Category: Dairy & Livestock

Since our article of 16th January reporting on a case of Foot and Mouth Disease (FMD) in Germany (see https://abcbooks.co.uk/fmd-germany/) there have been further outbreaks of the Disease on the Continent.  On the 6th March an outbreak was confirmed in a dairy herd (1,400 head) in Hungary close to the Slovakian border.  In addition to this, the Slovak Government has reported three cases of FMD.  The cases were identified in three separate premises housing cattle, close to the Slovakian-Hungarian border.  The UK Government had already taken action to prevent the commercial import from Slovakia of cattle, pigs, sheep, goats and other non-domestic ruminants and porcines such as deer and their untreated products, such as fresh meat and dairy.   Furthermore, since 8th March, travellers to GB have not been able to bring meat, meat products, milk and dairy products, certain composite products and animal by products of pigs and ruminants, or hay or straw, from Hungary and Slovakia.  Similar restrictions are already in place for products from Germany.

Strong livestock prices and lower feed costs sees Meadow Farm forecast to make a profit from production for only the second time in it’s history in 2025/26.  However, its SFI agreement is important in boosting overall farm profitability.  Any similar business that has missed-the-boat on the SFI will be in a far less comforatable position.

Meadow Farm is a notional 154-hectare (380 acre) beef and sheep holding in the Midlands.  It consists of grassland, with wheat and barley mainly for livestock feed.  There are 60 spring-calving suckler cows with all progeny finished, a dairy bull beef enterprise and a 500-ewe breeding flock.

The 2022/23 year was challenging; although output prices had started to rise (particularly for sheep), input costs increased substantially (feed costs were especially expensive).  Cuts to the BPS meant the overall farm made a loss.  In 2023/24, the gross margin improved due to lower costs and stronger livestock prices.  Overhead costs continued to drift upwards.  The farm again made a loss from production although it was much lower than the previous year.

The 2024/25 year, just finishing, shows an improvement in output once more.  Meadow Farm sells its finished stock in the autumn, so will not have experienced the significant rise in cattle prices since the turn of the year.  Some of the higher variable costs are due to the farm entering the SFI (i.e. herbal ley establishment).   The extra income from the SFI offsets the decline of the BPS and the business profitability improves.

Farmgate cattle prices are exceptionally high currently.  Even using a ‘conservative’ budgeting price compared to the current high prices, for the 2025/26 year about to commence, Meadow Farm is budgeted to make a margin from production.  This is for only the second time (previously in 2021/2022).  However, a (bigger) reduction in the BPS, sees business surplus, similar to the year just finishing.

 

 

 

 

2024 saw record farmgate prices for UK lamb.  Tight supplies had to be supplemented by imports and exports were lower.  For 2025 we may not see the sudden increase in the price of hoggs as experienced in March last year due to a higher carry-over of 2024 lambs.

According to the AHDB’s latest Lamb Market Outlook, total sheep meat production for 2025 is forecast to grow by 2% year-on-year to 272,000 tonnes.  However, this is mainly driven by the high number of lambs carried over from 2024.  Clean sheep slaughter for 2024 was down by 7% on the previous year with lambs taking longer to finish due to weather and disease issues.  The AHDB is therefore estimating the carry-over to be 4% higher than last year at 4.1m head.

This year’s lamb crop is expected to decline by 2% compared with the previous year to 15.5 million head, mainly due to a decline in the female breeding flock.  The rearing rate is forecast to be slightly better than last year, but is obviously weather dependent.  If a more ‘normal’ slaughter pattern is followed, a higher proportion of 2025 lamb crop will be slaughtered in the first half of 2025; forecast to be 1.4m head and 6m in the second half.  These numbers are similar to last year even though lamb numbers are less, resulting in a lower carry-over into 2026.  Adult sheep slaughter is expected to rise by 5% to 1.5m head on the year.  However, last year was particularly low and this will still be below historical levels.

In terms of trade, export volumes were 6% down from January to November 2024 compared with the previous year, due to tight domestic supplies.  France remains our key exporter, taking 54% of shipments last year (Jan-Nov).  In 2025, exports are expected to tick-up again by a modest 1% due to increased production and the EU Commission forecasting growth in import demand.

Imports for the period January to November 2024 were up by 41% (!) year-on-year due to strong consumer demand and lower domestic supply.  New Zealand was the main supplier at 60% of market share.  In 2025, imports are forecast to be down by 13% due to an increase in domestic supply and a reduction in demand.  With regards to demand, lamb volumes far exceeded expectations, increasing by 6% year-on-year.  Economic uncertainty is expected to curtail this in 2025 and AHDB is forecasting a -2% decline in lamb volumes for the forthcoming year.

The GB deadweight SQQ for the w/e 15th February stood at 736.9p per kg, some 47p per kg higher than at the same time last year.  But by 23rd March last year the SQQ had risen to 838.8p per kg.  It remains to be seen if it reaches those levels this year due to the higher carry-over.  Tight supplies going forward from a smaller lamb crop should continue to help maintain the current strong prices in the main though.

AHDB Outlook

In its latest Dairy Market Outlook the AHDB is forecasting GB milk production to increase year-on-year until the autumn.  In the 2024/25 milk year (April to March), GB milk deliveries are expected to total 12.43 billion litres of milk, 0.9% up on the previous year.  After a poor start to the year, fortunes flipped from September with higher milk prices and better margins resulting in increased production.  The farmgate milk price is currently above last year’s levels (see KFFs for latest information) and, although commodity prices have eased, they remain high.  Feed prices have fallen and the milk-to-feed ratio is looking favourable meaning farmers will be incentivised to produce more.  However, farmgate milk prices are likely to ease from April as production increases as we enter the ‘spring flush’.  Notwithstanding the increasing disease risks, most notably bovine TB and Bluetongue virus, AHDB forecasts that production is expected to remain above year-earlier levels until the autumn, but falling farmgate prices could see production ease from then onwards.

Global Markets

Latest information from the key milk-producing regions (Argentina, Australia, NZ, UK, US and EU) reveal global supply has started to grow and early forecasts for 2025 show marginal growth of 0.62%.  In terms of prices, results from the latest Global Dairy Trade events show a mixed picture.  At the beginning of the month the average index experienced a 3.7% increase but at the latest even held on the 18th February, the average index fell, albeit marginally, by -0.6% to $4,370 per tonne.  Notable movers were a further increase in the butter index by +2.2% to $4,370 whilst both SMP and WMP fell by -2.5% and -0.2% to $2,754 and $4,153 respectively.

Beef producers have had a good year; the market in 2024 was strong.  Despite increased domestic production and higher imports, finished cattle prices kept breaking records and this has continued at pace into 2025.  The AHDB has published its Beef Outlook for 2025 which suggests farmgate prices will continue to be supported throughout the year.

The Levy Board is forecasting a 5.3% reduction in UK beef production in 2025 to 885,000 tonnes, this compares with a 3.7% increase in 2024 to 934,000 tonnes.  In 2025 the AHDB is expecting prime cattle slaughter will reduce by 6% to 1.99 million head compared with 2024.  However, this will be dependent on heifer slaughter numbers.  In 2024, this was the main driver for increased slaughter numbers, but is influenced by producer sentiment.  If farmers decide to reduce stocking levels or exit the industry, what would have been replacement heifers, destined for the breeding herd, will be slaughtered, increasing short-term production.  The opposite will happen if the breeding herd stabilises or increases.  In addition, data from calf registrations suggests domestic cattle supplies will continue to decrease into 2026, with the number of calves registered for beef production declining by -2.5% in 2023 and a further -1.8% reduction in the year to November 2024.

The number of cows being slaughtered also increased in 2024; by 1.8% on the year.  This was greater than originally forecast and is mainly due to the continued reduction in the suckler beef breeding herd; dairy cow numbers have remained stable on the year.  Beef margins have been tight for many years and very reliant on the BPS.  With support now declining, current strong prices may offer an exit route for some.  Even so, the AHDB is forecasting cow slaughter numbers to decline by 2% on the year to 608,000 head.

Looking at demand, this has remained stable in 2024, with growth in retail offsett by a decline in out-of-home consumption.  For 2025, the AHDB is forecasting demand volumes will increase by 1%, providing further support to prices.

In terms of trade, imports to the UK increased by 5% from January to November 2024, compared with 2023.  Shipments were up by 11% from Ireland, the UK’s largest supplier; the wide price differential which has developed between British and Irish product will have driven this.  Due to a reduction in domestic production in 2025 and an increase in demand, imports are expected to increase by 12% to meet the forecast consumption levels.

Exports in 2024 were up by 8% for the period January to November 2024 year-on-year.  In particular, shipments to the EU, Canada and Hong Kong experienced increases, despite the strong UK price.  Beef supply grew in the EU in 2024, even so, cattle prices on the Continent have remained firm suggesting strong demand.  For 2025, UK beef exports are forecast to decline by 7% compared with 2024, basically due to low availability.

The farmgate beef price is breaking records weekly.  The All-Steer deadweight price for the week ending 15th February stood at 635.2p per kg.  This is up 13.6p per kg on the week and is some 137.9p per kg higher than for the same week in 2024.  The price has increased by 79p per kg since the turn of the year.  Taking all the above into account, it can be seen there are many market positives and we expect the current strong prices to be supported through 2025.

 

 

The AHDB has published its latest Pork Market Outlook in which it is forecasting pigmeat production in 2025 to be very similar to the year just past.  Following some very turbulent years, 2024 was one of stability for pigmeat producers.  With feed costs declining during the second half of the year, despite the pig price easing, net margins averaged £15 per head.  Furthermore, pig meat production grew by 3.7% year-on-year to total just under 961,000 tonnes.  This growth was mainly due to an increase in productivity as clean pig slaughter numbers increased by 2.8% on the year even though there was a (further) decline in the breeding herd.  Average carcase weights also increased.

Looking ahead, the AHDB is forecasting a marginal decline in production, down by just 0.1% to total 960,000 tonnes in 2025.  This is mainly driven by a smaller UK breeding herd.  The June 2024 census recorded a 3.1% reduction in the breeding herd.  The ‘mood’ seemed to be better going into the autumn, however the Budget reversed that.  The AHDB is therefore forcasting only a marginal, 1%, increase in the breeding herd at June 2025 to 330,000.  This compares with 398,000 head in 2021 – 17% lower.  The recovery in sow numbers will take time to show up in the finished pig numbers – hence the decline in 2025 production.  Sow numbers are expected to continue to recover slowly (1-2%) over the next couple of years, dependent on net margins remaining positive.

Trade in 2025 is expected to be challenging.  The EU is the most significant trade partner for UK pigmeat (99% of imports and 42% of exports).  Exports to the EU are expected to be lower as, similar to the UK, EU production has increased and demand decreased, resulting in plentiful supplies on the continent.  There is potential for imports from the EU to grow as the differential between EU and UK pricing has widened more than normal, making EU product more competitive.  This could apply downward pressure on the UK price.  Currently the major retailers in the UK have commitments to buying British product, although this is not the case in the growing food service sector.

In terms of non-EU markets, one area to watch is the possibility of some trade friction and increased tariffs in the USA under the new Trump administration.  But there could be opportunities in China and also other countries such as the Philippines and Vietnam where African Swine Fever (ASF) is still a problem.  In addition, South Korea maybe looking to other countries now that Germany cannot supply them due to Foot and Mouth Disease (FMD).  The threat of disease remains a big worry, as it not only impacts on-farm production but disrupts trade and good biosecurity cannot be underestimated for the industry.  Overall, UK imports are forecast to rise by 1% driven by the price differentiation and demand from the food service sector.  In contrast exports are expected to decline by 1% due to lower shipments to the EU and USA.

Looking at consumption trends retail demand in 2024 fell by -2.4% compared to the previous year, according to Kantar.  In contrast, in the food service sector volumes increased by 5.5%.  Overall, for 2025 the AHDB is forecasting pork consumption volumes to decrease by -1% compared with 2024.  So what does this mean for farmgate prices?

The GB pig price has been declining since mid-September.  The GB SPP (EU Spec) for the week ending 15th February 2025 was 202.9p per kg, down 8.4p per kg on the same week in 2024.  Downward pressure is likely to continue in the first quarter of 2025, due to the price gap between UK and EU product, but if input costs, mainly feed, remain at or near where they are now, net margins should remain positive.

The figures for our ‘Friesian Farm’ dairy model have been updated ahead of the Dairy Tech show and our spring Seminars.  The table below shows the actual results for the last two years, the estimate for the current year, and a budget for the upcoming 2025/26 season.

To recap, Friesian Farm is a notional 220+ 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.

 

It can be seen that the milk price has moved up nicely for the 2024/25 year compared to the previous one – albeit not back to the highs of 2022/23.  It is forecast that there will be a slight firming of milk values again through into 2025/26.

One of the larger changes for the current year, compared with 2023/24 is the increase in overhead costs.  One of the main drivers of this is the continued upwards pressure on dairy wages.  The increase has also been driven by re-investment needs of the business, plus a general inflationary environment on costs.

Despite this, however, the better milk price, coupled with very good cull and calf prices, means the profitability of this dairy business is much improved this year.

The forecast for 2025/26 is for returns to decline a little.  This is largely driven by further overhead cost increases.  It can also be seen that the contribution of the BPS falls to very low levels.  This is a result of payments to farms in England being ‘capped’ at £7,200 for 2025.

Farmgate beef prices continue to fly.  For the week ending 18th January 2025, the GB deadweight all steer price stood at 575.8p per kg – a rise of 13.3p per kg on the week and some 82.2p per kg higher than for the same week in 2024.  Furthermore, for those hitting the R4L specification the price is 586.7p per kg.  With slaughter numbers up on the week, and the year, strong demand is driving the price.

The picture is similar in the lamb market.  The GB deadweight SQQ for the same week stood at 736p per kg – up 12.4p per kg on the week and compares with 608.2p per kg for the same week in January 2024.  Readers may recall last year prices were a bit lacklustre in the first few weeks of the year and then suddenly took-off, rising to 860.50p per kg in mid-April.  Similar to beef, demand for lamb is strong, but supply is tight; GB lamb production in the calendar year of 2024 is estimated to have totalled 267,000 tonnes, down 7% on 2023 and almost entirely driven by a fall in slaughter numbers.

Production

Milk production ended the calendar year strongly.  UK deliveries for December 2024 were 4.2% higher than in December 2023 and 4.7% up on month-earlier deliveries.  After a steady start to the the milk year (April-March) production has seen good gains since September.  Strong milk prices have supported the increase in production and, although the Christmas demand peak has passed, milk price announcements have held pretty firm so far for 2025, supporting the increase in output.

Prices

The majority of purchasers held prices for January as, although production is up, stocks remain relatively low, particularly butter in the UK.   However, within the retail aligned contracts, Sainsburys has lowered their price for the second month in a row; down by 0.05ppl in January.  In terms of manufacturing contracts Arla Direct has increased its price in January by 0.86ppl.  However Arla UK suppliers will receive a -0.27ppl ‘quarterly currency smoothing adjustment’.  Barbers held their price in January and have announced a stand-on in February, for the third consecutive month.

With regards to the global markets, results from the Global Dairy Trade (GDT), often seen as the bellwether, have been mixed over the last few events.  The decline in the average index at the the last event of 2024, was followed by a further -1.4% drop in the overall GDT Price Index at the first auction in January, before recoverying by +1.4% at the event held on 21st January to stand at $4,146.  This compares with $3,493 in January 2024.

Defra has extended the Avian Influenza Protection Zone (AIPZ) to help mitigate the risk of further outbreaks of the disease.  From Monday 27th  January 2025 the APIZ already in force across East Riding of Yorkshire, City of Kingston Upon Hull, Lincolnshire, Norfolk, and Suffolk will be extended to also include the unitary authorities of Shropshire, York and North Yorkshire.  This means captive birds in these areas must be housed and enhanced biosecurity measures need to be followed.

In addition, an AIPZ mandating enhanced biosecurity but without mandatory housing came into force on Saturday 25th January 2025 across all other areas of England, with a similar zone also applying in Scotland (see https://www.gov.scot/news/avian-influenza-prevention-zone-2/).  The latest situation can be found on the Defra website at https://www.gov.uk/government/news/bird-flu-avian-influenza-latest-situation-in-england?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=a3e357f9-f7b5-4a45-b805-c9b91fb3f973&utm_content=daily