Category: Dairy & Livestock

Meat Markets Outlook

Beef

The UK cattle price has been above year-earlier levels so far throughout 2018.  Similar to 2017, the price fell steadily from the turn of the year until the end of February, since when it has risen through March, April and into May.  As of mid-May the AHDB all steer deadweight weight price was 4.2p per kg more than the price at the turn of the year and 13p per kg more than for the same week in 2017.  Demand is expected to stay ahead of supplies helping to support prices through the summer.  The latest AHDB beef and veal forecasts (see table below) were released in April and see a marginal increase in production (0.4%) for 2018 compared to 2017.  This is mainly due to higher slaughterings of prime cattle, although fewer cows are expected to be culled.  Both imports and exports are forecast to increase slightly, together with a modest 1% rise in domestic demand.  Looking further ahead, lower calf registrations and increased calf losses due to the adverse weather conditions earlier in 2018, could impact on production in 2018 and 2019, but the uncertainty surrounding Britain’s trading relationship with the rest of the EU is likely to impact on herd investment decisions.

Actual and forecast supplies of beef and veal in the UK – source AHDB
000 tonnes 2017 2018 (f) 2019 (f) 2020 (f)
Production 893 897 886 876
Imports 441 460 456 451
Exports 141 153 125 101
Total Consumption 1,194 1,204 1,217 1,226

Lamb

The UK sheep meat price for Old Season Lamb (OSL) has reached record levels in 2018.  Despite a high carry-over from the 2017 crop, lower imports from NZ and increased export demand helped by strong French farmgate prices, has seen UK values rise to unprecedented highs in the first quarter of 2018.  Global markets remain strong, which should help to keep domestic prices elevated over the next few months.  Looking further ahead, the table below shows the latest forecasts from AHDB.  This shows supplies available for consumption to decline sharply in 2018, and again in 2019 and 2020, albeit at a slower rate, mainly as a result of increased exports whilst imports are forecast to decline.  Imports from NZ are expected to remain much lower than historic levels as it concentrates on exports to China and the US.  In contrast exports are forecast to grow by 3% in 2018; all of which should continue to support prices.

Actual and forecast supplies of mutton and lamb in the UK – source AHDB
000 tonnes 2017 2018 (f) 2019 (f) 2020 (f)
Production 297 298 305 296
Imports (a) 95 84 81 83
Exports (a) 94 97 101 98
Total Consumption 298 285 284 280

(a) Carcase weight equivalent and including processed products

Pig Meat

The UK pig price has seen a steady decline since its high of last summer, but is starting to stabilise; whether this can last remains to be seen.  The EU average pig reference price has declined over the past month due to weak demand both domestically and for export.  Over-supply in China is putting pig prices under pressure and this seems likely to remain the case for the rest of 2018.  The UK and EU average reference price has widened over the last month, recording the largest difference since February.  However, it still remains below that calculated throughout the last quarter of 2017.   As domestic productivity is forecast to improve, an increase in demand is required to lift prices.  The table below shows the AHDB’s latest forecasts.

Actual and forecast supplies of pork in the UK – source AHDB
000 tonnes 2017 2018 (f) 2019 (f) 2020 (f)
Production 905 931 958 983
Imports 1,075 1,060 1,051 1,053
Exports 264 278 291 304
Total Consumption 1,716 1,712 1,718 1,733

Scottish Beef Payments

Payments under the 2017 Scottish Suckled Beef Support Scheme (SSBSS) commenced from the 2nd May with funds totalling £38m expected to be made over the coming weeks.  The payment rate for a Mainland animal this year is £99.49 per head (£92.05 in 2016) and for the Island category it is £144.22 (£140.71).  Around 6,500 businesses should receive payment.

Muller Lifts Milk Price

The slide in UK farmgate milk prices looks to be over, with the announcement of a price increase from one of the UK’s major buyers.  Muller will be increasing its standard milk price for its Muller Direct producers by 0.75ppl from the 1st June.  This takes the price to 26.75ppl.

 

Sheep Meat Trade

The sheep meat price has risen sharply since the start of the year.  In the week ending the 14th April the GB deadweight OSL average SQQ broke the £6.00 per kg barrier for the first time ever, to reach 601.9 p per kg; some 189.9 p per kg more than for the same week in 2017.

The dramatic increase in price has been a surprise to many, especially as forecasts were for production to be higher in the first quarter of 2018 than in 2017 (typically exerting downward pressure on prices).  In fact, this has been the case, although not by as much as expected; production was up by 2.7%, but fewer ewes came onto the market than forecast.  But other factors have played their part in the price rise.  In 2017, both the Australian and New Zealand price rose sharply, the GB price did not follow at that time and therefore the gap between GB and New Zealand lamb narrowed.  Imports of NZ lamb into the UK (and the rest of the EU) have consequently fallen, partly due to the decline in supplies in NZ but also due to the narrowing of the price difference, meaning other markets have been more attractive for New Zealand.

GB export demand has also strengthened; in the first two months of 2018 there has been a 16% year-on-year increase which has seen a tightening of domestic supplies.  In addition, the French farmgate price has risen at the same time as the GB price, this is unusual, as typically the French price acts as a ‘ceiling’ to the GB price, but with both rising at the same time this has not been the case.

Looking ahead as to whether prices will hold over the coming months we can see values have already started to fall.  In the week ending 21st April, prices declined to average 578.8p per kg but this is still 168.6 p per kg more than last year’s levels.  It is typical for prices to fall at this time of year as more lambs come to the market, but we are not expecting the price to collapse.  Slaughterings are expected to increase during quarters two and three, applying some downward pressure on prices.  However, the poor weather during lambing across Britain will mean the lamb crop will not be as large as it might have been, given the growth in the national breeding flock.

In addition, imports seem unlikely to pressurise prices greatly.  Although the price difference between NZ and GB lamb has begun to widen since the domestic price rally, import value per tonne into the GB remains less attractive than other markets and therefore volumes from NZ are not expected to recover in the short to medium term.  By contrast, export demand is expected to remain strong in the coming season, and, with reports that domestic frozen stocks commenced 2018 lower than historical values, supplies for the domestic market are forecast to remain tighter than usual over the coming months .  All this should help to support prices.

Dairy Roundup

Global Prices

The latest Global Dairy Trade (GDT) auction on the 17th April saw prices rise for the first time in two months.  All categories of product recorded increases, with the overall index rising 2.7% to $3,587 per tonne.  The previous auction on the 3rd April saw prices decline by 0.6%.  The next event on the 1st May will give a better indication of whether markets have turned, or if the last sale was a ‘blip’.

UK Prices

UK farmgate prices are still generally heading in a downwards direction.  Some of the price changes announced as from the 1st May include;

  • Waitrose suppliers to see a 0.6ppl cut to 30.94ppl
  • 0.5ppl reduction fro Muller Direct suppliers to 26.2ppl
  • Dairy Crest to reduce prices by 1ppl, giving a manufacturing price of 28ppl and a liquid price of 26.9ppl
  • an increase for Tesco suppliers of 0.32ppl due to increased costs.  This results in prices of 29.8ppl (Muller) and 29.6ppl (Arla)

However, there are signs that the downwards momentum is running out of steam, and the next couple of months may see some stability in milk pricing.

UK Production

According to provisional AHDB figures, milk deliveries for the 2017-18 year were up 2.9% compared to the previous year at 12,402m litres.  This is an increase of 349m litres.  The rise would have been more, but for the poor weather in February and March which left an estimated 19m litres uncollected due to snow, and production down overall due to low temperatures and poor grass growth.  Output in 2017-18 was still slightly behind the recent-record year of 2015-16.

New Muller Fixed Pricing Offer

Dairy farmers supplying Muller under a Muller Direct contract will be offered the chance to fix their milk price for a period of up to three years.  Under a long-term partnership with Lidl, producers will have the option of contracting at a price of 28ppl for a period of either two or three years.  Up to 50% of a farmer’s production can be fixed.  There is a minimum commitment to the scheme of 10,000 litres per month.  The mechanism will operate from June 2018.  The volatility of the UK milk price has been clear for a number of years, with swings in farmers’ incomes causing significant problems in managing businesses.  Hopefully this initiative will prompt other milk buyers to look at mechanisms to smooth out the swings in markets.  Producers will have to recognise that

First Milk Restructuring

First Milk has put up for sale its two Scottish creameries.  The facilities, on Arran, and at Cambeltown on the Mull of Kintyre, produce quality branded cheddar.  However, they are small-scale and First Milk has reportedly struggled to make them financially viable for a number of years.  Unless a buyer can be found to continue operating the creameries, the future of milk production in these regions look bleak, as transport costs to other facilities would be prohibitive.  First Milk has also consolidated its milk pricing with just two prices replacing its previous ‘regional’ prices.  Following price cuts from the 1st April, the liquid price will be 26ppl and the manufacturing price 26.9ppl.

Livestock Information Service Launched

Michael Gove has announced the development of a new Livestock Information Service.  The system will identify animals and track movements when it is launched in 2019.  There will be a single multi-species database that covers cattle, sheep, goats and pigs, rather than several animal identification and tracking services seen at present.  The new system will identify and track animal movements via electronic IDs meaning the industry will be better placed to respond in the event of a disease outbreak.   It will also mean the UK meat industry will be a world leader in livestock traceability in preparation for a global trading environment post-Brexit.

Arla Price to Stand-on

In a significant boost to the dairy industry, Arla has announced it will not be cutting its conventional milk price in April.  In fact, due to the April to June ‘currency smoothing’ mechanism the April price will actually increase by 0.32ppl.  Readers will recall Arla cut its price by 2.16ppl in March, which was a huge blow.  But it looks like that could possibly be the last cut for the processor for now as commentators believe its next movement will be a price rise.  As Arla is usually a ‘trend setter’ this should mean fewer (if any) price cuts for May.

Muller / Lidl Deal

The discount retailer, Lidl, has switched the majority of its fresh milk supply to Muller Dairies.  This is at the expense of Arla and Medina.  Grahams will continue to supply Lidl with milk and cream in Scotland whilst Trewithen Dairy retains the Cornish contract.  Such swaps are relatively common in the milk market and normally perhaps would not be regarded as especially newsworthy.  However, in announcing the deal, Muller indicated that part of the arrangement would see farmers given the opportunity to lock-in a milk price for part of their production for up to three years.  The details are still awaited, but a price of around 28ppl has been suggested.  This would be an important step in getting innovative pricing mechanism into the UK dairy market and dealing with the inherent volatility.  Lactalis currently offer a one-year deal at 27.5ppl and, in Ireland, Glanbia have a five year contract option at around the same level. 

GDT Auction & Farmgate Prices Fall

The GDT average index price fell by 1.2% at the auction held on 20th March to $3,632.  This follows a 0.6% drop in the event held on 6th March and is the third consecutive decline.

After seeing a 0.8% fall at the auction held at the beginning of March, the first drop in 2018 for WMP, the product actually saw a 0.1% increase at the latest event.  WMP made up over half of all the products sold, but SMP, contributing to a about a quarter of the products sold, was down by 8.6% compared to the event earlier in the month to $1,887.  However, this was perhaps more of a re-balancing exercise after the product rose by 5.5% at the previous event.  It is now back in line with February’s prices which averaged $1,882 per tonne.  At the beginning of March the EU Commission sold 4,337 tonnes of intervention SMP for only €1,100 per tonne, this is below the feed grade price of SMP and will do nothing to help current markets.  The Commission has around 380,000 tonnes still in stock.

Often seen as the bellwether for the dairy industry, the recent declines in the GDT will not support UK farmgate prices.  Further reductions have been announced, some of the more notable ones include:

  • Muller and Arla Direct contracted producers will both receive a 1.5ppl price cut as from 1st April.  This could mean Arla producers will be receiving the lowest GB farmgate milk price as from the beginning of next month.
  • Glanbia Cheese and suppliers to Belton Cheese will also see a 1.5ppl price cut, as will suppliers to Yew Tree Dairy and Joseph Heler Cheese
  • Dairy Crest Davidstow and Crediton Dairy have both announced a 1.25ppl reduction as from 1st April.

Livestock Populations

DEFRA has released its latest statistics on Livestock Populations as at 1st December 2017 for the UK.  The total number of cattle and calves has remained similar to earlier levels at 9.8 million head; just a 0.2% decline.  The dairy breeding herd has increased marginally, by 0.3%, to just over 1.9 million.  However the number of dairy cattle aged between 1 and 2 years is down by 6.1% which will have an impact on replacements entering the herd.  Dependent on what milk prices do going forward, we could see a contraction in the herd.

Total beef supplies in the UK were forecast to be higher in 2018 through the availability of more clean cattle slaughterings.  The December survey results support this to a degree, with female beef cattle numbers aged between 1 and 2 years up by 3.1%.  However male cattle between 1 and 2 years of age are down by 1.4%, which may see 2018 production forecasts still higher than 2017, but not by as much as originally expected.

For sheep, the UK female breeding flock has increased marginally, by 0.1% to 14.7 million head, the largest flock size since 2007.  This should mean a large lamb crop in 2018.  However, the AHDB is forecasting a decline in the lamb rearing rate compared to 2017, although still high compared with previous years.  Other sheep and lamb numbers are down by 4.2% on the year, but this is still historically high.  Finished lamb prices have been strong ahead of the Easter market, some 40 to 50p per kg liveweight more than last year.  The deadweight Old Season Lamb (OSL) SQQ broke through the £5 per kg barrier in the first week of March and stands at £511.2p per kg for the week ending 17th March, some 117p per kg more than for the same week in 2017.

The total number of pigs has increased by 3.9% to 4.7 million.  This is mainly due to the number of fattening pigs on farm which has increased by 4.4% compared to year earlier levels.  These figures support the continuing rise in production we are seeing, which is putting downward pressure on prices.  Supplies for the week ending 17th March were 16% above 2017 levels, according to the AHDB.  After two weeks of relative stability, prices fell on the week.  The UK-spec SPP stood at 142.73p per kg for the week ending 17th March, around 6 p per kg less that year earlier levels.