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Livestock and arable industry news

Spring 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

The all-milk average price in November 2018 was recorded at 31.61p per litre – up 0.5% on October, but down by 1.1% on the five-year rolling average. The prices received by non-aligned contracts for the month was a marginal 0.11p per litre behind those on aligned contracts. Across Great Britain, the five-year average milk price now sits at 27.72p per litre – a price which, if individual producers can attain over the period, should leave a reasonable return on the investment of time and capital. 

Commodity prices across the UK in December 2018 were very mixed. Bulk cream was down 6%, with reductions in price for both butter (-8%) and mild cheddar (-5%). Skimmed milk powder (SMP) bucked the market with a whopping 22% year-on-year increase, rising from £1,230 per tonne in December 2017 to £1,500 per tonne in December 2018 – although much of this increase was attributed to weak currency markets, rather than a huge swing in demand. The month-on-month comparisons showed less fluctuation for most, with SMP up 6% and mild cheddar staying flat at £2,850 per tonne. Butter was down 2% to £3,680 per tonne and bulk cream was down 7% to £1,700 per tonne. It was a similar picture globally, with butter prices across the US, Oceania and the broader EU all reducing month-on-month, but SMP being up marginally across the three regions. 

It’s worth noting, though, that the first Global Dairy Trade (GDT) auction of 2019 saw an upturn in the overall price index by 4.2% – a good indicator for, if not a direct driver of, milk price in the UK. So the interim outlook is potentially slightly more positive than the commodity markets would have us believe. 

One statistic that does make challenging reading is the reduction in producer numbers across England and Wales. Between December and January, there was a drop of 33 producers in total – a reduction of 1.9% year-on-year, or 177 fewer producers in the 12-month period. But there’s no reduction in the numbers of productive cows, which have been quite stable at just below 19 million for the last three to four years. With yields fluctuating depending on the grass-growing season, the overall view is that a reduction in producers is no indication of a reduction in the milk that’ll be produced. GB milk deliveries for the mid-January period are now running at around 3% higher than the same period in 2018, equating to an extra million litres.

The short-term outlook for the dairy sector can be read in any number of ways. The increase in overall price at the GDT auction is a positive, while the increase in supply year-on-year could mean there’s plenty of milk availability, which may put prices under pressure. Perhaps the biggest single influencer as we move into the grass-growing season is the effect of the weather – a good, warm spring could give a strong crop of grass and an increase in supply. We can be safe in the knowledge there will be a seasonal reduction in milk price come May, but the elements will decide by how much.

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

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Beef and sheep

The post-Christmas dip in lamb prices did little to warm producers from the icy blast experienced by much of the country towards the end of December. Strangely, the drop in prices experienced in January came at the same time as a drop in numbers supplied to the auctions, which would indicate a lack of demand for lamb meat into the new year. Conversely, those on a deadweight contract saw a marginal increase in price in January, in the region of 2%. Lower prices are never good news for any producer, but it’s worth noting that January lamb prices were still higher than the five-year average on AHDB figures – as they were for the majority of 2018. Total slaughter figures for lamb and mutton in 2018 were just over 288,000 tonnes for the calendar year. This is 11,000 tonnes (3.6%) lower than 2017 and a possible explanation for the prices remaining above the five-year average for the majority of last year. 

So, do the lower figures for total meat produced mean lambs and cull ewes are being held back for the tail end of the old season? Not according to AHDB figures, which indicate a slump in clean sheep killings in the first quarter of 2019 to 2.8 million – down some 12%. And the carry over into 2019 of old-season lamb is expected to be smaller than previous years due to the smaller lamb crop of 2018. Overall, this should be good news for producers who are holding onto stock, if it’s mirrored by an increase in consumer demand for meat as we move into spring.

We see a similar tale in the beef market. Prices dipped as we moved into 2019, with an annual total of 922,000 tonnes of beef and veal produced in 2018 – up around 2% on the previous year. As is usual, an increase in supply not met and matched by an increase in demand has seen prices linger just below the five-year average in late 2018 and into 2019. 

Using the BCMS data from July 2018, it suggests that prime cattle numbers will be similar to last year. So, assuming similar demand, the price should stabilise and hold firm into summer 2019. Prime slaughter numbers for 2018 are expected to be at 1.98 million head. Supply in the second half of 2019 is likely to be restricted due to higher mortality levels in spring-born calves in 2018 – especially with dairy-bred bull calves, which would be expected to be finished and ready for slaughter before the end of 2019. With potential for this to also decrease prime cattle numbers in 2020, there were higher numbers of prime heifers slaughtered in 2018. This means fewer replacements for suckler herds and again, potential knock-on effects for supply in 2020 and 2021. Predictions from AHDB are that, potentially, prime cattle numbers could be down by as much as 10-20,000 head – something that should put a strong floor in the market in the longer term, but which may also present as an opportunity for those looking to get a foothold in the UK market in a post-Brexit world.

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

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Arable

In January, the UK futures market was sitting at between £155 and £165 per tonne for November 2019 – not a great return considering that feed wheat was around the £170 per tonne mark at the end of the year. Milling wheat was only showing a £5 per tonne premium – a thin margin for the extra costs involved – and feed barley only being around £5 per tonne behind that. It’s clear, then, that the spot market is far more of a reactive market compared with the speculative nature of the futures arena. So while a price of £155 per tonne might seem rather thin in the current market, you wouldn’t have to turn the clock back too many growing seasons to see many growers jumping at the chance to offload wheat at £155/tonne.

It’s the time of year when all eyes are on the southern hemisphere and the outputs and outcomes of their harvest and, consequently, how the market reads the data. A number of countries in the southern hemisphere are experiencing drought conditions, affecting yields and even decimating whole areas of cropped land. The drought in Australia has been well documented, but Brazil has also been experiencing some hotter and drier weather than would be expected. In January, reports of rainfall in the coming weeks are still expected to remain below average. This is unlikely to be enough to replace soil moisture content required for key crops – notably soya crops, which are expecting reduced yields. Production of maize is expected to increase by 0.65 million tonnes this cropping year, but still with the cautionary note of some of their grain drops being up to 28% below average yields.

Meanwhile in the USA, the prolonged shutdown of US government departments has resulted in a lack of information on crop establishment and updates on how crops are faring through the winter months. Both are often good indicators of their expected national yields. So until the southern hemisphere combines start to roll in earnest and the US Department of Agriculture returns to normal working, the markets for global – and therefore UK – arable, remain a bit of a clouded mystery at the moment.

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

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Pigs and poultry

The consumer obsession with large eggs that we reported on in the last News from the Field continues. One large-scale buyer has increased the price on large and very large eggs, while reducing the price for the standard medium egg. The UK is currently producing more mediums than large but consumers are flipping the other side of the equation by demanding large eggs. The price increase of 2p per dozen for large and very large bucks the trend seen in the overall egg price for 2018, which is one of gradual decline. Other packers are also following suit, with significant reductions in price for medium eggs of between 7p and 10p per dozen. It’s an interesting trend, as egg size is very dependent on the age and point in cycle of the flock.

Growth in demand for free-range eggs continues to be strong – at an increase of around 3-4% year-on-year, a figure reported at the British Free Range Egg Producers Association in October 2018. Supply is, however, generally increasing by 10% year-on-year, with a mixture of new entrants and expanding flock size. With the increase in grain price adding to variable costs of production and potential for the over-supply to continue the downward trend in price, it could be that those producers who can move fastest to larger eggs will fair best in 2019.

Source:  British Free Range Egg Producers Association Report, October 2018

The number of breeding sows has been relatively stable for the last four to five years, bubbling around at just over 400,000. The exact figure given in June 2018 was 409,000 with a three-year peak of 417,000 head in June 2017. This goes some way to explain the over-supply in the domestic market seen in 2018, which caused the finished pig price to decline through the year. This gives us the starting point for 2019 – a rather merger January price in the region of 138p/kilo. Every penny drop means a reduction in income of around 75p per pig. From the higher prices we saw at the start of 2018, this is the difference of around £7/head or around £17,000 of gross income per 100 sows – a trend the industry will want to see reversed, especially with higher grain prices driving higher feed prices.

Imports to the UK are down around 6% (23,581 tonnes) in the year-on-year figures to October 2018 – a product of the weaker pound making them more expensive. This should turn processors and retailers to the home market to drive greater margins for their businesses, which in turn can put a stronger floor in the UK farmgate market for producers.

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

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Banking and finance

Bank of England figures to the end of November – which in many ways show the peak demand for funding to the sector as it sits right at precipice of the BPS payment window – showed overall bank debt at £19.219 billion. This means a fourth month in a row of drawn debt being above the £19 billion mark – a year-on-year increase of £564 million or just short of 3%. This is one of the largest year-on-year increases in the last 18 months. The usual combination of respectable farmgate prices and the current low-interest-rate environment usually means the debt-growth figure is higher at over 5%. But the cloudy picture of Brexit and the potential unknowns mean farm businesses are perhaps being a little more cautious, trying to keep a grip on spending with an eye to the future. The credit balance figure would appear to back that up, with an increase to £7.731 billion in November 2018 compared with a figure of £7.462 billion in the corresponding month of 2017 – an increase of £269 million, up 3.5%.

The usual situation come December is a swing in the debt figure of around £350 million and an increase in credit balances of around £850 million. This is an overall swing of £1.2 billion and a good indicator of the progress of BPS payment across the UK.

Facility-level data shows a near constant between November 2017 and November 2018, with total available facilities at £25.756 billion – a decrease of only £55 million. When set against the debit balance of £19.219 billion, this leaves a headroom of £6.537 billion – very similar to the last time we reported the figure in September 2018. This is an indication of the available funds to the sector to combat those unforeseen implications of a tough winter after the dry summer, and a further indication of the support the sector receives from the finance industry.

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

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