Category: Dairy & Livestock

The AHDB has updated its Outlook for the UK cattle and sheep meat markets.  The weather conditions have, and remain, particularly challenging for producers.  Since the first 2018 Outlook in April, when producers were having to contend with a long, cold, wet winter, the weather has reversed and we now have it hot and dry with real concern over the availability of winter forage stocks which are in short supply and, in many cases, already being fed.

The AHDB were forecasting a 0.75% contraction in the cattle breeding herd in 2018, but already the level of cow and heifer slaughterings have been higher than anticipated; with the forage shortage, this could see the herd contracting by a larger amount.  With strong demand for manufacturing beef in the first half of the year, cow prices have been high and in the first six months of 2018, 316,000 cows have been slaughtered; 17,000 more than forecast.  Prime cattle slaughterings are forecast to be just under 2 million head, this has not changed since April.  However the timing of supply could differ.  With late turnout after the long winter, supply was expected to be delayed, but now, this could be reversed to preserve feed stocks.  Supply could be concentrated in the third quarter of the season, which may affect prices if processors are unable to balance out supply with lower demand at this time of year.

The table below shows the AHDB’s latest beef and veal forecast.  Exports are forecast to rise this year, as they typically clear any imbalance between supply and demand.  This year domestic demand for beef has been lacking somewhat and if cow slaughterings remain high, exports are expected to rise.  Looking further ahead, supplies into 2019 and 2020 are expected to be lower, due to fewer calf registrations and a contraction of the breeding herd.

Actual & Forecast Supplies of Beef & Veal in the UK – source AHDB
‘000 tonnes	2017	2018 (f)	2019 (f)	2020 (f)
Production	893	903	894	877
Imports	441	459	454	450
Exports	141	158	141	110
Total Consumption	1,194	1,203	1,207	1,216

In the sheep meat market, poor lambing conditions has affected the 2018 lamb crop.  Results from the DEFRA June survey will not be available until the autumn, but the AHDB are forecasting a 1 million head decline in lamb numbers (6%) compared with 2017 levels, with some analysts suggesting this could even be higher.  In turn, the recent hot, dry weather has reduced grass growth making finishing of lambs more difficult and may also have an effect on next year’s lamb crop due to the condition of ewes at tupping time.  For the 2018 calendar year, clean sheep slaughterings are forecast to decline by 3.5% compared with 2017 (see table below) and a slight decline in carcase weights means production from clean sheep is forecast to reduce by 4% year-on-year.  Looking ahead, production is expected to continue to fall.  The bad winter saw ewe mortality rates increase, producers will either keep older ewes on for another year (which in general are likely to be less productive), keep more lambs back for breeding, or contract the flock.

000 head	2016	2017	2018
Q1	2,923	2,920	3,142
Q2	2,722	3,009	2,603
Q3	3,607	3,515	3,432
Q4	3,593	3,844	3,636
Year	12,845	13,288	12,814

Forecasts in italics

The consolidation in the red meat processing sector has continued with the announcement that the Irish business Kepak has taken over the red meat operations of 2 Sisters.  The purchase price has not been disclosed, but includes the McIntosh Donald plant near Aberdeen and four sites operating under the St Merryn brand – Merthyr Tydfil in South Wales and Bodmin, Victoria and Truro in Cornwall.  Together the sites slaughter and process around 250,000 cattle and 1m lambs annually from 13,000 supplying farmers.  The sale leaves 2 Sisters to concentrate on its poultry operations and other interests in prepared foods.  The group has been trying to reduce debt for some time which built up through rapid expansion.  Kepak is a family-owned business, founded in 1981, mainly operating in the Republic of Ireland but with three existing sites in the UK at Preston, Wakefield and Huddersfield.  It has an annual turnover of around €1bn.  Following this deal it is estimated that 60% of the cattle slaughtered in the UK and Ireland are now processed by just three companies – Kepak, Dawn meats ABP. 

The London School of Economics (LSE) has published a report looking at ‘The Impact of Brexit on the UK Dairy Sector’.  The report, commissioned by Arla Foods UK, found that without frictionless trade and unfettered access to key skilled workers after Brexit, there will be delays at the borders, increased further by the shortage of vets, lorry drivers and farm workers.  The report highlights that, at 16%, the UK has the second largest dairy trade deficit in the world and it relies heavily on imports, of which 98% come from the EU.  In the long term, such issues may present opportunities for domestic dairy production, but to make the UK more self-sufficient will take time and investment in dairy herds and processing facilities.  For consumers, the problems identified, at least in the short term, could mean a lack of availability of dairy products, particularly specialty cheeses and the possibility of significant price rises as supply chain costs increase.  The full report can be found at http://www.lse.ac.uk/business-and-consultancy/consulting/assets/documents/the-impact-of-brexit-on-the-uk-dairy-sector.pdf

There seems to be a confusing picture in the dairy industry at the moment.  On the one hand we have commodity prices falling, whilst on the other we have warnings on future milk production.

The average index at the Global Dairy Trade (GDT) auction held at the beginning of the month, saw its largest fall since March 2017; 5%.  All products except for Rennet Casein recorded a drop in price, with WMP and SMP down by 7.3% and 4.6% respectively.  Cheddar and butter saw a decline of 4.3% and 4% respectively.  The latest event, held on 17th July, recorded a further reduction in the average index by 1.7%; the fourth consecutive fall.  Butter fell by a whopping 8.1%, with cheddar and AMF recording declines of 3.3% and 5.2% respectively.  SMP and WMP did however, show marginal increases of 0.8% and 1.5% after their declines earlier in the month.  It is a similar picture closer to home, where, on the Continent, butter and even cream prices, have fallen at a time when you would expect prices to be strong.  The UK mild cheddar price, however, is holding up at the moment; there is some negativity creeping in, but this is expected to be temporary given the warnings on future milk production.

The long, dry and very hot weather is now impacting on milk output.  Fields are parched and limited winter forage is already being used; those considering feeding concentrate to replace losses in milk production will only do so if the milk price is high enough.  The European Commission has revised down its short-term production growth forecast for 2018 from 1.4% to 1.2%, citing little growth in the second half of the year, particularly from the main supplying countries of Denmark, France, Ireland the Netherlands and the UK.  Farmgate prices in the UK, in the main, continue to increase, although Muller is holding its price for August.  Arla are yet to announce but are also likely to hold prices.  The following buyers have announced increases from the 1st August;

• A 1.75ppl increase for suppliers to Dairy Crest
• Wyke Farms has announced a 1.5ppl increase
• Barbers Farmhouse Cheesemakers, Wensleydale Creamery and South Caernarfon Creameries have all announced a 1.25ppl increase.
• Suppliers to Belton Farm and Glanbia cheese will receive a 1ppl rise
• Yew Dairies and Meadow Foods have both announced a 0.5ppl increase for their suppliers
• The quarterly review for the dedicated suppliers to the Tesco cost of production tracker will see them receive a 0.33ppl increase, mainly due to the rise in the cost of feed, fertiliser and fuel.

 

A typical lowland mixed family farm continues to struggle to make money from farming.  This is the finding from the latest update from Andersons Meadow Farm Model, and illustrates the sizeable adjustments that will be required after future changes in support.

To recap, Meadow Farm is a notional 154 hectare (380 acre) lowland mixed beef and sheep business typical of many family-run livestock operations across Great Britain.  The farm runs a 60 cow suckler herd and a 500 ewe mule sheep flock; in both cases finishing all progeny.  There is also a small dairy-cross bull-beef enterprise and 32 hectares (80 acres) of feed wheat and feed barley is grown.  The model is managed on a real-time basis and provides an accurate representation of business structures and changes in annual performance.

Meadow Farm Model – source The Andersons Centre
£/Ha                       Year –	2016/17 (final)	2017/18 (final)	2018/19 (est.)	2019/20 (f’cast)
Livestock Gross Margin	646	717	674	696
Arable Gross Margin	649	647	679	679
Total Gross Margin	648	700	675	689
Overheads	480	496	505	515
Rent & Finance	234	233	236	240
Drawings	84	84	82	82
Margin from Production	(149)	(112)	(150)	(147)
BPS & CSS	213	250	241	243
Business Surplus	64	137	91	96

The table above shows the results for the last two years and an estimate for the current year, to the end of March 2019, plus a forecast for 2019/20.

The figures for the past 2017/18 year show an improvement in business performance compared to the previous year.  This was largely due to better sheep and beef values.  Cereals values were also higher, but the arable gross margin was affected by areas of the farm being taken out of production so the business could enter a Countryside Stewardship Scheme.  This increased support income, along with the weaker Pound boosting the BPS.

Initial budgets for the current year saw it matching 2017/18 for profitability.  However, a number of weather-related adjustments have meant that the latest set of figures show a reduced level of returns.  The late, wet, spring followed by the extended period of hot dry weather has seen forecast cereals yields reduced (not fully offset by higher grain prices), later finishing of stock (with lower prices for lambs), and higher costs – especially straw and increased animal feed.  Consequently, the loss from production rises.

The forecast figures for 2019/20 are relatively unchanged, but it will be noted that overhead costs continue to edge up.

Whilst the margin from production is negative, the business does make a surplus once support payments are factored-in.  And this is after drawings have been taken out of the business (albeit at fairly low levels – £36,500).   Therefore, at current price and efficiency levels, the business is sustainable, but only as long as support continues to be paid as it is currently.  It seems clear, in England and Wales at least, that this will not be the case by 2025.  The move to payments for Public Goods is likely to severely test these types of farms.

China has lifted its ban on British beef which has been in place since the BSE outbreak in 1996.  The landmark move follows a number of years of site inspections and negotiations between the UK and China.  The AHDB estimate the lifting of the ban could be worth £250 million in the first five years to British producers.  There is still work to be done though; this milestone only allows official market access negotiations to begin, typically this takes around three years.  The UK has approval to export pork and malting barley from the UK to China.

Population

Latest data from the British Cattle Movement Service (BCMS) show that the GB dairy herd was 50,000 head (1.8%) less in April 2018 than year-earlier levels.  The move away from dairy to beef inseminations over the last few years, sees a 7.6% reduction in the number of heifers aged between 1 and 2 years, compared with last year, which will have an affect on the availability of herd replacements going forward.

Even so, figures show that the actual milking herd is only 0.4%, or 8,000 head, fewer.  However, the data shows that the number of cows, aged 4-6 years, at the peak of their production, fell by 26,000 head over the year.  These have been replaced by younger cows, 2-4 years, but are likely to be yielding less and therefore although cow numbers are similar, production is likely to be affected.

Production

Daily delivery data shows that GB milk production peaked on 19th May, with a seven-day average rolling production of 36.6 million litres.  The peak was later than usual, but was expected following the cold, wet spring.  In April production was running about 2% behind last year, but the better weather saw grass growth improve in May and by 19th production was only about 0.2% behind earlier levels.  But pastures are now drying out following the recent hot, dry weather, particularly on lighter land which is already beginning to burn up; all are in need of some rain if future volumes are not to be significantly affected.  Maize is also expected to be affected by heat stress.  There is anecdotal evidence that some producers are drying off autumn calvers now in a bid to save pastures for those that calved in the spring.  Production figures are reported monthly in Key Farm Facts.

Prices

Commodity markets for butter, SMP, mozzarella and mild cheddar all remain firm.  Both butter and SMP prices appear to be having a ‘pause’ but they are expected to increase again, with butter perhaps reaching its previous peak price of €7,000.  Mozzarella supplies remain tight (see last month’s article) and mild cheddar also looks like it is heading towards its peak set last summer.  Farmgate prices are also continuing to rise; some of the more notable increases announced for 1st July include:

• 1.92ppl increase for Arla Members.  This takes their standard liquid milk price to 29.31ppl and the maufacturing standard litre to 30.5ppl, topping the milk price league table.
• 2ppl increase for Arla Direct suppliers
• 1.25ppl increase for suppliers of Graham’s Dairies
• 1.2ppl increase for First Milk members
• 1ppl increase for South Caernarfon Creameries suppliers and also Meadow Foods
• following their quarterly cost checker review, Sainsbury’s Dairy Group suppliers will receive a 0.36ppl increase, mainly due to an increase in the cost of feed.

DEFRA has announced a £5.4m funding package to help farmers in England tackle Bovine Viral Diarrhoea (BVD).  Available for three years through the Rural Development Plan for England (RDPE), farmers will be able to apply for funding for one-to-one advisory visits from a registered vet and screening for BVD.  The funding package will also support vet training and the formation of local ‘cluster’ groups to work together to eradicate the disease from their herds. The project, called ‘Stamp out BVD’, will be delivered by SAC Consulting who are part of Scotland’s Rural College and have delivered a similar programme in Scotland.  SAC will recruit local vets to deliver the programme at farm level.  The highly contagious disease is estimated to cost UK farmers £60m per year.

Scotland is expected to announce a the Highland Show how it plans to introduce compulsory cattle EID tagging.  It is likely that all newborn calves will have to be Electronically Identified by 1st January 2020.  All cattle leaving the holding will require EID tags by 1st June 2022 – with all youngstock already having being tagged for the preceding 30 months, only breeding stock would have to be retagged at this point.  The aim is to make paper records redundant, reduce workloads, mistakes and make full traceability easier.

Back in 2014, the EU told Member States to prepare their traceability systems to be compatible with EID, with compliance by the end of 2019.  Scotland is much further ahead than England and Wales who are still consulting on the new multi species Livestock Information Service (see article in April ) the replacement to the Cattle Tracing System (CTS).

The Welsh Government has announced a £2.15m package of funds to help the red meat sector prepare for Brexit.  The money has been made available through Wales’ £50m EU Transition Fund and will support Welsh farmers to identify improvements to their business to help them prepare for a post-Brexit world.  Funding will also be available to identify product substitution and to encourage companies based in the EU to come and set up their operations in Wales.  No details have been given on how the funds will be distributed yet.