Category: Dairy & Livestock

Production

GB milk production for April 2023 to January 2024 totals 11.23 billion litres; just 0.6% less than in 2022-23.  However, deliveries are estimated to have totaled 973 million litres in February (29 days) this would be a 1.1% decline year-on-year.  The full year 2023-24 could record the lowest milk production since the 2016/17 milk season.  Furthermore, with BCMS data showing only marginal change in the GB herd, the decline in deliveries is being driven by a reduction in yields.  Over the past year, lower milk prices and high costs means there has been little incentive to push cows.  Currently, the very wet weather means turn-out has been delayed affecting production going into the spring.

Global deliveries were also down during the latest recorded month (December).  During that period, daily production was -0.4% lower (3.4 million litres per day) across the main producing regions of Argentina, Australia, the EU, New Zealand, the UK and the United States.  EU deliveries in December were marginally behind last year by -0.3%, mostly driven by a significant year-on-year production decline in Ireland, down by 27% (76.6 million litres).  Looking ahead, latest forecasts show a modest 0.25% increase in global production in 2024.  Growth is expected in Australia, the EU and US but declines in the UK, Argentina and New Zealand.

In terms of trade, demand from China is often the key driver but this has been weak over the last year.  Imports of dairy products to China were down by 12% (2.6 million tonnes) in 2023 compared with year earlier levels, with WMP volumes declining by 38% on the year.  In contrast, SMP imports were up on the year, although only by 6%.

Prices

The UK wholesale market appears to be waiting for the spring flush.  Reports suggest it is fairly quiet and prices are showing a lack of market direction.  The GDT average index has declined at both events held in March by -2.3% and -2.8% to average $3,497.  These are the first falls since the beginning of November 2023.  Closer to home, UK farmgate prices continue their ‘steady’ upward trend.  March only really saw an increase by Arla, whose 0.88ppl took its conventional milk price to over 40ppl, the highest since April 2023.  Milk price updates for April include;

• South Caernarfon Creamery (SCC) has announced an increase of 0.75ppl, taking its milk price to 37.0ppl for its manufacturing litre.  However, it has cut the annual bonus from 0.40ppl to 0.25ppl for the year to March 2025.
• Muller UK is increasing its price by 1ppl for farmers who meet conditions of the Muller Advantage Sustainability Programme.  This takes the standard milk price to 37.5ppl, including the 1ppl Advantage Premium.
• Belton Farms has also announced a 1ppl increase, this takes its standard manufacturing litre to 37.3ppl.
• Both Wyke Farms and Barbers have announced increases of 0.7ppl and 0.52ppl respectively.

 

Defra has published its response to the Review of the Great Britain Pig Industry Structure.  The review was undertaken by the AHDB and looked at the structure of the industry and also The Pigs, Records, Indentification and Movement Order (PRIMO) 2011 legislation.  The review concluded back in February 2022 and made 48 recommendations.  Defra has responded to each of the recommendations in a Policy Paper which can be found at https://www.gov.uk/government/publications/pig-industry-structure-in-great-britain-review-government-response/review-of-the-pig-industry-structure-in-great-britain-gb-government-response.

Defra welcomes the recommendations in the report stating ‘many of which are in line with our own ambitions to increase our disease control capability, whilst considering the impacts any proposed changes would have on the industry’.  But it also acknowledged that many of the recommendations would take time to deliver as they are dependent on the Government’s ‘main ambition’ to move pig reporting from the current eAML2 to the new multi-species Livestock Information Service (LIS).

However, in the interim it has started work on a couple of recommendations.  Firstly, using a public communications campaign aimed at all pig keepers, it is raising awareness of the importance of registration and de-registration.  And secondly, through the same communications channel, it aims to promote awareness of the legal obligations of keepers to ensure they meet strict biosecurity standards to promote disease prevention.

Defra has opened a consultation on proposals to introduce a targeted badger culling policy.  Previously, the Government had announced plans to phase out badger culling and move to vaccination of cattle and badgers.  But proposals in the consultation would see badger culling remaining as an option in areas where there are high levels of infection in cattle and evidence suggests badgers are part of the local disease problem.  These areas would be in the High-Risk and Edge Areas, including most of the southwest and central England.  Culling would remain in these areas until the diesease situation has been ‘deemed to have improved’ following annual reviews by the UK’s Chief Veterinary Officer.  After that, badger vaccination would take over to ensure the results achieved through culling were maintained.

The consultation also seeks views on options to include additional information about animal and herd level bTB risk to help those purchasing cattle.  This would be available in the ibTB mapping app and would include the most recent TB test the herd has completed.  Further views are sought on Defra taking over the licensing authority role with the aim of introducing a single organisational licence to reduce the administrative burden placed on the farming groups delivering badger culling and vaccination.  The full consultation can be found via https://consult.defra.gov.uk/bovine-tb/bovine-tb-consultation-wildlife-cattle/ .  Views are sought by 22nd April 2024.

 

Below we take a look at the latest forecasts for the beef market from the AHDB.

Total beef production is forecast to remain stable for 2024, with an increase in prime cattle slaughter, offsett by a decrease in cow slaughtering.  The result being a 0.2% overall increase to 892,000 tonnes.

Prime cattle slaughter is forecast to rise by 1% in 2024 to 2.06 million head; this follows a 1.3% decline in 2023.  BCMS data shows slightly more 12-30 month old cattle on farms in GB compared with the same time in 2023.  Furthermore, heifer slaughtering is expected to remain higher as fewer replacements are required for the declining breeding herd.  However, using the same BCMS data, the number of animals aged under 12 months is lower, meaning supplies may tighten towards the end of 2024 and into 2025.  Average carcase weights are assumed to continue the longer-term trend of slightly reducing, reflecting increased registrations of dairy-cross animals and native breeds.  Cow slaughter is expected to reduce by -2% in 2024 to 600,000 head.

In terms of consumption, beef volumes are expected to increase by 1% compared with 2023, although still down by 6% compared with 2019 (pre-Covid).  There is expected to be an increase in demand from both retail and out-of-home consumption.  With production forecast to be stable and an increase in consumption, demand for imported beef is expected to rise by 3% year-on-year in volume.  Imports of (often cheaper) product usually impacts domestic prices, but supplies are tight in Ireland which is expected to support the price there.  Teagasc (the Irish Agriculture and Food Development Authority) forecast that Irish beef production will fall by 4% in 2024 from the previous year.  This follows a fall in production of 2% in 2023, and strong live export levels.

Production on the Continent is also expected to decline as weather events and higher costs impact margins.  The European Commission is forecasting growth in beef imports to the EU in 2024, due to this decline in production and an increase in demand from food service.  The AHDB is therefore forecasting UK beef exports to the EU could rise by 1% in 2024 in volume terms.

Looking ahead in terms of domestic farmgate prices the picture looks optimistic with tighter supplies in Ireland and the EU supporting values and an increase in demand from domestic consumption.  In the short term supply is forecast to be (relatively) plentiful this spring and could prevent prices from going higher (although current values appear to be contradicting this see Key Farm Facts).  However, the fall in numbers of youngstock coming through could see supplies tightening towards the end of the year and into 2025, which could see prices increase – as long as demand stays firm.

Below we take a look at the latest forecasts for the sheep market from the AHDB.

In 2024, the AHDB is forecasting sheep meat production to decline by -1% compared with 2023; to total 283,000 tonnes for the year.  This is assuming minimal impact on production from Schmallenberg and Bluetongue virus, both of which are more prevalent this year.  The drop is a result of a forecast drop in the breeding ewe flock of -0.5%, due to an ‘overriding sentiment’ of uncertainty in the industry and high cull ewe prices.  In terms of this year’s lamb crop, scanning results are reported to be on average slightly up on last year – poor ewe condition in 2022/23 saw low scanning results.  This results is the lamb crop being 16.4 million head, up around 2% on the year.  The carry-over of lambs from one calendar year to another can be key, particularly for finished prices during the first half of the year.  The carry-over of lambs from January to May 2024 is forecast to be 3.9m head, a fall of 10% from 2023 and will be a significant factor driving the strong prices currently being seen.

The number of new season lambs expected to be slaughtered during the first half of 2024 (May to July) is also expected to be down by 65,000 head on the year to around 1.6m.  Assuming a typical slaughter pattern, the AHDB is expecting 6.6m lambs to come forward during the second half of the year (July to December) up 5% (310,000 head) on the year.  Numbers of culls are expected to remain stable for 2024, although the second half of the year is expected to make up for the decline in numbers in the first half – again current cull values are very strong due to limited supplies.

In terms of trade, imports are forecast to increase by around 4% in 2023.  Although facilitated by the trade deals we now have with Australia and New Zealand, the relatively low price of Australian lamb is a key driver of growing volumes.  Even so, New Zealand remains the largest supplier of sheep meat imports.  With regards to exports, there is the potential for growth into the EU as domestic production across Europe is expected to contract, particularly as scanning results in our main exporting country France, are reported to be lower than expected.  However, lower domestic production will limit volumes available to export and they are expected to contract by -1% in 2024 compared with 2023.

Domestic consumption is expected to decline by -2% compared with 2023 levels and by -16% compared to 2019 (per-Covid levels).  The cost-of-living-crisis is expected to continue to impact retail sales of lamb which remains one of the highest-priced proteins.

In terms of farmgate prices, tight supplies in the first half of 2024 is expected to continue to support the current strong values.  But the second half of the year could see prices come under a little pressure as new season lamb production increase and consumption lowers, although exports should help to maintain values.

 

Profitability figures from our Friesian Farm model have been updated and are shown in the table below.  Friesian Farm is a notional 200+ 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.  The 2021/22 year was a very profitable one for most dairy farms.  Then, the 2022/23 milk year saw a big increase in prices.  Although costs went up a lot as well, many dairy farmers made record returns.  The current 2023/24 year illustrates the decline in farmgate milk prices.   With costs ‘sticky’ on the way down, the business only breaks even from its farming activities.  The decline in the BPS in England can be clearly seen.

For 2024/25 however, Friesian Farm has gone into the Sustainable Farming Incentive (SFI).  A third of the grazing platform has been placed into herbal leys (SAM3) with the remainder of the grassland eligible for legumes in improved grassland (NUM2).  Friesian Farm has good hedgerows and has entered them into all three of the hedgerow options.  A Soil Mangement Plan and testing for soil organic matter together with a Nutrient Management Plan helps to add a useful amount to the bottom line.  However, it is important to remember there are costs to the scheme, particularly in establishing the herbal leys; these have been included in the farming margin.  Currently milk prices are firming but there is a question over how far and fast any rises may be.  Overhead costs drop for 2024/25 – this is due to cheaper fuel and electricity, but also due to unusually high contract costs during the previous year.

Arla has increased its milk price by 3 Euro cents per kg (2.6ppl) from the 1st January 2024.  The size of the increase, which was announced at the end of December, took many by surprise and is for both organic and conventional suppliers in the UK.  It takes the convential price to 37.6ppl.

Arla UK Agriculture Director said ‘both conventional and organic markets are coming back to growth and our retail branded sales continue to improve. With a stable outlook, this latest and significant increase should give confidence to our farmer owners as we begin the start of a new year.’  Interestingly, in Central Europe, the organic on-account milk price has increased by 5 Euro cents per kg.  According to Arla Foods amba board director, and Arla farmer, Arthur Fearnall, this is driven by the ‘transition of the certification scheme to the organic association Naturland and follows increased profitability from retail positions‘.  Other price rises, although by not as much, have also been announced, these include;

• 0.75ppl for Meadow Foods from 1st January
• 1.21ppl for Wensleydale Creamery from 1st January
• 1.03ppl for Barbers Cheese from 1st February.
• Muller and Saputo Dairy have both held their prices

Tighter milk supply is supporting markets; UK milk production remains behind last year’s deliveries.  In the UK, wholesale markets improved in December supported further by an increase in demand.  Butter rose by £160 per tonne, cream prices by £69 per tonne and mild cheddar by £110 per tonne, with cream and butter rising above 2022 levels.  However SMP was down by £50 per tonne.

The outlook for global markets is similar.  The averge price index has risen at the last four events at the Global Dairy Trade (GDT).  For the latest aution held on 16th January, the average price rose by 2.3% to $3,493.  Butter increased by 5.8% to average $5,906; bith SMP and WMP increased by 1.2% and 1.7% to average $2,638 and $3,353 respectively.  Cheddar was also up by 1% to $4,217.

Cases of Bluetongue continue to be identified through active surveillance in the temporary control zones (TCZ).  As at 24th January 2024, Defra has identified 56 cases in England on 33 premises.  Even so, it is still saying there is no evidence that Bluetongue virus is currently circulating in midges in GB.  Currently there are two temporary control zones, one in north-east Kent and another in Norfolk; active surveillance continues in these areas.  Movements of livestock in and out of a TCZ can only be made under limited circumstances; it is possible to apply for a specific movement licence if there’s an urgent and genuine welfare need to move animals.

For UK born and bred animals that are culled to control the spread of disease, compensation will be paid at market value.  No compensation will be paid for imported animals that test positive for Bluetongue.  For the latest situation and further information go to https://www.gov.uk/guidance/bluetongue.

The NFU and NFU Scotland have confirmed that the Statutory Instrument (SI) on milk contracts will be laid before Parliament in February.  Readers will recall the new regulations are aimed at ensuring supply contracts in the dairy sector are ‘fair and transparent’.  Our article published back in July contained further detail (see https://abcbooks.co.uk/milk-contracts-2/).  One amendement to the SI, which was expected to have gone to Parliament in 2023, is that the new rules will apply to both new and existing contracts.  The industry has been calling for reforms for a long time.  The voluntary code on milk contracts, introduced in 2012, attempted to address the imbalances in the chain but few milk purchasers adhered to its principles and a consultation was opened in 2020.  NFU President Minette Batters has emphasised that the dairy SI could serve as a blueprint for fairer terms in the other farming sectors.

The Meadow Farm model has been updated for the LAMMA show.  It is a notional 154 hectare (380 acre) beef, sheep and arable holding in the Midlands and is typical of many family farms.  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.  Two family members currently work full-time on the farm.

In most years, the business makes a loss from its farming activity.  This has continued despite stronger livestock prices in recent years – as shown in the table below.  It has required the BPS (and a small Countryside Stewardship (CS) scheme) to bring it back into profitability.  The decline in the BPS, along with high costs and static output will test this enterprise.

For the 2024/25 year the farm’s CS has ended and the business has taken up the opportunities offered by the Sustainable Farming Incentive (SFI).  This brings in significantly more income than the CS, although there are costs to collect the SFI, such as establishing leys (which have been included in the farming margin).   The figures for 2024/25 are based on SFI 2023 and there may be more opportunity for this farm when the new ELMs offer for 2024 opens in the summer.

The table below shows the final results for 2022/23, an estimate for 2023/24, and a forecast for 2024/25 including the SFI income.  We have also included a ‘Restructure’ for Meadow Farm.

Aside from Government support, there can be other ways to improve farm performance by taking a more fundamental look at the farm business.  Many of these types of mixed farm are simply undertaking too many enterprises with each not having enough scale.  This leads to a high cost structure.  The figures for Meadow Farm are shown after a restructure which sees the dairy beef enterprise discontinued and suckler progeny sold as weaned stores, rather than as finished cattle.  The sheep enterprise is increased from 500 ewes to 700 ewes and the arable land is fully contracted out.  There is also a rationalisation of the farm machinery.

One key point is that some of the proprietors’ time is freed-up by the changes.  This gives an opportunity to earn more income off-farm and, as a result, drawings reduce.  Diversification may be another way to usefully employ this time (although no additional non-farming income is included in our figures).  However, the proprietors must be prepared to accept and embrace a different way of doing things.

Results of an analysis Andersons have undertaken for the AHDB shows the key characteristics of top-performing farms.  One of the traits found in farms that out-perform their peers is having a mindset for change and innovation.