Category: Dairy & Livestock

The dairy industry appears to be coping better in the second lockdown, proving once again how resilient the industry is.  Commodity prices have remained fairly stable.  However, the middle ground liquid processors who supply the food service sector have once again been hit the hardest, but with schools and universities remaining open and also some of the big coffee chains still available for takeaways, the situation has been better than during the first lockdown.  There has also been an upturn in demand from from the retail sector as people buy more dairy products for home consumption.  And of course, this lockdown comes at a time of year when production is lower and there is more processing capacity.

Nevertheless, the spot price has eased as overall demand is weak.  However, cream and cheddar prices have remained stable and, if anything, are firming, perhaps helped by Christmas preparations.  Demand for butter is said to be weak due to the uncertainty still surrounding Brexit; the additional costs of trading have reduced interest in UK-sourced butter.

Farmgate prices have also remained stable, with a number of processors announcing prices to remain unchanged until the New Year, these include:

• Arla, Medina, Muller Direct, Meadow Foods, Saputo, Freshways, Yew Tree Dairy, Graham’s Dairy, Crediton Dairy and Belton Farm

There have also been some price increases announced, mainly from cheese processors and these include:

• A 0.5ppl increase from 1st December for suppliers to Helers
• 1ppl increase for those delivering to Barbers from 1st December

Further afield, the Global Dairy Trade (GDT) average index finished the month marginally down from where it started.  At the event held on 3rd November the index dropped by 2%, but at the latest auction it rebound by 1.8% to average $3,157.

 

Following our articles earlier in the month, there have been further outbreaks of the highly pathogenic Avian Influenza H5N8 strain.  These have been reported in captive birds at a wetland centre near Stroud in Gloucestershire and also in poultry and captive birds at a premises near Melton Mowbray, Leicestershire.  Protection and surveillance zones have been put in place around all the infected premises.  All the latest updates and advice can be found on Gov.uk via https://www.gov.uk/guidance/avian-influenza-bird-flu#latest-situation.

 

Defra and the Animal and Plant Health Agency (APHA) introduced a national Avian Influenza Provention Zone (AIPZ) on 11th November.  This means it is a legal requirement for all bird keepers to follow strict biosecurity measures, these can be found at https://www.gov.uk/guidance/avian-influenza-bird-flu#biosecurity-advice.  Those with over 500 birds, must also restrict access to non-essential people on their site, workers will need to change clothing and footwear before entering bird enclosures, and site vehicles will need to be cleaned and disinfected regularly.

The introduction of the AIPZ follows two confirmed cases of Avian flu (although unrelated) in the first week of November (see our article of 6th November https://abcbooks.co.uk/avian-influenza-identified/) and a further H5N8 case found in a broiler breeder farm in Herefordshire on 11th November.  In all cases Protection Zones around the farms have been put in place and the all the birds have been humanely culled.  A small number of wild birds near Dawlish in Devon and Weymouth, Dorset have also been identified with the disease.

Defra and APHA have advised that Avian Influenza is in no way connected to the Covid-19 pandemic which is caused by the SARS-CoV-2 virus which apparently is not carried by poultry.

The UK pig market continues to weaken, mainly caused by an oversupply of pigmeat across Europe.

The finished pig price rose significantly throughout 2019 and increased further in 2020, albeit more slowly, until mid-July.  Since then prices have fallen by nearly 10p per kg deadweight.  By the end of October the EU-spec SPP had fallen below last year’s value for the same week (although it was still in the region of 10p per kg above the five year average).  Prices have been struggling across Europe and this is having an adverse affect on domestic pig meat values.  Values were already declining before Germany reported its first case of African Swine Fever (ASF) but, with an over-supply now in the EU (see September’s article) downward price pressure has increased further.

England is now in its second lockdown due to Covid 19 and other areas of the UK are under differing levels of restrictions.  But this is not expected to have such a severe impact on markets as seen in the spring.  The panic buying seen in the first lockdown has not reoccurred.  The retail sector is more ‘ready’ and has learnt from the previous lockdown.  However, according to the AHDB, pork actually performed well in the first lockdown, with sales of pig meat up by 13% in the 24 weeks ending 9th August.   This was helped by a significant growth in barbeques this summer; an increase of 44% year-on-year, with total pork consumed at BBQ occasions up by 56% on the previous summer period (April-August).  It may be difficult to replicate this consumption in a winter lockdown.  Even so, prices are still expected to be more vulnerable to the weak EU market than a second lockdown.

But the second wave of the virus could effect processing capacity; there could be disruption to supply chains and even plant closures.  This may mean pigs have to be kept on farms and the AHDB is advising producers to ensure they have the capacity to hold pigs in case of such closures.

 

Avian Influenza (Bird Flu) has been identified at two different sites in England on 2nd and 3rd of November.  However, they are not linked and it has been confirmed they are two different strains.  The first case was identified as the H5N2 strain on a small commercial premises near Deal in Kent.  All 480 birds will be humanely culled and a 1km Low Pathogenic Avian Influenza Restricted Zone has been put in place around the infected farm.

The second case is at Frodsham in Cheshire in a broiler breeder unit.  It has been identified as the H5N8 strain, a highly pathogenic variant and is related to the virus which is currently circulating in Europe.  All 13,500 birds will be humanely slaughtered and a 3km Protection Zone and a 10km Surveillance Zone have been set up around the infected site.

Public Health England has said the risk to public health is very low and according to the Foods Standards Agency avian influenzas pose ‘a very low food safety risk’.  The most likely source of the outbreak is from wild birds migrating from mainland Europe during the winter period.  Keepers are advised to protect poultry from wild birds by keeping living and feed areas covered and exercising good bio-security measures.

Beef Market

Finished cattle prices have eased slightly over recent weeks but remain strong.  Having experienced good growth since the lows of April/May, prices dipped during September but have now stabilised with deadweight prices in the region of 45p per kg ahead of last year and 15p per kg above the five-year average.  However, there have been some differences in price movements across the regions.  Those in the north have experienced slight reductions in the latest week-on-week comparisons, compared to south and central areas which have seen minor increases.  This could be due to regional lockdowns in the north having an effect on demand for eating out of the home.

The cull cow price remains very strong.  Prices usually fall seasonally around now, but deadweight values are trading back above the five-year range, where it has been for most of the time since July.  The cull price rose significantly from April/May to August, probably due to a switch from more expensive ‘out of the home’ meals to cheaper ‘minced-based’ and ready-made meals during lockdown.  The cull price dropped in August and through September (although still quite strong), possibly as customers traded-up during Eat-Out-to-Help-Out.  Since October prices have once again started to rise.

Beef Exports

On 30th September the first shipment for 24 years of UK beef departed for the US.  Access was granted back in March for a deal worth an estimated £66m over the next five years.  The first consignment included a select number of cuts, including sirloin cannon and topside mini beef joints to be show-cased at the AHDB’s ‘British Roast Beef’ launch aimed at influencers and buyers in New York, New Jersey and Pennsylvannia.  At £66m over five years, this would equate to a simple average of £13.2m per year.  To put this into context, exports to Ireland averaged £135.6m p.a. for the years 2017-2019.  However, market access to the US could provide a valuable opportunity in the long-term as, per capita, meat consumption in the US is three times the global average.

Lamb Market

The finished lamb price continues to remain strong for this time of year, with the liveweight price showing a rise in the most recent week.  The GB liveweight SQQ remains above the five-year range and is about 35p per kg higher than last year.  Tight supplies appear to be holding prices up.  Deadweight slaughterings have fallen well below last year’s levels over the last couple of weeks and have been down on 2019 since the end of August.  Imports from New Zealand and Australia are also expected to remain low.  This is due to lower production in these countries and also the diversion of product to the expanding Chinese market, due to the ongoing protein deficiency as a result of ASF.  Strong finished lamb prices, plenty of grass and cover crops is having a positive impact on the store lamb trade.  But further lockdown measures and a No Trade Deal with the EU is likely to negatively affect export volumes and prices.

The Global Dairy Trade average index recorded a small increase of 0.4% at the latest event held on 20th October.  The index now stands at $3,159 per tonne and this latest rise marks three consecutive increases, following four decreases on the trot, after a 8.3% spike in July.  Butter and Cheddar were the notable movers, up by 3.3% and 3.0% to average $3,678 and $3,803 per tonne respectively.  Both WMP and SMP experienced just marginal movements.  WMP up by 0.3% to $3,037 per tonne and SMP down by 0.2% to average $2,851 per tonne.

Closer to home many producers will be pleased to have received notification of farmgate price rises, with a number of announcements having been made.  These include:

• Suppliers to Muller Direct, Yew Tree Farm, Meadow Foods, Graham’s Dairies and Medina will all see a 1ppl increase as from 1st November.
• First Milk and South Caernarfon Creamery (SCC) have both announced a 0.5ppl increase, also from 1st November, this comes after SCC had previously announced it would be holding prices until December.
• Barbers, Belton Cheese and Saputo are to stand-on until December
• Producers on the Muller Co-op aligned contract will receive a further 0.13ppl as from 1st November
• But those Tesco TSDG aligned suppliers will receive a 0.56ppl decrease from 1st November.  However, it should be noted that Arla and Muller suppliers on these contracts will still be receiving a standard litre price of over 30ppl.

The AHDB has estimated GB milk production for September was 998m litres.  This is 0.9% more than for the same month last year and the second highest in 25 years.  Deliveries show an unusually strong increase throughout the month.  Production in the last week of September was 2.8% higher compared with the last week in August.  According to AHDB statistics, the 5-year average is a 0.6% increase between the two weeks and it has never been more than 1.2%.  Daily deliveries are currently tracking at 1.9% above the AHDB’s recent forecast and are in line with where it expected deliveries to be in mid-December.  There is anecdotal evidence that more herds are moving to autumn calving.  Those that have shifted this year are likely to have calved a little earlier, July/August which could account for some of the rise during September.  Next year these will ‘slip’ again to calve mid-August.  Summer grass growth has also been good for many this year.  However, according to Defra’s most recent data, cumulative production is still behind last year by 0.4% after some producers cut their output in response to over-supply as the country adapted to lockdown under Covid rules.

In contrast, global production from the six key exporting regions (EU-27, Argentina, Australia, NZ, UK and the US) was 1.7% above last year’s levels, for the period from January to August.  These regions account for more than 65% of global milk production and 80% of global exports of dairy products.  All key regions, except the UK have increased production year-on-year.  As the largest producers, the EU and the US have increased most in volume terms (up by 1.3% and 1.8% respectively, compared to the same period last year).  But Argentina and Australia have shown the largest year-on-year percentage growth up by 8.4% and 4.9% respectively, albeit on the back of relatively poor years in 2019.

The UK is the only key region to record a decline over the period.  However, this is quite small and was on the back of high production in 2019.   If current production trends continue, the UK may also be showing a rise in output by the end of the milk year.  The extra production around the world may start to have a negative impact on prices, especially if global demand is sluggish due to the economic impact of Covid-19. 

 

The results of the provisional June 2020 Survey, recently published by Defra, show all the main categories of UK livestock have declined in number over the past year underlining the uncertainties facing the sector.   The table below summarises the figures.

The total number of cattle and calves has continued to fall and is at its lowest level since the basis of data collection changed in 2009.  Both the dairy and beef breeding herds continue their historic decline.  The finished beef price has improved this year, but has been been very poor in the recent past.  In dairy, some parts of the sector were hit hard when the food-service sector was locked down due to Coronavirus, with many introducing a harsh culling policy to reduce production.  Looking at the Survey results it is only in the category of animals aged less than one year where there is any year-on-year increase in numbers, meaning breeding herds are likely to continue their decline for the immediate future.

The sheep breeding flock has also recorded a year-on-year drop, with all categories showing a fall in numbers.  This may be due to uncertainty ahead of Brexit.  However, autumn sales of breeding sheep and store lambs have been strong, which would indicate otherwise.  It should be noted that the June figures tend not to be the best guide to future breeding intentions as the Survey occurs before autumn cullings and the sales; strong finished lamb prices may have changed intentions held earlier in the year.  The December Survey figures provide a better indication of the coming lamb crop.

Total pig numbers have decreased slightly from 2019, although they are still higher than any other year since 2004.  But the breeding herd has declined by a relatively large amount; on the back of good margins this is rather puzzling.  However, gilts intended for first time breeding have recorded a 3.5% year-on-year increase so we should see some herd rebuilding.  The fact that total pig numbers is only marginally down though, implies production per pig is increasing.  The full Survey results can be found at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/925327/structure-jun2020prov-UK-09oct20.pdf

The Andersons Centre’s Meadow Farm model has been updated, and shows how the grazing livestock sector continues to be heavily reliant on subsidy.  The table below shows the final results for 2018/19 and 2019/20, an estimate for the current year, and a forecast for 2021/22.

The 2019/20 year was affected by low livestock prices, particularly the beef price.  For the current year, 2020/21, both cattle and sheep values have recovered.  Meadow Farm sells all its finished cattle from August to October and lambs from July, with all having left the farm by the end of December.  This year it is expected to capitalise on the current good trade and crucially, all lambs will have been sold before the end of the Transition Period and the possibility of a no Free Trade Agreement with the EU.  But after a tough winter and spring, resulting in low yields, the arable side of the business is forecast to decline.  Overheads are expected to fall, in part due to a drop in the fuel price, but also because of a decline in machinery and property depreciation.  With such a poor year in 2019/20 the proprietors of Meadow Farm have not bought any big pieces of machinery.  However, they were able to replace their old mobile sheep handling equipment and buy a new EID reader, obtaining a 40% grant from the Countryside Productivity Small Grant Scheme.  Such low levels of reinvestment are not sustainable though.  The combined margin from production is the strongest it has been for a number of years, but the margin from production is still negative and it remains the case that it takes the BPS and CSS payments to provide any profit.

Looking ahead to 2021/22, notwithstanding the possibility of a No Deal Brexit, the sheep price is forecast to decline.  But if we do not get a Trade Deal with the EU, Meadow farm could experience a much sharper fall in sheep prices.  The beef price is also expected to drop back from its current high as more cattle become available.  In contrast, the crops gross margin is forecast to increase as yields recover to a more ‘normal’ level next year.  Overheads continue to fall, as a lack of confidence in the industry over Coronavirus and in particular Brexit, sees the proprietors of Meadow Farm refraining from investing.  The margin from production remains negative, similar to 2018/19 and it, again, takes the BPS and CSS to provide any profit.  This is lower though as the BPS is reduced by 5% in the first year of the BPS Transition, which will see direct payments reduced to zero by 2028.

Meadow Farm is 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 business is subsidy-dependent, but with direct payments decreasing from 2021 it will need to adapt; maybe through restructuring to reduce its overheads, which are fundamentally too high, or perhaps by taking advantage of the new ELM scheme, or possibly a combination of both.