Category: Dairy & Livestock

Profitability figures from our Friesian Farm model have been updated and are shown in the table below.  Friesian Farm is a notional 200+ cow business in the Midlands with a milk contract on a constituent basis.  It has a year-round calving system, like much of the UK industry, but it is trying to maximise yield from forage.

The figures are for milk years – April to March.  The 2021/22 year was a very profitable one for most dairy farms.  Then, the 2022/23 milk year saw a big increase in prices.  Although costs went up a lot as well, many dairy farmers made record returns.  The current 2023/24 year illustrates the decline in farmgate milk prices.   With costs ‘sticky’ on the way down, the business only breaks even from its farming activities.  The decline in the BPS in England can be clearly seen.

For 2024/25 however, Friesian Farm has gone into the Sustainable Farming Incentive (SFI).  A third of the grazing platform has been placed into herbal leys (SAM3) with the remainder of the grassland eligible for legumes in improved grassland (NUM2).  Friesian Farm has good hedgerows and has entered them into all three of the hedgerow options.  A Soil Mangement Plan and testing for soil organic matter together with a Nutrient Management Plan helps to add a useful amount to the bottom line.  However, it is important to remember there are costs to the scheme, particularly in establishing the herbal leys; these have been included in the farming margin.  Currently milk prices are firming but there is a question over how far and fast any rises may be.  Overhead costs drop for 2024/25 – this is due to cheaper fuel and electricity, but also due to unusually high contract costs during the previous year.

Arla has increased its milk price by 3 Euro cents per kg (2.6ppl) from the 1st January 2024.  The size of the increase, which was announced at the end of December, took many by surprise and is for both organic and conventional suppliers in the UK.  It takes the convential price to 37.6ppl.

Arla UK Agriculture Director said ‘both conventional and organic markets are coming back to growth and our retail branded sales continue to improve. With a stable outlook, this latest and significant increase should give confidence to our farmer owners as we begin the start of a new year.’  Interestingly, in Central Europe, the organic on-account milk price has increased by 5 Euro cents per kg.  According to Arla Foods amba board director, and Arla farmer, Arthur Fearnall, this is driven by the ‘transition of the certification scheme to the organic association Naturland and follows increased profitability from retail positions‘.  Other price rises, although by not as much, have also been announced, these include;

• 0.75ppl for Meadow Foods from 1st January
• 1.21ppl for Wensleydale Creamery from 1st January
• 1.03ppl for Barbers Cheese from 1st February.
• Muller and Saputo Dairy have both held their prices

Tighter milk supply is supporting markets; UK milk production remains behind last year’s deliveries.  In the UK, wholesale markets improved in December supported further by an increase in demand.  Butter rose by £160 per tonne, cream prices by £69 per tonne and mild cheddar by £110 per tonne, with cream and butter rising above 2022 levels.  However SMP was down by £50 per tonne.

The outlook for global markets is similar.  The averge price index has risen at the last four events at the Global Dairy Trade (GDT).  For the latest aution held on 16th January, the average price rose by 2.3% to $3,493.  Butter increased by 5.8% to average $5,906; bith SMP and WMP increased by 1.2% and 1.7% to average $2,638 and $3,353 respectively.  Cheddar was also up by 1% to $4,217.

Cases of Bluetongue continue to be identified through active surveillance in the temporary control zones (TCZ).  As at 24th January 2024, Defra has identified 56 cases in England on 33 premises.  Even so, it is still saying there is no evidence that Bluetongue virus is currently circulating in midges in GB.  Currently there are two temporary control zones, one in north-east Kent and another in Norfolk; active surveillance continues in these areas.  Movements of livestock in and out of a TCZ can only be made under limited circumstances; it is possible to apply for a specific movement licence if there’s an urgent and genuine welfare need to move animals.

For UK born and bred animals that are culled to control the spread of disease, compensation will be paid at market value.  No compensation will be paid for imported animals that test positive for Bluetongue.  For the latest situation and further information go to https://www.gov.uk/guidance/bluetongue.

The NFU and NFU Scotland have confirmed that the Statutory Instrument (SI) on milk contracts will be laid before Parliament in February.  Readers will recall the new regulations are aimed at ensuring supply contracts in the dairy sector are ‘fair and transparent’.  Our article published back in July contained further detail (see https://abcbooks.co.uk/milk-contracts-2/).  One amendement to the SI, which was expected to have gone to Parliament in 2023, is that the new rules will apply to both new and existing contracts.  The industry has been calling for reforms for a long time.  The voluntary code on milk contracts, introduced in 2012, attempted to address the imbalances in the chain but few milk purchasers adhered to its principles and a consultation was opened in 2020.  NFU President Minette Batters has emphasised that the dairy SI could serve as a blueprint for fairer terms in the other farming sectors.

The Meadow Farm model has been updated for the LAMMA show.  It is a notional 154 hectare (380 acre) beef, sheep and arable holding in the Midlands and is typical of many family farms.  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.  Two family members currently work full-time on the farm.

In most years, the business makes a loss from its farming activity.  This has continued despite stronger livestock prices in recent years – as shown in the table below.  It has required the BPS (and a small Countryside Stewardship (CS) scheme) to bring it back into profitability.  The decline in the BPS, along with high costs and static output will test this enterprise.

For the 2024/25 year the farm’s CS has ended and the business has taken up the opportunities offered by the Sustainable Farming Incentive (SFI).  This brings in significantly more income than the CS, although there are costs to collect the SFI, such as establishing leys (which have been included in the farming margin).   The figures for 2024/25 are based on SFI 2023 and there may be more opportunity for this farm when the new ELMs offer for 2024 opens in the summer.

The table below shows the final results for 2022/23, an estimate for 2023/24, and a forecast for 2024/25 including the SFI income.  We have also included a ‘Restructure’ for Meadow Farm.

Aside from Government support, there can be other ways to improve farm performance by taking a more fundamental look at the farm business.  Many of these types of mixed farm are simply undertaking too many enterprises with each not having enough scale.  This leads to a high cost structure.  The figures for Meadow Farm are shown after a restructure which sees the dairy beef enterprise discontinued and suckler progeny sold as weaned stores, rather than as finished cattle.  The sheep enterprise is increased from 500 ewes to 700 ewes and the arable land is fully contracted out.  There is also a rationalisation of the farm machinery.

One key point is that some of the proprietors’ time is freed-up by the changes.  This gives an opportunity to earn more income off-farm and, as a result, drawings reduce.  Diversification may be another way to usefully employ this time (although no additional non-farming income is included in our figures).  However, the proprietors must be prepared to accept and embrace a different way of doing things.

Results of an analysis Andersons have undertaken for the AHDB shows the key characteristics of top-performing farms.  One of the traits found in farms that out-perform their peers is having a mindset for change and innovation.

Defra has opened a consultation on legislation which will allow free-range eggs to continue to be labelled as such for the duration of any mandatory housing measures in England and Scotland.  Under the current Egg Marketing Standards Regulation, the maximum amount of time allowed for hens to be kept indoors during periods of mandatory housing measures (i.e bird flu), and the eggs they lay to be still labelled as free-range, is 16 weeks.  After this period of time the eggs must be labelled as ‘barn’.  The consultation seeks views on the Government’s proposal to remove the 16 week derogation.  The full consultation can be found at https://consult.defra.gov.uk/ahdb-relationship-team/consultation-on-removing-the-16-week-derogation-pe/  Responses need to be made by 5th March.  The European Commission has already put forward plans to remove the 16-week derogation – this could leave the UK open to imports if it does not follow suit.

Tighter beef and lamb supplies in key producing countries across the EU are supporting prices.  Reports from the AHDB reveal beef production in Spain and France for the first three quarters of the year is down by -7% and -4% respectively on the year, with Italy experiencing a -20% decline.  There is a ‘general decline’ in beef production across the EU, but poor quality grazing and high feed costs is having a particlular impact this year.  There are also industry reports that abattoir throughputs of Irish cattle have slowed in recent weeks, supporting prices in Ireland and narrowing the price differential between GB and Irish steers; this stood in the region of 77p per kg at the end of November.  GB deadweight beef prices have remained pretty stable since September with the GB all steer average deadweight price for the w/e 9th December 2023 standing at 483.1p per kg, comfortably above the 5-year average and 40p per kg above the same time last year.

The EU sheep reference price has gained in recent weeks.  Of particular interest is the Spanish lamb price which has risen by over 200p per kg (deadweight) since August, breaking the 800p per kg barrier at the end of November.  Usually the Spanish lamb price is lower than French, by about 50-100p per kg, but it is now trading above; in the region of 50p per kg.  Price growth has been seen in France, but not by as much, the same can also be said for Ireland and GB.  Sheep meat production across the EU is reported to have declined by -2% in the period January to September.  Spain and France have both seen output fall by -9%, with production in Greece down by -3%.  In contrast, Ireland has recorded a 2% growth in production.  The GB liveweight lamb SQQ has also remained ‘steady’ throughout the autum.  The price for the w/e 9th December 2023 stood at 260.1p per kg (585.8ppkg deadweight for the same week), compared with 238.3p per kg in 2022, although prices have now fallen below those received back in 2021.

The latest GB prices can be found in Key Farm Facts.

Production

The AHDB is reporting GB milk deliveries in November were down by 2.8% compared with last year (Defra figures will not be available until the New Year).  GB production for the month totalled 977 million litres, a fall of nearly 29 million litres on the year.  However, this time last year milk prices were very high, peaking in December at 51.60ppl, compared with the current price around the 37-38ppl mark (see Key Farm Facts).  At this price producers will not ‘push’ cows for the extra litres and production may further reduce thoughout the winter.  In its latest revised forecast the AHDB has reduced production estimates for the 2023/24 milk year by 1.3% to total 12.22 billion litres.  Furthermore, this is entirely driven by lower yields as BCMS data suggests the herd size remains stable.  The global picture is similar.  Production in September was down marginally by -0.7%, but as the milk price falls, production is slowing.

Prices

Falling milk production together with an increase in demand as we approach Christmas, is resulting in some strong upward price movements for UK wholesale markets.  On the global market, after ‘stuttering’ in November (see last month’s article) the average GDT Price Index recorded a 1.6% increase at the latest event held on 5th December to average $3,323.  Both SMP and WMP experienced gains; +1.2% and 2.1% resepctively.  But the big mover was Cheddar, up by +9.7% to average $3,986.  The next event will be held on 19th December and it will be interesting to see if this ‘positivity’ continues – if seems like the market is at a turning point.

In terms of farmgate milk prices, the most notable announcement is from Arla giving a 0.89ppl increase from 1st December for its suppliers of both conventional and organic milk.  This means the UK manufacturing price will be 36.1ppl and 43.54ppl respectively.  Significantly, in its announcement Arla Foods amba board director, and Arla farmer, Arthur Fearnall, said ‘This announcement is a step in the right direction for our cooperative business. Global milk supplies are slowing down in major production areas and retail sales continue to pick up after the turnaround in Q3. Global commodity markets are also recovering……The outlook is positive‘.

Defra has released the UK livestock numbers from the June 2023 Survey; the table below summarises the figures.  As can be seen, for both the cattle and pig breeding herds, and the sheep breeding flock, numbers are down on 2022.

The total cattle breeding herd has declined by 1.9%.  However this is mainly due to fall in beef breeding numbers as the dairy breeding herd has only experienced a marginal decline.  This probably reflects the tight margins in the beef sector; even though prices have been strong over the past couple of years, input costs have also been high.  This sector has historically been reliant on the BPS.

The estimates show after a couple of year’s of increasing numbers, the sheep breeding flock has experienced a 2.4% decline.  Notably ewes intended for first time breeding are down by 6.1%, suggesting further contraction of the breeding flock.   The sheep sector has received good prices for a few years now, but high costs continue to erode margins.  The number of lambs under 1 year old are down by 6.1% – a reflection of the smaller lamb crop which could support prices in the New Year.

The economic climate for pig producers, although still challenging, is much better than this time last year, even so the breeding herd continues to contract.  The female breeding herd decreased by 1.5%; falling to 338,000.  This is the lowest it has been in the past 21 years.  However gilts in pig saw a rise of 13%, suggesting some herd re-building is now happening.  The large reduction in the total pigs number will partly be due to last year’s figure being high as pigs were having to remain on farm due to problems in the processing sector; there was an 11% fall in the number of fattening pigs, which now stand at just under 4.3 million.

The full Survey results can be found at https://www.gov.uk/government/statistics/livestock-populations-in-the-united-kingdom?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=faece29b-aa70-4496-8b89-e9c18d6142db&utm_content=daily

Further to our article earlier in the month, further cases of bluetongue have been identified.  These are all in cattle and on holdings that are situated in the existing north-east Kent Temporary Control Zone (TCZ) and follows active surveillance.   This brings the total number of cases, as at 16th December, to 22 on 8 different holdings. Defra continues to say there is ‘currently still no evidence that bluetongue virus is circulating in Great Britain’.  Surveillance is ongoing.