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Livestock and arable industry news

Winter 2018

Oliver McEntyre gives his insight into all things farming, from arable and livestock to finance and agri-tech – and everything in between. Discover the latest news and updates from the industry.

Dairy

The milk price continues at a level where everyone should be comfortably producing a margin, with the latest figures for average UK milk prices at 29.73p per litre in August 2018. This is up 4.1% against July 2018, but only up 2.3% on August 2017 prices.

AHDB Dairy reported the average difference in non-aligned and aligned contracts is currently only 0.08p per litre as of October, and while there are obvious variances in the differing milk contracts, producers should always be aiming at a total cost of production (including drawings, rent and capital repayments) comfortably below the 5-year rolling average, which was 27.83p per litre in August 2018. Of course, the aim should be to be as low as possible when it comes to the cost of production, as those with the lowest costs feel the force of the market last and get the benefit of a rising market more swiftly after a dip.

Overall milk production in October was up by less than 1% for the same period in 2017, so supply is quite constant at present, with just over 33 million litres per day being delivered into processors. On the wholesale commodity markets there are fluctuations, and unfortunately they all seem to be in the downward direction. Bulk cream in October sat at £1,840 per tonne, down from £2,180 (16%) in 2017, while butter was down £950 per tonne to £4,100, a 19% fall year on year. Skimmed milk powder is the only one to buck the trend, with a year-on-year increase of £30 per tonne to £1,380 (2%).

In England and Wales, the number of producers dropped in October by eight, which gives an overall annual reduction of 79 – a dip of 0.8%. This is a constant trend over the years. With cow numbers sustaining as they have been between 1.8 and 1.9 million, it means fewer producers are milking more cattle per farm. When someone slips out of the sector, they’re not being replaced but the average size of a dairy increases year on year.

For many farms the dry summer gave huge headaches, with many feeding winter stocks to cattle who were kept in. The combination of rain and warmth through September and October meant many could re-stock depleted clamps for winter. Some September cut grass had a look of first-cut silage with the grass absolutely bouncing on after the drought. Given this, many will be slightly less worried about the winter ahead, as it’s not always just the cost of the forage bought in which is a concern, but also the quality of forage available, which can be a hidden cost. With the commodity markets slipping downward and UK deliveries being maintained, the potential for the milk price to tighten in 2019 is a possibility, especially when the spring flush comes in May. However, the influence of that remains in the ‘unsolvable’ pile as it will largely depend on the length of the winter and the quality of the spring grass growth.

https://dairy.ahdb.org.uk/market-information

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Beef and sheep

The sheep industry has seen some real challenges this year with 2018 having had it all – a wet, cold late spring, which was a challenge at lambing time, and a dry summer of forage challenges. However, those who held on to lambs for marketing in the first part of the year saw some record prices to help ease the woes of the weather.

The slaughter numbers for January to May 2018 saw just under 4.3 million lambs killed. The estimate for January to May 2019 is that there will be 3.9 million lambs finished in the same time span – a drop in supply which might lead to significant prices again for those with the ability to hold lambs and finish later in the season. The breeding flock going into the 2019 season is forecast to decline slightly according to AHDB – it will sit at 14.5 million head, down 370,000 (3%) from December 2017. This will mean fewer lambs produced, and potentially that prices will hold up in 2019 when new crop lambs start to appear. Our main competitors on the global stage are Australia and New Zealand, who are both estimating a reduction in 2019 production levels – Australia is forecasting a 0.9% drop in production of lambs and New Zealand a more marked dip of 1.7% year on year. With the UK estimating a 1% drop, the decline in production should be another reason for prices to sustain in 2019 – albeit against a backdrop of reduced consumption in the UK we have seen in recent years.

Beef production in the UK has seen a reduced breeding herd in recent years and the estimate for 2019 continues this trend – fewer females coming through as replacements mean the estimate is for the beef breeding herd to decline by 1.9% through 2019. The UK dairy sector is a huge contributor to the UK beef sector, with the average slaughter age being 22 months. The levels of calves born in 2017 is a good indicator of slaughter numbers in 2019. During 2017, registrations for dairy bull calves reduced by 30,000, conversely beef bred registrations increased by 44,000. With a reduction in beef bred animals required as replacements overall, the view is that there will be a similar slaughter number in 2019 as in 2018. However, with the average age at 22 months, the spectrum is between 12 and 30 months so a view of the early 2018 calving patterns is always worth adding in. With the poor spring resulting in higher than normal mortality rates in both calves and cows, there’s potential for slightly fewer animals ready for slaughter from the half year onwards. Registrations of births in 2018 are down, indicating that potentially less slaughter stock in 2020 could be a reality. With prices at the end of October for steers live weight being around 190p/kg many producers will want to see the usual pre-Christmas price climb appear and be sustained into 2019, when a flat or slightly reduced supply should maintain the market at much the same level as 2018.

http://beefandlamb.ahdb.org.uk/markets/

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Arable

The combinable crops sector continues to benefit from a weak sterling, the hot summer and some average harvests across Europe and beyond. Feed wheat prices at the end of October were sat at a very respectable £174/tonne, with milling wheat showing a premium of only around £5-£6/tonne. Barley prices were at £167/tonne and malting barley was showing at around £40-£50/tonne above that level. Overall, those on the heavier soils saw reasonable yields in 2018, with the main sufferers of the very dry summer being those on light soils where yields were very significantly down. However, the buoyant market has counterbalanced the yield reduction for many growers. The planning season for autumn crops has been very benevolent, with no real extremes of weather and some very good moist, warm conditions for good germination.

The futures markets at the end of October saw November feed wheat prices at around the £160/tonne mark, which is some way above the 10-year average wheat price of £137/tonne. Many growers will be looking into the 2019 growing season and all the factors which could affect it, and surely looking at a guaranteed price of £160/tonne and contemplating fixing in for at least a percentage of their expected crop. Providing growers are on top of their figures and can come to an estimated cost of production (including rent, drawings and capital repayments) below that figure, surely it must be a tempting prospect. 

The potato sector really suffered in the dry, hot summer – with many growers struggling to irrigate at levels they’d wish to. As concerns increased with the temperature, the average weekly ‘free buy’ potato price reached nearly £300/tonne, but since lifting started that price has come down to just over £250/tonne, with the overall weekly average at around £170/tonne. With yields on irrigated fields showing just below average and non-irrigated fields significantly below average, most will be hoping the price holds throughout the selling season.

https://cereals.ahdb.org.uk/markets

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Pigs and poultry

The pig price continues to slide, falling for the best part of four months since mid-summer. Not great news, as the price at the end of October sat just around 142p/kg – 11p/kg lower than the same week in 2017. This means around £8/9 per pig less gross income for finishers, a significant decline in the market. Although not dipping to the lows of 2016 just yet, it’s a trend the sector will wish to see the back of sooner rather than later. The dropping finished pig price has also seen a lack of confidence in the weaner market, with 30 kilo stores averaging around £47/head in October compared to £56/head 12 months ago – a near-perfect reflection of the dip in finished pig price of £8/9 per head. Cull sow slaughterings are up year on year, both in the UK by 6.3% and by 7.4% in Germany, who have a pig industry nearly six times larger than our own. So perhaps when the cull feed through and the supply drops, the market will tighten as we move into Q2 2019.

The egg sector is banging the drum for the use of more medium-sized eggs, with UK consumers consistently opting for large and extra-large eggs. Figures released show that a typical free-range hen will lay 55% large or extra-large eggs, with 45% of the eggs laid in the production cycle being either medium/small or second quality. This presents a problem for the use of medium or small eggs, which mainly head into the food service sector. The size of the egg has no bearing on the size of the yolk, just the white, so perhaps there’s a need for educating consumers about this, as they assume a bigger egg equals a bigger yolk.

A good news story for the poultry sector is that the use of antibiotics is down 18%, as measured by sales between 2016 and 2017. This shows that the industry is adapting and committing to reduced antibiotic use, which will have positive effects on flock health and human health in the long-term by reducing the potential for bacterial resistance to antibiotics.

The egg price has been under pressure all year with increased production blamed. When this is combined with a higher feed price after a dry European summer, it means margins are tighter than many expected. However, placement of layer chicks is actually down in 2018 after a peak in January of 3.8 million. This had dipped to 2.8 million in September and all placements across July-September 2018 were at or below usual levels of placing, so potentially we could see lower overall production which might well tighten the market into 2019.

Broiler placings remain very strong with 85.3 million chicks placed in September, and an all-time six-year high of 105.8 million in July, underlining the strength in demand for chicken meat. Conversely, the placing of turkey poults was down in September to 1.7 million, but when adding in the seasonally strong months of July and August the overall placing for July-September 2018 was 6.3 million, not far behind the six-year high back in 2013 when a total 6.93 million poults were placed. Perhaps this is an indication of consumers heading to different traditional Christmas dinner meats in recent years.

https://www.bfrepa.co.uk/media/farmers-aim-to-end-britains-obsession-with-large-eggs/

https://www.farminguk.com/MarketData/ChickPoultryPlacing/10

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Banking and finance

Total bank debt to the end of September increased to an all-time high of £18.284 billion, an increase of £238m (1.2%) from August. Interestingly, the increase year-on-year from September 2017 to September 2018 is £656 million (3.4%) - the highest year-on-year increase for quite some time, as the figure had been hovering around 1% year-on-year increase for the last year to 18 months. Perhaps this is an indicator of the cold, wet spring and hot, dry summer biting in and starting to affect cashflow. Although increases at this time of year are always expected – while harvest is in but perhaps not sold, and some of the biggest stock sales have happened – an increase of this size has not been seen since 2016.

Credit balances saw a slight dip – down £10 million between August and September 2018 – but still saw a year-on-year increase of 5.4%, up £396 million. It feels like the trend is reversing, as over the last 12 months increases in credit balances could generally be measured in double figures.

One area we rarely touch on is the level of facilities, which is the total debt agreed and available to the sector, which can either provide headroom in overdraft facilities or proportions of undrawn loans. Facilities as reported by the Bank of England reached £25.801 billion in September 2018 compared to £25.800 billion at the end of September 2017 – a negligible increase of just £1 million, so effectively flat. Therefore, from the year-on-year debt figures increasing by £656 million, the only conclusion to arrive at is that the industry is getting facilities in place in good time, or has significant headroom to drawdown funds against already agreed facilities. The increase in facilities from August to September 2018 was £234 million or just 1%, in line with the demand from debt which was at 1.2% – so the total headroom, the difference between facilities and drawn debt, remains steady at £6.5 billion.

The increase in debt is expected at this time of year, as is the dip in credit balances. Tie those into the headroom of £6.5 billion and it’s an indicator of the support given to the sector by UK banking. Farms likely to be short of forage as winter progresses should get in touch with their lender and secure the facilities to ensure the forage required.

https://www.bankofengland.co.uk/statistics/tables

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