg higher than the same week in 2022, the steady week-on-week decline is concerning, particularly for those who bought ‘expensive’ stores in the spring.  It is a similar picture for heifers, with the GB deadweight All Heifer price at 465.9p per kg for the w/e 22nd July 2023.  Deadweight cow prices have also declined over the past couple of months, the difference being, these levels are now below the price at this time last year.

Higher slaughter levels are likely to be driving the decline in prices.  For June, UK prime cattle (steers, heifers and young bulls) slaughterings were 171,000 head; up 3.7%.  In addition, cow and bull (adult) slaughterings were 6.3% higher than in June 2022.  According to Defra statistics, UK beef and veal production was 75,000 tonnes in June 2023; 3.2%above year earlier levels.

Sheep

New season lamb prices started well, probably helped by early throughputs being down on the year.  The deadweight SQQ overall price peaked at 742.9p per kg for the w/e 20th May 2023; this compares with 2022 prices, when prices peaked at 692.9p per kg for the w/e 11th June 2022.  Since mid-May, as throughput increased, prices have followed the usual seasonal decline.  However, prices dipped below year-earlier levels for most of June and July and remain below 2022.  For the w/e 22nd June 2023 the GB SQQ stood at 592.2p per kg, some 30.3p per kg lower than the same point last year.  However, considering the increase in slaughter numbers, prices have remained robust.  Defra statistics show clean sheep slaughterings (which will include any old season lambs) for June 2023 were 21% higher than 2022 at 1,059,000 head with ewes and rams 20% up on year earlier levels at 144,000 head.  Mutton and lamb production was recorded at 25,000t in 2023, some 20% higher than in 2023.

Defra is seeking feedback on the latest round of the Animal Health and Welfare Equipment and Technology Grant.  In particular, it wants to hear whether any aspects of the specifications for items on the list should be changed and also if there should be any changes to which sectors are eligible for items on the list.  Responses should be made via the survey which can be found at https://defragroup.eu.qualtrics.com/jfe/form/SV_5unlnLqBYtlxxeS .  Views need to be submitted by 7th August 2023.

Defra has also announced that over £19 million has been awarded to more than 3,000 cattle, sheep, pig and poultry farmers through this first round of grants.  The RPA is currently writing to the successful applicants.

The Government has announced new regulations to come in later this year to ensure supply contracts in the dairy sector are ‘fair and transparent’.  The announcement was made at the Great Yorkshire Show by Mark Spencer, the Farming Minister, and follows a consultation held back in 2020.  The regulations will mean;

• Clearer pricing terms.  Contracts will need to set out the factors which generate the milk price and an appeals process for farmers if they don’t think this is being followed
• Contracts cannot be changed without agreement, changes cannot be ‘imposed’ on farmers
• Contracts must indicate a straight-forward way to raise concerns
• Clear rules on notice periods and contractual exclusivity, removing ambiguity from contracts
• An enforcement mechanism will also be created to guarantee the regulations are followed.

The Statutory Instrument (SI) on dairy regulations is scheduled to be laid before Parliament later this year.  The Government has said the new Regulations represent a ‘key milestone’ in its commitment to ‘promote fairness and transparency across food supply chains’ to support farmers and build a stronger future for the industry.  It also said this will be followed by reviews into the egg and horticulture sector supply chains this Autumn.

 

Production

The AHDB estimated GB production at 1,141m litres in May; a 0.5% increase on last year but 0.82% less than the Levy Board’s forecast.  The cold, wet spring impacted turnout and with falling farmgate milk prices (see below) and high input costs (albeit easing), producers have had little incentive to try and increase output.  The weather has now ‘flipped’, allowing turnout and some good weeks of grazing and silaging but, if the dry weather of the last few weeks continues, this could start to cause issues with grass growth and impact production later in the year.

There is a similar situation on the Continent.  Reports show Western Europe is also suffering from a lack of rain and with falling milk prices, production is likely to be affected into the autumn.  However, markets suggest that buyers appear to be ignoring these signals, at least for now, with spot prices remaining subdued and farmgate prices continuing to be cut.

Prices

There was no change to the average Global Dairy Trade index at the latest event held on 20th June which remained at $3,479.  However, this is 24% less than June 2022 and follows two consecutive declines both of 0.9%.  Notable changes include:

• Butter      +5.5% to $5,379
• Cheddar   -3.3% to $4,533
• SMP          -2.3% to $2,667
• WMP         0.0% to $3,172

Even though UK production is easing and last month we reported some signs of recovery, farmgate milk prices continue to be cut.

• Arla has announced a 1.78ppl reduction from 1st July for UK members, taking their standard manufacturing litre prices down to 35.21ppl.  This also means the total price cuts for this year are 17ppl so far.
• UK Direct suppliers to Muller will receive a 2ppl price cut to 38ppl from 1st July.
• First Milk has announced a 1.04ppl to 36.85ppl from 1st July
• Barbers and Freshways ‘A’ price have both been cut by 2ppl

The latest Meadow Farm figures forecast an improvement in returns for the current 2023/24 year.  However, the farm’s margin from production remains negative and with declining subsidy payments the future for the business as it currently operates looks unsustainable.

Meadow Farm is a mixed lowland farm, typical of many livestock holdings in England, it is a notional 154 hectare (380 acre) beef and sheep farm in the Midlands.  It consists of grassland, with wheat and barley for livestock feed.  There are 60 spring-calving suckler cows with all progeny finished, a dairy bull beef enterprise and a 500 breeding ewe flock. 

The table below shows the final results for the last two years an estimate for  2023/24 and a (tentative) forcast for 2024/25.  It can be seen how ‘agflation’ has impacted even when livestock and crop prices were buoyant.  For 2022/23 it clearly shows the impact of increased, fuel, fertiliser and feed costs for this type of farm.

For the current year, ending April 2024 (2023/24) the Livestock Gross Margin has improved.  Cattle prices continue to run ahead of last year and the lamb price picked up in March after a slow start to 2023 and is now similar to 2022.  Meadow Farm markets most of its livestock in the autumn and we do not foresee any major changes in the prices apart from seasonal adjustments.  Feed, fertiliser and fuel costs have all declined compared with 2022/23, meaning the Total Gross Margin improves on the year.  Overheads continue to increase with inflation.  The Margin from Production, although better than last year, remains negative.  The BPS has reduced again, meaning the Business Surplus is just £37 per Ha (£5,698 in total).  Meadow Farm is currently in the Countryside Stewardship scheme.  This agreement ends December 2023 and the proprietors are considering whether to enter into a new SFI scheme.

The final column is a tentative look at 2024/25 and clearly shows the importance of the BPS to this business. This business has been subsidy-dependent for many years, and with direct payments being phased out it will need to adapt.  This could be through restructuring to reduce its overheads, which are fundamentally too high, or by taking advantage of opportunities under ELM schemes – or probably a combination of both.

Production

UK milk production has started to slow.  The cold, wet, spring affected grass growth and hindered turnout due to poaching.  Even so UK production in March was 0.8% above year-earlier levels.  However latest UK production figures from Defra show in April deliveries were only 0.3% higher than in 2022 and are now running -2% behind the AHDB’s GB milk forecast for the year.  The spring flush was expected to be later this year, but the AHDB reports GB daily deliveries started to decline in the week ending 13th May with volumes at similar levels to last year.  Furthermore it will be interesting to see what the silage quality is as, in many parts of the country, cutting has been delayed due to ground conditions, with the drilling of maize also having to be put back because of the wet weather.  With input prices remaining historically high, farmgate milk prices falling (see below), strong prices for culls and the possibility of poor forage, production could be significantly lower this season.  On the Continent, the EU is forecasting a -0.2% drop in production for 2023.  Production in the second half of the year is expected to decline as a result of a reduction in the dairy herd and lower prices.

Prices

At the latest GDT event held on 16th May the Price Index fell by -0.9% to average $3,488.  However, this follows two consecutive rises of +3.2% in Mid-April and +2.5% at the event held in early May.  Elsewhere, there have also been (small) signs of a recovery in the commodity markets, with the Dutch Dairy Board butter price increasing, the Dutch SMP price has also increased for three consecutive weeks, the cheese price is also looking more promising.  In the UK, although farmgate prices continue to fall, the spot milk price is creeping up to 30ppl on the back of lower than expected deliveries.

The latest farmgate prices for June include:

• a 2.5ppl cut for Arla direct suppliers
• First Milk has announced a 1.4ppl cut, and
• suppliers to Belton Cheese and Wyke Farms will receive a 2ppl and 1.04ppl cut respectively.

Beef

Prime beef prices continue to trend upwards, albeit at a slower rate than the first three months of the year.  The GB deadweight All Steer price for the week ending 20th May was 493.9p per kg; up 0.5p on the week and compares with 438.7 p per kg a year ago.  Tight supply continues to support prices with low carcase weights being the main driver.  Although there has been a slight increase in the number of cattle coming forward over the last four months compared to 2022, any increase in production has all but been offset by the lower finished weight of animals.  According to Defra, prime carcase weights averaged 343.8kg between January to April this year, compared with 350.2kg in 2022 over the same time period.  However, average weights have been increasing since November last year, when feed costs were exceptional; with feed costs expected to fall further as grain prices fall, carcase weights are likely to increase.

Globally, latest forecasts from the USDA show 2023 beef production marginally lower at 59.1 million tonnes, compared with 59.3 million tonnes in 2022.  A 5% reduction in production in the US is forecast to be somewhat offset by increases in Australia, Brazil, China and India.  Outside of the US, beef production in expected to increase by 1% as producers react to the high global beef price.  Production in Australia is expected to increase by 10% due to heavier carcase weights as pastures improve and there is a greater availability of feed.  Both Brazil and India are forecast to increase production by 2% and China by 3% as food service demand returns as Covid restrictions lift.

Sheep

The finished lamb price remains buoyant.  Since mid-March the lamb price has taken off.  The GB deadweight SQQ NSL price for the week ending 20th May stood at 743p per kg compared with 672p per kg for the same week last year.  (AHDB switches to reporting New Season Lamb (NSL) in the 3rd week of May).

Prices were boosted by Easter demand.  Lamb did particularly well, receiving support from retailers via promotions and with the weather not as nice as some Easters, consumers appeared to opt for a traditional and, in particular, a roast leg of lamb.  According to Kantar, for the week ending 9th April 2023, lamb roasting joints saw an overall increase of 25.5% in volume sales compared with year earlier levels.  Of this, leg roasting joints accounted for almost 93% of all lamb roasting joints sold at Easter.  In contrast, volume sales of beef and pork were down by -0.7% and -16.8% respectively for the same week.

Farmgate pig prices continue to perform well.  The UK-spec GB SPP for the week ending 13th May stood at 216.4p per kg, up some 46.5p per kg on the year.  It is a similar story in Europe.  The EU average reached an all-time high of 211.7p per kg for the week ending 23rd April.  The difference between the UK and EU reference is now about 4p per kg.  In the 17 weeks since the turn of the year, the EU average has increased by nearly 32p per kg.  Prices in Spain and France, in particular, have performed well, increasing by over 43p and nearly 47p per kg respectively.  However, prices fell during January in Denmark and has only risen by 13p per kg over the same period.

Tight domestic supplies are helping to support prices at home.  Defra has made some revisions to its UK slaughterings and production data (going back to 2021).  This has led to an increase in the slaughter numbers previously reported for Q1 2023 and a marginal uplift in pigmeat production for the quarter by 2,000 tonnes.  Even so, production is still 11% lower year-on-year.  Furthermore, this reduced output continued through April.  The number of clean pigs slaughtered in April stood at 765,400 head, the lowest monthly figure since 2014.  Including sow and boar kill, pigmeat production for the month totalled 70,900t; the lowest monthly figure since May 2020 during the first UK Covid lockdown.  For the year to date (January to April), pigmeat production is down 13% compared with the same period in 2022, at 305,300 tonnes.

Scotland has introduced tighter controls to reduce the risk of Bovine TB entering Scotland.  The new rules, which came into force on 18th May 2023 under the Tuberculosis (Scotland) Order 2023, will mean stricter pre-movement testing of cattle entering Scotland from a TB high-incidence area.  Under the new legislation, cattle from England and Wales which move from areas which must be tested more frequently than every two years, or those coming from a low-incidence area of England and Wales but have resided in these high-incidence areas at any time of their life, will require a clear pre-movement test within 30 days prior to the movement to Scotland; previously this had been 60 days.  In addition, a negative test in a herd under movement restrictions due to a TB breakdown will no longer qualify as a pre-movement test even if that test lifts restrictions.  If a pre-movement test has not been completed when required, the keeper’s holding will be put under movement restrictions until the animals have had a clear movement test.

Since the last time the Friesian Farm figures were presented, there has been a sharp fall in milk prices.  At the same time, some costs have eased.  However, the overall picture for the current milk year is for squeezed margins.

The table below shows the summary results for the past two years plus an estimate for the current milk year and a forecast for 2024/25.  It can be seen that good profits have been made in the dairy sector – especially in the past 2022/23 milk year – the pence per litre profit is the highest that Friesian farm has ever produced.  Although there was a sharp increase in costs, this was more than compensated for by very high milk prices.  The average for the year comes in at just over 47 pence – this is lower than the peak prices of 50ppl+ seen at one point in the autumn, but it is an average for the whole year.

Milk prices have already seen large falls going into the current milk year and these are forecast to continue in the coming months until markets stabilise from the summer onwards.  The average for the year is much-reduced compared to last year but, it must be remembered, still above values for two years ago.  The present year has seen some costs fall.  Notably fertiliser – as Friesian Farm buys in the spring, when prices had fallen, and feed – budgeted prices for next winter are lower due to grain price falls.  Overheads ease marginally due to cheaper fuel and electricity, but it can be seen that costs in this category are now ‘baked-in’ at a much higher level than a couple of years ago.  The good profits from last year mean that borrowing levels are lower and finance costs are estimated to fall, despite higher interest rates.  Overall, the margin from production is close to break-even, and a declining BPS contributes less than it once did.

A forecast is shown for 2024/25 but, with it still so far away, any figures must be treated with a large degree of caution.  The figures assume some recovery in milk prices.  Cost stay high in historic terms, but some margin returns to the business.

Friesian Farm is a notional dairy business milking around 220 cows.   It has been used to track the fortunes of British dairy farming for well over a decade.  It has a year-round calving system, like the majority of the GB industry, but it is trying to maximise yield from forage.  The farm comprises 135 hectares (335 acres) of which 65 hectares are rented on FBTs.  The proprietor provides labour along with one full time worker plus casual/relief.