The Scottish Government has started making payments under the Scottish Upland Sheep Support Scheme (SUSSS). The rate for 2022 will be £61.25 per ewe. This compares with £61.65 in 2021 and £59.80 in 2020. The rate varies with the numbers of claims made under the scheme each year.
The AHDB’s estimated GB milk deliveries for 2022/23 is 12.39 billion litres (Defra’s figures will be available on 27th April). This is 0.2% ahead of the previous year. Production started the season very slow when margins were squeezed. But buyers increased milk prices, reaching records levels, encouraging an increase in production with seven consecutive months from September to March recording production at higher levels than in the previous year. Although farmgate prices are now falling, the spring flush means production remains strong. AHDB estimates deliveries for March to stand at 1,088 million litres; up by 1.2% year-on-year, although in line with the five-year average. Daily deliveries for March averaged 35.09 million litres, 3% higher than February as we enter the spring flush.
Milk yields are expected to remain high during the spring, but looking further ahead the extent of the fall in farmgate milk prices (see below) will impact output later in the season. The AHDB is forecasting a marginal growth of +0.5% in production for 2023/24 at this early stage of the season.
Global milk production is also above year-earlier levels. This is based on supplies from the six key exporting regions which includes the UK and also the EU-27, Argentina, Australia, New Zealand and the United States. Global deliveries for February averaged 816.6 million litres per day, up by 0.8% on February 2022. Only Argentina and Australia recorded declines in the month. Deliveries in Australia were 5.3% down on the year due to unfavourable weather conditions, whilst Argentina is feeling the effects of high costs. Production in the EU was up by 0.9% on the year and the US by 0.8% with February being the 8th consecutive month to record year-on-year growth. New Zealand has recorded strong growth, with deliveries 2.3% higher when compared with February 2022.
The GDT price has seen an unexpected increase at the the latest auction held on 18th April. The average index rose by +3.2% to $3,362. This is only the second time the index has recorded an upward movement in 2023 and follows a -4.7% fall at the auction held in early April. All products recorded rises;
SMP and WMP make up the majority of sales at the auction and are particularly influenced by demand from China. This was lower last year; dairy imports fell by around 19% in 2022. This was due to high imports in 2021 and good domestic supplies increasing supply and soft demand due to China’s zero-Covid policy, low GDP growth and the increased cost of living. Looking ahead, demand from China is uncertain but on balance forecasters are expecting it to recover throughout the year as China’s GDP increases and the country’s Covid restrictions lessen. However, Rabobank is forecasting demand to weaken due to the cost of living whilst supply is likely to increase.
Closer to home, domestic farmgate prices are experiencing further price cuts for May. Muller (Direct), Crediton Dairies, Sainsburys and Muller Co-op are among those who have announced price drops on liquid contracts for May. Meanwhile, Freshways has held its price for May with Tesco increasing the amount it pays to its suppliers by 1.0ppl as it returns to its cost of production model. In terms of cheese contracts, Glanbia, First Milk, Barbers, Saputo, Belton, Lactalis and South Caernarfon Creamery have all announced price cuts for May.
Finished cattle prices continue to break records rising through March and into April, although not at quite the pace seen in February. The All Steer Deadweight price for the week ending 15th April was 490.8p per kg; this compares with 436.9p per kg for the same week in 2022. It is a similar picture for liveweight, with the overall steer price up 41.05 p per kg on the same week last year. In contrast, the cull cow price has shown some easing, with deadweight prices plateauing through March, although still comfortably above year earlier levels and over a £1 per kg higher than the 5-year average. Tight supplies continue to support prices. On the Continent the European Commission’s short-term Spring Outlook is forecasting EU beef production to decline by 1.6% year-on-year for 2023 as both dairy and beef herds contract due to low profitability and environmental pressures. The tight EU beef supply picture should continue to support UK prices.
The finished lamb price had a ‘slow’ start to the year, but since March it has been climbing significantly and has now surpassed last year’s value. The Old Season Lamb SQQ overall average price for the week ending 15th April reached 306.6p per kg liveweight, compared with 274.6p per kg for the same week in 2022 and to 250.4p per kg just four weeks earlier. Trade has been supported by Ramadan, which finished on 21st April with Eid al-fitr and Easter. Anecdotal evidence reports that demand remains good but supplies are now short, which should continue to support prices. Furthermore, lamb prices for the week ending 9th April, in the key export markets of France and Spain were up by 7.8% and 6% on the year respectively with the EU sheep population having declined by 1.8% in 2022. However, bucking the trend was the Irish lamb price, for the week ending 2nd April, prices were 6.1% lower year-on-year.
It has been confirmed that Arla will no longer be supplying milk for Sainsbury’s own-label products from early next year. As from February 2024, Sainsbury’s will use Muller as its sole supplier of its own-label milk. The announcement brings to an end a long-standing supply deal between Arla and Sainsbury’s. However, the processor has confirmed it will continue to supply it’s own recognised brands to the supermarket. Arla made up around a quarter of the supermarket’s own-label milk supply with Muller making up the remainder.
Defra will regulate contracts in the pig sector. This comes after Defra published the results of its consultation on reforms to the pig industry supply chain. The consultation, which was called for due to unprecedented challenges within the industry, closed in October 2022 and received 374 responses. The main outcome will be the development of regulations for pig contracts using the regulation-making power in Section 29 of the Agriculture Act 2020. These should ensure all agreements between producers and buyers are in writing removing any uncertainty and ambiguity. Furthermore, Defra will be working with the industry to see what other provisions should be mandated (if any) as part of these agreements.
The consultation also revealed pig producers’ concerns about market consolidation in the processing sector and Defra has agreed to share these responses with the Competition and Markets Authority (CMA). Defra will also develop regulations so that it can collect and report on more supply chain data especially regarding wholesale price transparency and slaughter numbers. It will also work with the devolved administrations on these issues and engage with all parts of the UK to ensure legislation works for all of the devolved regions. The full response can be found at https://www.gov.uk/government/consultations/contractual-practice-in-the-uk-pig-sector?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=6524d947-557c-489e-886f-5be7129b047c&utm_content=daily
Poultry will be able to return outdoors in England and Wales from 18th April 2023. The Animal Plant and Health Agency has announced that the housing requirement that has been in place since the start of November will be lifted. This is as a result of the falling incidence of Avian Influenza across the country. Bird keepers are being asked to remain vigilant however, as the virus is still circulating.
The finished pig price has experienced a steady increase since the turn of the year. The latest GB EU spec SPP for the week ending 18th March rose by 1.12p per kg on the week to 212.53p per kg, some 70p higher than year-earlier levels. History shows that the deadweight pig price usually has a seasonal uplift through the spring into autumn, which producers will be hoping happens again this year, as whilst prices are at record highs, they are still not covering the costs of production.
The AHDB quarterly full economic cost of production for Q4 2022 is estimated at 224p per kg deadweight. This means the average producer will still have negative margins. However, the estimated cost of production has fallen by 3p per kg since Q3, mainly due to a decline in feed costs, which fell by 5p per kg over the same period. With arable prices continuing to fall, feed costs are likely to decline further. In addition, pig prices should remain supported by the uplift in the EU pig price and reports of production tightening both at home and on the continent.
The EU-27 reference pig price experienced an 18p per kg increase between mid January and mid February following reports of tight supply in slaughter-ready pigs. It is usual for the price to increase in the spring, but this year it is a few weeks earlier as processors try and secure supplies. Prices for the selected key nations of Germany, Spain, France and the Netherlands are now at their highest on record and saw significant increases since the start of the year. It is only Denmark which experienced a 4p per kg decline, over the same four weeks, although it has seen small gains recently. At home, Defra reports in February, just 762,000 clean pigs were slaughtered. This is the first time monthly slaughterings have fallen below 800,000 head since May 2020. Furthermore, it is the lowest recorded monthly figure since May 2014. Throughputs are down 11% on the month, 17% compared with 2022 and 13% below the 5-year average for February.
Whilst supply is constrained, demand looks weak too. The latest retail data from Kantar shows in the 12 weeks ending 19th February, the volume of pork purchased fell by 2.6% compared with the same period last year. The actual spend on pig meat rose by 8.8% year-on year but that is because of an 11.7% price increase due to inflation.
GB milk deliveries look set to end the (milk) year strongly. February has shown a 3% year-on-year increase to 952m litres; also marginally up on the 5-year average. The high milk price has driven production, but this is now faltering and could impact on yields going forward. The current milk year (finishing end of March) is expected to record production up marginally on the year, by 0.2% at 12.39bn litres. Prior to September, production was running behind 1-2% behind the previous year, but the increase in milk price has had the effect of boost output during the second half of the season.
Production for 2023/24 is forecast by AHDB to increase by 0.5% to reach 12.46bn litres. Current high yields are expected to continue through the spring, but with production then slowing through the second half of the year, as the effect of lower milk prices hitting margins feeds through.
Globally, milk deliveries in January grew by 1.1% on the year. Increased deliveries were recorded in all of the key regions except for Australia. For the calendar year 2023, Rabobank is forecasting a 0.7% increase, with most of the growth expected in the first half of the season.
The Global Dairy Trade (GDT) average price index has fallen at both the events held in March. At the latest auction, on 21st March, the index declined by -2.6% to average $3,361, this compares with $5,039 in March 2022, when the index peaked. All products on offer recorded falls, most notable;
In terms of farmgate prices, increased deliveries and reduced market returns are inevitably having a downward impact. Large cuts have already been announced over the first three months of the year and April is not going to be any different. Some key prices include;
Growth in global and domestic milk supplies is affecting prices. Compared with early 2022, when supply was tight, the tables have turned, with supply now ahead of demand. GB deliveries are continuing to increase week-on-week and will continue to do so as we start the spring flush. For the week ending 18th February, the AHDB reported daily deliveries running 3.8% above the same week last year. Global deliveries in December averaged 808m litres per day; an increase of 0.4% on December 2021. All of this growth has been recorded in the northern hemisphere of the UK, EU-27 and the US. In contrast, the southern hemisphere recorded lower deliveries. Poor weather conditions have affected production in New Zealand and Australia and higher costs are beginning to have an affect on production in Argentina.
In terms of prices, the Global Dairy Trade (GDT) index fell by 1.5% at the latest event to average $3,414, this compares with $4,840 a year ago. Both SMP and WMP declined by -2.4% and -2.0% respectively, bucking the trend is butter, increasing by +3.8%. An increase in supplies and lower commodity prices is putting strong downward pressure on farmgate prices; there has been another round of big cuts announced by processors. Below is just a few, to give readers an flavour;
The current sheep price is under pressure and concerning flock owners. The latest deadweight GB SQQ (old season lamb) price for the week ending 18th February did increase by 14.4p per kg on the week to 511.3p per kg. However, this is 74.7p lower than at the same time last year. Both deadweight and liveweight prices are now hovering around the 5-year average. Looking ahead the AHDB has released its first forecasts for 2023.
The AHDB is forecasting a rise in production for 2023 of about 8-9%, due to a high carry-over from the previous year and a lamb crop similar to 2022. The breeding flock has seen relatively strong expansion over the last couple of years due to good prices and confidence in the sector. However, in 2023 this expansion is expected to slow to 0.5% due to high input costs, an increase in cullings in 2022 and a reduction in the BPS. Early scanning reports were poorer than year earlier levels, however this was variable and the later flush of grass in the autumn has helped those lambing later and also improved ewe condition. Overall the AHDB is expecting the lamb crop to be similar to 2022. Using Defra’s kill figures, the carry-over of old season lamb (OSL) from 2022 to 2023 could be as high as 4.6 million head; 16% higher than the previous year. The AHDB does express some uncertainty over Defra’s figures and is saying the carry-over could be more in the region of 4.4 million head, 11% higher than 2022. The high carry-over is mainly due to a lower kill in the 2nd half of the year, when pressure on feed due to costs and the drought slowed the finishing of lambs. Depending on whether you use Defra’s reported slaughter and production data or AHDB’s estimates, total UK sheep meat production is forecast to be just under 302,000 tonnes or 315,000 tonnes an increase of 9% or 8% respectively on the year.
Demand is continuing to be impacted by the cost-of-living crisis. Similar to beef, lamb consumption through retail may benefit from moving from out-of-home to in-home. But it is likely there will also be a switch to cheaper proteins and cuts of lamb. Lamb consumption is expected to fall by 8% compared with 2022 and down to 21% of 2019 volumes.
UK exports of sheep meat grew by 9% in the year to November compared with 2021, although this remains below the longer-term average. Recent growth is mainly due to increased shipments to the EU and in particular Ireland. For the coming year exports will be pivotal to retain domestic market balance and could increase by as much as 15%. There is potential for increased demand from Europe due to a contraction in the flock and a strong recovery in demand in 2022 on the Continent, but this may come under pressure in 2023 as, similar to the UK, consumer budgets are under pressure. The competitiveness of UK product remains key.
Imports to the UK for the period January to November 2022 grew by 22%; back to 2020 levels. However the long-term trend has been downwards driven by lower quantities of fresh sheep legs from New Zealand. For 2023, imports are expected to fall by 5% on the year, due to weaker domestic demand and an assumption that shipments of NZ meat continues to flow to China. There has been recent industry concern over the increase, in particular, of frozen leg imports, from New Zealand and also regarding Aldi’s decision to abandon its longstanding commitment to only stock British meat.
In terms of farmgate prices, with production forecast to increase and consumption decrease, prices look set to remain under pressure compared with the last couple of seasons.
