Category: Dairy & Livestock

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%’.

The requirement to house all poultry to combat avian flu was lifted on the 2nd May.  UK Chief Veterinary Officers removed the mandatory housing requirement for poultry and captive birds.  However, the Avian Influenza Preventions Zone (AIPZ) still remain in force across the UK until further notice, with only the housing measures being lifted.  This means all bird keepers have to continue to abide by biosecurity requirements such as cleansing and disinfecting equipment, clothing & vehicles, limiting access to non-essential people on their sites, and workers changing clothing and footwear before entering and when leaving bird enclosures.  With hens once more being allowed outside, it means the UK free-range eggs can return to shop shelves.  These were removed in March as birds had been housed beyond the 16-week threshold to qualify as free-range at that point.  There have been over 100 cases of avian flu across the country since late-October – the largest ever outbreak.

Defra has released it latest data on livestock populations in the UK as at 1st December.  The table below summarises the figures.  After a number of years of decline, the dairy breeding herd has seen a marginal increase.  But even with better cattle prices, the beef breeding herd continues to fall.  With increases in feed, fuel and fertiliser in the autumn (which have risen further since) and the fall in support payments, some may have taken advantage of the strong cull price is reduce herd sizes or quit the sector altogether.

Looking in more detail, the numbers of both dairy and beef female cattle aged between 1-2 years show a year-on-year increase; 5.3% and 1.8% respectively.  For dairy this could mean a further increase in the breeding herd as the heifers come through.  With high cost levels, dairy farmers may be looking at more cows but with a lower input/lower yield system – if facilities allow this.  For beef, the number of male cattle between 1 and 2 years also shows a 1.8% increase; this could mean more cattle available for slaughter in the medium term.  Male cattle aged over 2 years, shows a 1.4% decline on year earlier levels which is why supplies remain tight.

The sheep breeding flock has seen another increase on the back of high farmgate prices.  The cull ewe price has been exceptional, some may take advantage of this with soaring input costs to reduce their flock size but equally others may replace older ewes with younger, more productive, animals.  The full statistical notice can be found at https://www.gov.uk/government/statistics/farming-statistics-livestock-populations-at-1-december-2021-uk?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=cd5189be-9e99-4a41-aba2-b028a0f9e1c2&utm_content=daily

Pig statistics for the UK at 1st December have been discontinued as the data is no longer available from the Devolved Administrations.

Cattle prices continue on an upward trend.  The average GB all-prime deadweight cattle price rose by a further 4.1p per kg for the week ending 16th April to average 436.3p per kg.  This is 33p above year-earlier levels and 80p per kg higher than the five-year average.  The average GB deadweight cull cow price, for the same week, rose by 2p to average 353.7p per kg.  Although the smallest weekly rise since mid-January this is 77p higher than the same week in 2021.  Cull cow prices have risen hugely since mid-January with the gap to prime cattle prices closing.

The GB liveweight Old Season Lamb (OSL) SQQ has remained fairly steady over the first 4 months of the year.  It has been running below last year’s high price since about February, but is still strong at about 40p per kg above the five-year average.  For the week ending 20th April it dropped just 0.12p to average 276.20p per kg liveweight.  The cull ewe price remains impressive, averaging £115.88 per head for the same week, as demand for Ramadan continues.

However, although output prices are strong, rising costs, in particular fertiliser, fuel and feed are impacting margins.  Next month we will take a look at how all this is affecting our Meadow Farm model.

The 2021/22 milk year (April to March) ended 1.5% below 2020/21 production levels at 12.36bn litres.  After a fairly strong spring flush, production fell quickly from the peak and remained below 2020/21 levels for the rest of the year as input costs started to rise.  For March, there was a rise in month-on-month production as cattle were turned out, but compared with the same month last year the AHDB is reporting deliveries are still running about 3% down.

Turning to the current milk year, the Levy board is forecasting deliveries for 2022/23 to total 12.25bn litres, a further 0.9% decline, but has said this could be worse if costs pressures continue, which at present is looking likely.

2021 was a ‘low growth year’ for global milk production in general; up by only 0.8%.  The current 2022 year is not looking any better.  Updated forecasts now show global production remaining flat from the key exporting dairy regions; US, EU-27, UK, New Zealand, Australia and Argentina.  This is a revision downwards from the previous forecast in January when annual growth of 0.6% was forecast.  Each of the key dairy exporting regions has reduced its forecast although, most notably, the biggest decline is the UK.

On the back of tight supplies prices should remain strong, but by how much prices can continue to increase before demand starts to be impacted is debatable.  Indeed, the Global Dairy Trade (GDT) price index has seen a decline at the last three events.  On 1st March the index reached a record high of $5,065 but fell by 0.9% and 1% at the two auctions held after that and by a larger 3.6% at the latest event held on 19th April.  There are reports that volumes purchased by the Northern Asia region were particularly weak.  However, the average index is still high, standing at $4,855.  Whether this decline will impact other regions remains to be seen; the weekly EU dairy wholesale prices have in general continued to rise through the last couple of months.

At farm level, processors continue to increase farmgate prices in an effort to encourage production.  We reported last month on the frustration of farmers on retail aligned contracts not reacting to costs quick enough.  Those on the Tesco Sustainable Dairy Group will be delighted that the new methodology of looking back three months and forward three months, as opposed to the previous calculation, which looked nine months back and three months forward.  This will see April’s milk price increased by 4.64ppl to 38.80ppl and a further rise of 2.04ppl to give a price of 40.84ppl from 1st May.  Many others are increasing their prices by 2-4ppl for May, the UK’s peak spring production month, unheard of in a ‘normal’ year.

Production and Costs

As the 2021/22 milk year draws to an end, production continues to run behind last year.  The year is forecast to total around 12.34bn litres; 1.6% less than in 2020/21.  Spring 2021 started pretty well, but production fell after the spring peak and, with increasing costs, has never recovered.  This year, however, it doesn’t look like production will be starting strongly.  Milk deliveries are currently running 4% behind last year.  Add onto that the pressure on margins and working capital from the rises in feed, fertiliser and fuel prices, it seems any sudden increases in production are unlikely.  These cost pressures are also expected to continue to impact production going into the autumn and winter when producers will be more reliant on bought-in feeds.

The AHDB is forecasting 2022/23 production to be 12.25bn; a further decline of 0.8% on where it expects 2021/22 to finish.  Its two key variables are size of the milking herd and milk yields, neither of which it expects to increase in the coming year.  The levy board is forecasting the milking herd to continue its long term decline despite youngstock numbers rising since 2020.  The AHDB is not expecting producers to expand their herds this year due to high input costs and also the high costs of building materials required for any expansion project.  In response, there could be an increase in the number of cull cows as the youngstock are used to replace older animals.  Yields had been improving at an average rate of 2.3% until last year.  But following 2021/22, the AHDB is also reducing its projected yield expectation for the coming year.

Higher input prices are seeing the costs of production go up on all farms, but how this is felt will be different depending on the system.  Autumn block and all-year-round calving systems will be more exposed to high feed costs, but spring block calving systems, who are more reliant on grazing, will be feeling the high cost of fertiliser prices.

Prices

Milk prices have been rising, although costs are often escalating faster than the market can react to.  However, some buyers are lagging behind more than others.  The once highly sought-after retail aligned contracts, which are linked  to production costs, have tended not to have kept up with the rapid increases, due to using 6 or even 12 month rolling averages.  The Sainsbury’s aligned pool COP tracker produced just a 0.4ppl rise for April – taking its standard litre to 34.3ppl for Muller SDDG and 34.18ppl for Arla SDDG; some way off the pace (see below).  However, the retailer is planning to make an ‘exceptional intervention’ to its model which will see the price increase by 4.72ppl compared to March.

Other 1st April price increases include:

• Topping the table is M&S who has announced a 0.48ppl increase which means its conventional liquid standard litre has passed the 40ppl mark at 40.03ppl
• South Caernarfon Creameries (cheese) members will receive a 1ppl rise.  Taking its manufacturing standard litre to 37ppl and liquid standard litre to 35.75ppl
• Waitrose aligned suppliers will receive a 1ppl increase (from 1st March).  Meaning its standard litre is now 37.85ppl
• Muller has announced a 1.5ppl increase taking its standard litre to 36.5ppl
• Medina has announced a 2ppl rise for 1st April and a further 2ppl for 1st May, taking its standard liquid price for May to 39.8ppl
• Suppliers to Saputo, will also receive a 2ppl increase, which means its manufacturing standard litre is now 38ppl and its standard liquid litre 36.64ppl.

Budgets

It is hugely difficult to budget in any farming sector currently, including dairying, with such large and sudden changes in prices and costs.  However, we have produced some updated figures for our Friesian Farm model ahead of the Dairy Tech show on the 7th April.  The figures are summarised in the table below.

It can be seen that the 2021/22 year just ending was profitable for the farm as milk prices increased and costs, whilst rising, had not yet hit current levels.  The upcoming 2022/23 year shows the massive increase in the cost of production.  Although the budgeted milk price is also moving up strongly, it results in a margin from production only just above break-even levels.

Friesian Farm is a notional 210 cow business.  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 most of the UK industry, but it is trying to maximise yield from forage.  The farm comprises 130 hectares (of which 60 hectares are rented on an FBT).  The proprietor provides labour along with one full time worker (plus casual/relief).  The table above shows the farm’s actual results for the two previous milk years (April to March), an estimate for the current 2021/22 year then a forecast for 2022/23.