Category: Dairy & Livestock

Lamb

New Season Lamb (NSL) prices remain strong.  Even though the GB liveweight NSL dropped by 6p on the week to average 288.1p per kg this is still 27p/kg above year earlier levels and 54p above the five year average.  Deadweight prices tell a similar story, the NSL SQQ was down 7p on the week ending 16th July to average 639.1p per kg.  Finished lamb prices never quite made the highs of 2021 in the first quarter of the year, but the seasonal decline has been slower and they are now above last year’s levels.  Perhaps supporting prices, liveweight throughputs were 14% down compared with the same week last year and deadweight numbers were estimated to be 33% below.

Beef

The picture is similar in the beef market.  Although prime cattle prices have fallen over the last couple of weeks they are comfortably above last year’s and the 5-year average.  For the week ending 16th July the GB deadweight overall steer prices stood at 441.2p per kg, some 39p above last year and 77p higher than the five year average.

Pig meat

The finished pig price continues its upward trend.  In the week ending the 16th July, the GB EU-spec Standard Pig Price (SPP) rose by a further 1.98p to 193.09p/kg.  But, this is still considerably below the estimated costs of production, where  feed costs have had the biggest impact.  Feed costs now account for about 71-74% of the full economic costs of production, historically they would have been around 60-65%.  The AHDB is estimating the full cost of production to be at 231p per kg deadweight in July.  With current carcase weights at 88kgs, even at an SPP of 193.0p/kg, farmers are losing £33 per slaughter pig.

In all the meat sectors, prices are at record highs, but worryingly, input costs have risen more and continue to erode margins.  Considering the current cost of living crisis, families cannot continue to keep paying more for their weekly shop.

Production

GB milk production for June was already 2% lower than year earlier levels even before the heatwave in mid-July which will have impacted production further.  According to AHDB data, GB deliveries fell by 8% between May and June, but are still in line with its (updated) seasonally forecasted drop in production.  Cumulative production for the season so far (April to June) stands at 3,283m litres, also 2% less than at the same point in 2021.  Daily deliveries for the week ending 16th July show a 1.7% decline on the week, but this is expected to get larger due to the extreme weather conditions during mid-July.  Not only will heat stress have impacted production, but going forward, grass growth and quality has been affected. Despite the strong milk price, high input costs are not encouraging producers to increase their yields.

Furthermore, the AHDB reports the global picture to be very similar.  Deliveries for May record a year-on-year decline with little change expected for the rest of 2022.  Latest forecasts for the key producing countries show a 0.5% decline in production for the year.  The EU is forecast to experience the largest decline, in terms of volume, down by 838m litres compared to 2021 levels.  Similar to GB, the hot, dry weather on the continent and increased feed costs are impeding production.

In Australia and New Zealand, even though they haven’t reached their seasonal peaks in production, they are forecasting year-on-year declines of -2.4% and -0.7% respectively after such poor starts to the year.  The US is forecast to see a small decline.  Bucking the trend is Argentina, which is the only country to be forecasting year-on-year growth, although at a slower rate than last year, as rising costs start to have an impact.

Prices

The tight supply situation continues to support dairy prices and further UK farmgate price increases have been announced including confirmation from Freshways that it will be paying its suppliers 50ppl from 1st September.  However, Promar’s monthly review of the cost of production (COP) for the Müller-Tesco Sustainable Dairy Group (TSDG) has shown a 0.32ppl reduction. In somewhat of a surprise, reports suggest the cut is mainly due to a reduction in feed costs.  However the understanding is producers will still receive 46ppl, the same as the Müller Direct price for August.

Interestingly, the Global Dairy Trade (GDT) index has seen big falls at the last two events, by -4.1% and a further -5% at the latest event held on 19th July.  The average index now stands at $4,166/t.  The index has fallen in 8 of the last 9 events. There appears to be downward pressure on most commodities, but with the supply situation so tight and spot milk in the UK at 55p – 60ppl, farmgate prices continue to be supported.

According to reports, the New Zealand government is planning on introducing a methane tax on emissions from livestock in the country.  The plan which has already been approved in principle by the Federated Farmers of NZ and other interested parties, includes incentives for farmers to reduce their emissions.  There is an emissions trading scheme already in operation in the country, but agricultural emissions are currently exempt.  Any revenue made from the scheme will be used to support R&D into the topic.

Pigs

The EU-Spec Standard Pig Price (SPP) is at a record high, but is still some way short of the latest estimated costs of production.  In the week ending 4th June the EU-spec SPP broke the 180p per kg level for the first time and has seen a further 2.53p increase to 183.10p per kg in the week ending 11th June.  However, input costs are rising faster – the AHDB estimated costs of production reached 240p per kg in May.

Poor profitability is also impacting producers in Germany.  Germany is a key player in the European pig market, it is both the largest pork producer and exporter.  However, according to data from the European Commission, Germany’s finished pig slaughter numbers fell by 9% (790,000) to 7.9m in the first two months of 2022.  With exports of fresh and frozen pork declining by a quarter, year-on-year, to 235,000 tonnes over the same period.  In particular, shipments have declined to the Netherlands, Italy, Poland and Hong Kong.  Due to African Swine Fever (ASF) concerns, Germany is still unable to export to China.  Similar to the UK, the sector has experienced low or negative returns, leading to declines in the breeding herd meaning production has been constrained.  And this is expected to continue for the rest of the year due to tight margins and ASF in the country.  Data in June shows ASF is mainly in the wild boar population along the Polish border with only a small number (<5) of domestic herds affected.  But an outbreak has been found near the border with France and Switzerland, although currently it does not appear to be in the wild boar population in this area.

Beef

Finished cattle prices remain buoyant with the GB all steer price increasing a further 1.4p per kg on the week to average 441.6p per kg deadweight in the week ending 11th June up nearly 51p on the year.  Those meeting the R4L grade were up 3.9p per kg to 450.6p per kg, demonstrating the importance of continuing to meet confirmation.  We often cite ‘cheap’ Irish beef impacting on GB prices, but in the week ending 28th May the Irish R3 steer price moved above the overall GB price for the first time for many years.  Irish prices are being supported by strong market conditions on the continent and in the UK as demand increases following the re-opening of the food service sector.  In addition, Irish prime cattle numbers have started to tighten, which has led to the recent uptick in prices.

Previously Irish cattle slaughter had been running ahead of 2021 levels.  For the first four months of 2022, slaughter numbers were 13% up on the same period a year ago.  Data from CSO Ireland also shows fresh and frozen beef exports were up 41% year-on-year for the first quarter with nearly all the increase coming from shipments to the UK and in particular boneless beef to Northern Ireland.  Ireland has also been successful in increasing its exports to France and Spain taking advantage of reduced production in the key producing nations of France and Germany.  Strong prices in Ireland should continue to support UK values.

Lamb

The finished lamb price, although still historically high, had been running behind 2021 (record) levels.  But since mid-May the price has moved ahead of last year’s values.  However, as new season lamb (NSL) numbers increase, in the week ending 15th June the GB liveweight NSL SQQ averaged 309.1p per kg, down 22.9p from the week before, as the seasonal decline commences, but still 10.7p above last year.  According to the AHDB, for the same week, an estimated 95,300 lambs (new and old season) were marketed – up 6% compared with last year.  In contrast, the GB deadweight NSL SQQ averaged 694.9p per kg in the week ending 11th June, up 8.2p on the week and 27.7p more than the same week in 2021.

Production

According to AHDB data, GB milk production totalled 1,139m litres in the peak month of May.  Compared with last year, this is 1.5% less.  This year, GB milk production peaked at 37.54m litres per day on 6th May and we are now seeing the seasonal decline.  How rapidly and how low the fall is from peak will be key over the next few months.  Costs continue to increase, but will be felt harder in the winter months; good quality conserved forage will be more important than ever this year.  Processors keep increasing farmgate prices (see below) to try and encourage more production.  However a decline in the milking herd will not be helping.  Figures from BCMS, reveal the GB milking herd declined by 1.6% to total 1.64m head as at 1st April.  In contrast, young stock (<2 years) have been steadily increasing and were up by 4.4% compared to the same time last year. This increase commenced a couple of years ago and we should therefore be seeing some of these entering the milking herd.  However, it appears they are replacing the older, less productive, cows rather than any herd expansion.

Global production is also recording year-on-year declines.  Of the six key exporting regions (Argentina, Australia, EU-27, New Zealand, UK and the United States) only Argentina is experiencing a growth in production, up 2.5% on the year, recording its highest March milk production since 2015.  But with the other five all recording declines, global milk production for March was 0.7% down on the year.  Adverse weather has impacted production in Australia, New Zealand and the United States.  In the EU, Italy and Poland have seen year-on-year increases but declines have been recorded in the key countries of France (-1.2%), Germany (-1.4%) and the Netherlands (- 2.5%).  Even Ireland, who has seen strong growth recently, was down 2.5% compared to March 2021.

Prices

Given the status of production outlined above, it is perhaps not surprising at the latest event held on 7th June, the GDT average index recorded a 1.5% increase to $4,656.  However, this follows five consecutive declines.  Butter and SMP increased by 5.6% and 3% to $6,068 and $4,240 respectively.  Whilst cheddar declined by -3.6%, but is still at $5,365.  WMP experienced a marginal (-0.3%) fall to $4,158.

With the GDT index on the increase again and production contracting, processors continue to put farmgate milk prices up to try and encourage production and now, also to ‘keep’ their producers who may be looking and welcomed elsewhere.  Both Tesco and Sainsbury’s have been under fire for their prices not keeping up, but have both now announced rises to 46p per litre from 1st July; following Muller Direct and Arla.  Most farmgate milk prices are now around 46ppl for July except First Milk which will only be 43.45ppl.  A further 3.05ppl rise has been announced for 1st August, which will take its manufacturing standard litre price to 46.5ppl; a month later than the rest.

Defra has released further information on the Slurry Infrastructure Grant (SIG).  However, this mainly just confirms many of the ‘rules’ which we anticipated in our note of 31st March (see https://abcbooks.co.uk/fertilisers-slurry-manure/) including:

• grant funding will be at 50% rates with grants from £25K to £250K (thus project sizes of £50K to £0.5m)
• initially they will only apply to dairy, beef and pig farms already on a slurry-based system – i.e. those operating a FYM system will not be eligible to get grants to ‘convert’ to slurry
• grants will fund projects that create up to 6 month’s storage.  If additional capacity beyond 6 months is constructed, this element will not be grant-funded
• the scheme will fund replacement, reconstruction and additions to storage
• stores will need to be covered.  Grants will only be available for covering existing stores if they are extended.  It maybe possible to apply for covers for existing stores via Countryside Stewardship
• all types of storage will potentially be eligible including earth-bank, lined lagoons (as long as they can be covered)
• a manure management plan (to work out volumes of slurry) will be required – potentially signed-off by the Environment Agency.  There will also need to be a Nutrient Management Plan to show how the stored slurry will be used

The window for applications is expected to open in the autumn.  The SIG will part of the Farming Investment Fund (FIF) and similar to the other (large) grants under this fund, applications will be competitive and will go through a two-stage process starting with an online checker, with full applications invited over the winter to those who are successful.  Demand is expected to be high; applications offering the best environmental outcomes will be prioritised, which will mean those that are near to protected sites will be given priority.  However there are expected to be multiple rounds meaning those unsuccessful the first time around will be able to apply again.

Although not open yet, this grant could be a significant opportunity.  Those who are thinking about updating their storage may wish to start preparing ahead of the scheme launch by doing such things as planning storage capacity requirements, thinking about the type of storage and where to put it, checking if you need to apply for Planning Permission (likely), securing quotes for work and discussing funding.

According to AHDB data, UK milk production for the week ending 14th May 2022 was 2.8% below last year’s levels.  The spring peak has now been passed and week-on-week levels have fallen by 0.6%.  Even with the continuous farmgate milk price rises (see below), production does not seem to be responding.  The recent rains and warmer weather appear to have helped grass growth in some areas which should help support production.

Whilst UK farmgate milk prices continue to rise, the GDT price index, often seen as the bellwether for milk markets, has seen its 5th consecutive decline, to average $4,432 per tonne.  The index fell by 2.9% at the latest event, this follows an 8.5% reduction at the auction earlier in the month.  All products experienced declines at the latest event.  This is thought to be partly due to a slow-down in demand from China.  Prices have not only risen due to tight supply, but also there has been strong demand – in particular from China.  According to the AHDB, in 2021, China’s imports grew 23% year-on-year.  This was higher than expected and has built up stocks in the country.   There is also the issue of logistics for Chinese imports with the lockdown of ports in China, including the world’s largest in Shanghai.  However, this is expected to be lifted in June when China starts to ease its zero tolerance Covid policy.  Even so, any drop in demand is likely to be off set by the fall in global production and is not expected to have much of an affect on farmgate prices in the short to medium term.

In the UK the big news on milk prices this month was from Arla.  The co-op has increased its price as from the 1st of June by 10%.  The 4.49ppl increase brings its standard manufacturing price up to 47.79ppl (including the 13th payment).  Organic producers will receive 54.34ppl.  Arla has set the pace for GB milk prices in recent times and it will be interesting how other buyers react to this move.  With production limited, there is far more competition among milk buyers to offer farmers contracts than there has been for some years.  Purchasers have to keep their prices competitive or they face losing volumes.  It seems likely that this could be the last price rise from Arla for a while.  There is a sense that, with the GDT faltering, and milk prices having risen so fast, they have reached a limit for now.  

A number of of other processors had previously announced rises for June and July.  There may now be another round of ‘catch up’ to come.  Some of the notable changes are;

• A (huge) 5ppl rise from 1st June for Saputo suppliers.  This takes the manufacturing standard litre to 43.75ppl and the standard liquid price to 42.19ppl
• 1.5ppl increase for Muller Direct and Muller Direct organic suppliers, taking the standard liquid litre price from 1st June to 41.5ppl and 49.5ppl respectively
• Yew Tree Dairy has announced a 2ppl rise from 1st June, taking its standard liquid litre to 42ppl and First Milk members will also receive a 2ppl increase
• Tesco aligned and Sainbury’s aligned producers will receive a 0.75ppl and 0.94ppl increase from 1st June.  This takes their standard litre prices to 41.59ppl and 40.44ppl for Muller and 41.34 and 40.32 for Arla suppliers respectively.
• Freshways has announced a minimum of 4ppl rise from 1st July which will take its liquid standard litre to 44ppl and this could be raised to 45ppl if markets dictate.

 

Finished pig prices have made significant gains since March but, even so, still remain considerably below costs of production.  The EU-Spec SPP rose by a further 1.15p per kg to 172.76p per kg in the week ending 14th May; some 22p per kg higher than a year ago.  Prices have risen markedly (in the region of 30ppkg) since mid-March, but have still not been able to keep pace with the rising costs of inputs and remain well below costs of production.  The AHDB will shortly be reviewing its latest quarterly costs of production, but at the end of April it was estimating it to be 223-236p per kg.  Feed usually represents around 60% of the total cost of producing a kg of pork, but the results of the last quarter, (2021 Q4), indicate feed represented 70%.  With feed costs continuing to rise this proportion will have increased further.

In a boost to pig farmers, a number of retailers have now responded to the National Pig Association’s calls to increase the price paid.  Leading the way is the Co-op; the retailer is spending £19m on a new pricing model, moving away from the SPP in an effort to try and offer its farmers a fairer price.  The new model will link the price to the cost of production, rather than the market price for pigs and it will be reviewed monthly to ensure it keeps pace with rising costs.  Waitrose has also announced a £16m support package to help its pork suppliers cover their soaring costs of production.  And Sainsbury’s has offered short-term support through a £2.8m investment for its pork producers, giving them the opportunity to align all pigs supplied to the retailer, including those not currently part of the model, to a fixed price for the 12-week period from March 13th to June 5th.

Tesco, the UK’s largest supermarket, has announced an enhanced payment plan that will see its suppliers increase payments to farmers by £6.6m until August.  The retailer said it has been supporting the industry since the turn of the year and this will bring its support for farmers to a total of £10m since March 2022.  It has also been taking more pigs to help clear the backlog of animals on British farm; according to the retailer it has taken an extra 32,000 pigs since January, and plans to take a further extra 22,000 in the months ahead.

Most of the large supermarkets have now acted in some way to inject more money into the supply chain.  But it is clear to see, if the SPP is  at 173p per kg and production costs are expected to now be over 230p per kg, more is still required.  Indeed, following its latest commitment, the Co-op is urging the other retailers to do more.  It says it ‘has a market share of 6%, but said its support outstrips any of the big four retailers combined, which have a combined market share of almost 70%’.