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Livestock and arable industry news

Summer 2019

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

It’s been a rather odd spring, with a balmy warm spell towards the end of February, a chilly cold snap during March then another warm and pleasant Easter in April. Interesting weather patterns can make for difficult conditions, with grass grow starting quite early for most, then being held back by the return of the chill. Those with silage clamps that perhaps weren’t as full as they’d have liked at the end of the 2018 growing season would have been very pleased at the sight of an early spring. Although there are no mass reports of severe forage shortages in the dairy sector during the winter, some individuals will have surely been tight on crop.

The UK all-milk farmgate price at the end of the first quarter of 2019 was 28.94p per litre, which was down 1.4% on the same time in 2018. For Northern Ireland, that average was down at 27.5p per litre – and a much more significant drop year-on-year of 7.5%. AHDB Dairy also still report that the gap between aligned and non-aligned milk price is still only 0.5p per litre – so overall, this gives rise to the feeling that the milk market is a reasonably level playing field at present. It will of course become more uneven, should supply outstrip demand.

UK milk deliveries show a slight sign that could be the case with a daily supply of 36.83 million litres to the end of April 2019 – up 1.59 million litres per day (or 4.4%) on the same period in 2018. The milk sector was at least stable or in slight growth during 2018 – liquid milk spend grew 5.4%, mainly driven by higher prices but still slightly up in volume by 0.2%. It will come as no surprise that it’s the big four supermarkets that sell the majority – just over 60% – of that milk. The discount retailers account for around 18% and the traditional doorstep delivery is now less than 2%.

The cheese market continues to grow, increasing by 2.7% in 2018, with a total UK spend of around £2.918 billion, or 451,000 tonnes.

Perhaps the best phrase for the commodity markets is ‘holding up’. There’s been little change between March and April 2019 – bulk cream is still trading at around £1,500 per tonne, butter at £3,400 per tonne and skimmed milk powder (SMP) at £1,650 per tonne – a variance of only around 1% when comparing month-on-month. Comparing year-on-year explains the drop in the average UK all-milk farmgate price – cream and butter are down around 26-28%. SMP bucks the trend and is actually up 43% – a reflection of the EU’s stockpile being dispersed, which dented prices last year.

So overall, the sector is not rocketing away pricewise, but there are signs that the markets that back the price to farmers are firming up and, spring flush aside, the dairy industry does look set for a steady if not startling year.

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

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Beef and sheep

Cattle prices strengthened in April. There are many potential reasons for this – perhaps the hot Easter driving demand for barbecue beef cuts and other products, combining with a dip in slaughter house throughput of 7%. It would be the perfect short-term market conditions to have a dip in supply and an upward blip in demand, the result of which is the increase in price to around £3.42 per kg deadweight. This increase means that the market price was just touching the rolling five-year average at the end of April. Good news all round then on the face of it – though the price is still some way adrift of the same period as last year, with deadweight down nearly 20p per kilo.

ADHB has provided some interesting figures recently on global beef prices, so how does the UK beef price compare with our competitors around the world? Well, in comparison to Australia we’re seeing a higher price by some £1 per kilo – they sit at around £2.52 deadweight. The rest of the EU are at £3.28, which is approximately 25p per kilo lower. One of our main sources of import, Ireland, sits around £3.14 per kilo – 35p per kilo lower. These figures were the average price at the end of the first quarter of 2019. The USA only record liveweight prices and, in comparison, these are at £2.20 per kilo against a UK price of around £1.80. Overall, barring the US, we sit at a price that’s a premium to most other countries. To maintain competitiveness and cashflow, UK producers therefore need to be the most efficient they can be and continue to produce beef products of a higher quality – and make sure that message lands in the market place.

The UK lamb price also comes out on top of our nearest competitors. A price of £4.25 deadweight in quarter one compares very favourably with New Zealand at an average price of £3.60 per kilo and Australia at £3.40 per kilo. Granted, they’re operating with significantly lower cost of production systems, but there’s no denying that UK producers do receive higher lamb prices than nations which are very much our global competitors. Again, efficiency combined with quality must be the push and total focus of UK producers.

Overall lamb price climbed in April, though there was a slight dip just before Easter which was driven by a slight glut of pre-bank holiday lambs to the slaughter houses. The liveweight prices for both new and old season lamb were around £2.20 per kilo, which is stronger than earlier in the year and currently around 20p per kilo above the five-year average. This is still some 20-25p per kilo lower than the same time in 2018, but the outlook is good since both New Zealand and Australia are projected to have lower lamb production in 2019, by a not insignificant 7% and 9% respectively. The throughput of new-season lamb is up thanks to a good spring season, which may well mean a more scarcer product come the summer and into the autumn for those who can hold lambs or finish them late.

Source: http://beefandlamb.ahdb.org.uk/markets/market-intelligence-publications/

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Pigs and poultry

Finished pig prices are plateauing rather than continuing the dropping trend seen in the last few months. Good news, especially as we come into summer and potentially see a higher demand for barbecue products. Prices at around £1.38 to £1.40 per kilo are welcome – a slight increase from the start of the year, though not yet showing signs of reaching the heady highs of the £1.60+ per kilo seen in the last couple of years. The flip side is that they’re also not plummeting down to the levels of £1.16 per kilo we’ve also seen in the same period.

By far and away the biggest factor affecting the global pig industry is the huge outbreak of African swine fever in China, which shows signs of spreading. Estimates are that 200 million pigs have been lost in China – to put that into perspective, that’s three times the number of pigs in the whole of the USA. China isn’t only a huge producer of pork but also a huge consumer, so much so that one report states there aren’t enough pigs in the rest of the world to fill the gap in production that the slaughter control policy has created. Providing the spread is limited to Asia. If the UK can protect its own pig herd (currently sitting at 409,000 sows) from African Swine Fever the markets will lift significantly in 2019, potentially maintaining that into 2020 while the Chinese industry recovers.

Source:  https://pork.ahdb.org.uk/prices-stats

Free-range egg price has been in focus for the last 12 months. With an over-supply causing a drop in farmgate prices, there seems to be no current let-up in supply, with Defra reporting 7.9 million cases of eggs packed in the UK in the first quarter of 2019 – up around 3% on the same period in 2018. The effect of this on the average farmgate egg price is a reduction of 2.2%, to 69.7p per dozen in the same quarter. Within that average, enriched eggs are at around 52p per dozen and free range are averaging 79p per dozen, compared with 82p per dozen in the first quarter of 2018. Time will tell if the imbalance between large and medium free-range eggs covered in the last edition will even out and whether the supply/demand equation will balance as well. There’s been a shift in production between enriched cage eggs and free range and, for the first time ever, free range production overtook caged eggs in 2018. In quarter one, free-range egg production stood at 53%, compared with just 43% for cage eggs.

Source: https://www.gov.uk/government/statistics/egg-statistics

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Arable

Grain prices continued to be rather benign during April. Feed wheat was at around £160-165 per tonne, while feed barley started the year at a good level of around £165 per tonne but has slumped somewhat since and currently sits at £134 per tonne. Milling wheat is stronger, having maintained prices at upwards of £180 per tonne, reverting to the usual price premium seen between feed and milling wheat of £15-20 per tonne. The futures markets at the end of April for feed wheat were rather static on the immediate market, closing the month out at around £166 per tonne.

All around the world, the predictors, analysts and growers are on weather watch, compiling reports on sowing progress and crop establishment. The weather plays such a huge and uncontrollable part in the world of agriculture, so these reports are key in helping to predict where production – and therefore the markets, might go. Two huge growing nations, Russia and Ukraine, have recently had their estimates for 2019 wheat production increased, with Russia in particular having its output lifted to 79 million tonnes, an increase of 2.5%. This comes after a very good planting season, kind weather and decent rainfall to keep soil moisture good during germination and establishment.

The UK total wheat crop is estimated at around 1.6 million hectares and an average yield of about 7.5 tonnes, giving a total wheat yield in the region of 12 million tonnes. Compare this with the Russian crop alone being nearly seven times that of the UK, and we have the perfect illustration of how the UK crop is at the mercy of global production and markets. Around Europe the picture is similar to the UK. Eastern parts are in dire need of rain to increase soil moisture, while most central and western parts have plenty of rain, helping to keep dry soils at bay. The dry summer of 2018, followed by low rainfall through winter is already seeing farmers – especially in the east of England – worried about yields if the rain doesn’t come. If these changes in weather patterns continue, could we see wholesale irrigation of cereals crops in the UK? Certainly, with the constrictions to extraction licences and increasingly dry growing conditions, many farms should be looking at mitigating the drought risk through irrigation reservoirs within their long-term strategic and finance plans.

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

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Banking and finance

Credit balance figures to the end of March were at £7.951 billion. This is slightly up on the same month in 2018, but only by a rather insignificant £36 million – an increase of just 0.5%, the smallest increase in credit balances for many, many months. The drop between February 2019 and March 2019 is a far more significant £173 million – which is typical given the increased need for inputs at this time of year. So, is this an indicator of lower income, or perhaps of those holding credit balances perhaps investing in the infrastructure of their farm? Given we’ve been in a time of reasonably strong prices across the dairy, grain and sheep sectors, plus an improving pig sector – perhaps it’s the investment rather than farmers that are eating into cash resources.

In comparison, debt levels actually fell between February and March 2019, which is peculiar given that most sectors are purchasing fertiliser, sprays, seed and so on at this time of year. The drop is as insignificant as the year-on-year credit balance increase, which stands at £30 million, but it’s a slight surprise to see. The year-on-year comparison looks far more typical of recent trends, with a figure in March 2019 of £18.962 billion. This compares with £18.520 billion in March 2018 – an increase of 2.3%, which is far more in-line with recent debt demand. Interestingly, it’s the first time in more than two years that debt increase as a percentage has outstripped credit balance increases.

There’s much talk about the agricultural debt levels and their sustainability. But with a net debt of £11.01 billion set against an asset base of land, crops machinery and cattle easily estimated at over £250 billion, there’s an overall industry gearing of 4.4% – very low across the sector. With that in mind, those farmers with the ability to gear-up their businesses to expand or diversify into known markets should consider how they can use the potential increase in capital to best maximise their business, increasing efficiency and therefore increasing long-term viability to give a more rounded and stable business for the future.

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

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