Category: Dairy & Livestock

Global Markets

Having risen at every event since the beginning of the year, the GDT average price index has fallen at the last three auctions.  At the latest event, held on 18th June, the index dropped by 3.8% to average $3,208.  All of the products on offer recorded a decline compared to the previous auction;

•  -5.7% for butter to $4,553
•  -4.3% for cheddar to $3,781
•  -4.3% for WMP to $3,006
• -3.5% for SMP to $2,358

UK Farmgate Prices

Closer to home, farmgate prices are starting to feel the squeeze.  The impact on having to sell excess milk on the spot market has exerted downward pressure on prices.  Notable announcements for July include;

• 0.6ppl reduction for direct suppliers to Arla, taking their standard liquid litre down to 26.4ppl and the manufacturing litre to 27.53ppl
• The Sainsbury’s quarterly cost tracker contract sees a 0.5ppl decrease, resulting in Muller producers receiving 30.15ppl and 30.3ppl for Arla
• There will be no change to the price Dairy Crest suppliers receive in July.  The standard liquid price will remain at 28.82ppl and the manufacturing price at 29.9ppl
• First Milk has also announced a stand-on to its July price, holding producers’ manufacturing price at 28.37ppl and the standard liquid price at 27.45ppl.

Natural England has authorised the licence holders to resume the culling of badgers in two supplementary control areas in Gloucestershire and Somerset.  Also, it has also authorised an additional five year supplementary badger control area to begin in Dorset in 2019.  These areas are ‘hot-spots’ for Bovine TB; the licences allow culling of badgers by Authorised Persons only between 1st June and 31st January as part of Defra’s eradication strategy.  The licences set a minimum and maximum number of badgers to be removed in each area to ensure enough badgers are culled to help prevent the spread of the disease, but ensuring the populations in the areas are not completely removed.

A lack of domestic demand is having a negative impact on the beef market.  After seeing a steady increase throughout April, the deadweight price for both steers and heifers, seemed to stablise in May, but has tumbled during June.  For the w/e 15th June the all steer deadweight price fell by 4.6p per kg to 339.6p per kg.  This is now back below the five-year average, having gone above it in mid-April.  It is some 31.9p per kg less than for the same week in 2018.

The deadweight price for steers meeting the R4L specification saw less of a decline on the week, demonstrating the importance of ensuring cattle are marketed in spec.  However, reports suggest producers are struggling to get cattle booked in at abattoirs, meaning, by the time they do, animals are out of specification.  Low domestic demand and reports of processors still moving supplies which were stockpiled ahead of the original Brexit date means processors have ample supplies.  It is hoped, some better ‘BBQ weather’ may help lift demand otherwise producers may decide to keep cattle on farm until the autumn, if grass growth continues, hoping for a recovery in prices.

British beef is set to be exported to China for the first time since 1996.  Farming Minister, Robert Goodwill and the Chinese Ambassador to the UK Liu Xiaoming signed the UK-China Beef Protocol on Monday 17th June, securing market access for UK beef exports by the end of 2019.  China has imposed a ban on British beef since the BSE crisis in 1996.  The announcement follows years of site inspections and ongoing discussions and engagement between UK and Chinese officials, culminating in a successful visit in early June by Chinese officials hosted by Defra, APHA, the Veterinary Medicines Directorate, FSA, DAERA (NI) the AHDB and the UK Export Certification Partnership (UKECP).  It is estimated access to China could be worth £230 million to British beef producers in the first five years.

The EU Animal Health Law has confirmed there will be no change to the use of slaughter tags for lambs up to 12 months of age.  Earlier proposals had seen a change which would have only allowed the single slaughter tag to be used where lambs are going straight from farm to abattoir.  But a slight change in the wording means the single slaughter tag can be used on lambs intended for slaughter irrespective of the number of moves they make prior to that.  Even though we are due to exit the EU this is still important; the Government has said we will comply with EU regulation for a period after Brexit and our trade access into the EU will be reliant on us remaining aligned with EU rules.

The effects of African Swine Fever (ASF) are devastating the Chinese pig industry and, with China being the largest producer and consumer of pig meat, the impact is likely to be felt world wide.  There is not expected to be enough pork in the world to cover China’s decline in production.  Rabobank is predicting an ‘unprecedented’ shift in global protein supply to China to cover the shortfall.  A decline in soybean demand is also expected to felt by feed markets.

Outbreaks of ASF have occurred across Europe and Asia since 2016.  The disease, which is not harmful to humans, spreads very easily between pigs and also via ticks and contaminated feed.  Cheap animal feed in China often contains pig meat and the virus can survive for a long time.  The disease was first reported in China in August 2018, but many believe it had been spreading unreported for many months prior to this.  Even recently, it appears farmers are more likely to sell their animals at the first signs of ASF rather than report, for fear of not receiving any compensation from cash-strapped local governments.

In April, the Chinese Government said that just over 1 million pigs had been culled from a total herd of nearly 500 million pigs; a very low number.  By contrast, Rabobank is estimating that more than 150 million pigs will have either been culled or died due to ASF and that China will lose about a third of its pigs.  To put this into context this is about the same amount of pigs in the US and Europe combined.

In China, the pork price has already risen, although this has probably been curtailed somewhat in short term by the release of frozen products onto the market and also producers culling additional animals for fear of getting the disease and losing their herds.  Pork producers in the US and Europe are already starting to increase their exports to China, it needs to be remembered though, US exports are subject to a 62% tariff because of the trade fight with China.  But imports of pork will not be enough to cover the shortfall and consumers are likely to shift to other meat, this could ultimately see higher protein prices globally.

UK pig prices (the Standard Pig Price – SPP) has risen sharply during May.  It now stands just below 145ppkg – over 5ppkg higher than at the start of the month.  As well as being pulled up by rising EU prices (helped by Chinese demand), UK values are also being helped by the reduction in ‘stockpiles’ of pigmeat built up in the UK in advance of the original Brexit day of 29th March.  Whilst prices are still below the levels seen at this time last year, it seems likely that the momentum of markets will soon see prices moving ahead of 2018 levels.

 

 

According to BCMS data, March saw births to a dairy dams reach 137,000 head, some 3% higher than the five-year average and the most calf registrations in the month of March since recording began in 2003.  There are a number of possible reasons for the increase and the rise is probably a combination of all of them.  Cows were in good physical condition when they came into season last year, having been housed longer due to the bad winter and being put out to pasture when the grass growth was improving but before the drought had impacted.  The increase may also be due to more businesses switching from all-year-round calving systems to spring block and also those already on a spring block system tightening their calving window.

The result has seen an increase in cows at the peak of their lactation during the spring flush.  UK milk production has been at record levels throughout 2019 so far.  Peak delivery may have been reached earlier than in recent years when a long-term high of 37.74m litres was delivered on 26th/27th April.  Throughout April deliveries were running about 4% above last year’s levels.  During the first quarter of 2019, cumulative production was 3.4% higher than for the same period in 2018.  The increase in production is seeing downward pressure being put on farmgate prices as processors are having to sell unplanned increases in milk deliveries on the spot market at 13-15ppl.

However, globally, milk production is tight and is expected to remain so throughout 2019 which appears to be helping UK farmgate prices to a certain extent.  Margins have been squeezed in Australia, the US and the EU through high input costs and low farmgate prices leading to a reduction in production.  In addition, demand is expected to remain strong from China throughout the year due to the impact of African Swine Fever in the country.  It is thought dairy cows might enter the beef market as the price of beef increases due to the demand for alternative protein sources to replace pork, thereby reducing milk availability in the country.  In the second half of 2019, UK production growth is expected to slow, due to a smaller herd and a drop in fertility, a knock-on effect from the hot summer last year.

 

Both the deadweight and liveweight finished lamb price eased in the week ending 11th May for old season lamb.  However, although nowhere near last year’s record levels, the price, which had been hovering around the the five-year average, is now above this and comfortably above 2017 levels.  More new season lambs are coming to market earlier this year compared to last, as the better weather is enabling earlier finishing.

Looking ahead, prices are expected to be supported by a tightening of supplies, both domestically and globally, but a no-deal Brexit could scupper this.  Both New Zealand and Australia are expecting production to below historic levels during the coming year as they rebuild their flocks following drought.  Farmgate prices in these countries are currently around 70p per kg deadweight above their five-year average.  As well as a supply shortfall increasing demand from China is driving prices up.   During March and April the deadweight SQQ in Great Britain is usually about £2 per kg more than the NZ farmgate price.  This year it has only been in the region of £1.  Although this has supported GB prices to some extent, NZ lamb still remains competitive at this level.  In addition, both NZ and Australia have trade agreements with many of the key global lamb importers which allows them either free access or at a reduced tariff, something which the UK does not yet have.

Domestically, the Defra December census recorded a 4% decline in the UK breeding flock, down to 14 million head; the lowest since 2010.  The AHDB is forecasting the 2019 lamb crop to be 16.5m head; down from 17.2 million last year.  This takes into account the smaller flock, but a better lamb rearing rate – although not back to normal as scanning rates showed an increase in empty ewes and singles as a result of last summer’s drought affect ewe condition at tupping.  The number of lambs forecast to come forward for slaughterings in 2019 is 12.5 million compared to 12.8m in 2018; over the past five years this has been nearer 13 million.  Slaughterings of clean sheep in quarter one were 7% less year-on-year at 2.9 million.  Quarter two is expected to see a 5% rise due to the more favourable weather conditions this year, although the majority of the increase is expected in April, with May and June numbers similar or even slightly down on the year.  During the second half of the year, slaughterings are expected to decline reflecting the smaller lamb crop.

However the numbers available for slaughter on the domestic market would increase dramatically in the case of a no-deal Brexit.  Typically the UK exports the equivalent of 3.5 million lambs; if trade is allowed to flow without too much added friction (i.e. a Deal), then exports are expected to remain at this level.  However, a No Deal outcome would see tariffs and non-tariff barriers imposed.  At standard EU tariff rates, the export of lamb to the continent would be rendered uneconomic.   

Irish beef farmers are to receive €100m in support to compensate for the effects of Brexit.  The EU Commission has agreed to fund €50m which the Irish Government will match fund.  The distribution of the money is still to be decided, although famers will have to undertake some actions to be able to access it, under the principle of ‘conditionality’ which is applied to such aid packages.  The Irish Farmers Association has argued that beef farmers have lost €101m since the Brexit vote due to changes in the value of Sterling, and especially reduced prices caused by Brexit uncertainty in the run-up to the 29th March.

The AHDB is investing £1.4m in a marketing campaign to boost domestic consumption of lamb during the peak production season.  The money will go towards billboard posters, press adverts and social media campaigns.  It will be supported by material provided to those in the supply chain from farmers to butchers.  It will run during the summer and early autumn and aims to stress the lamb’s flavour and versatility.