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Livestock and arable industry news

Autumn 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 outlook for the dairy sector continues to be positive. Milk prices have remained seasonally strong – the average price being 28.09p per litre at the half year point. This is 0.86p per litre above the five-year average of 27.23p per litre, as well as being 0.25p per litre higher than the May 2019 average milk price. Although the rest of summer saw some drops in price, the seasonal dip in milk as we move into autumn will see the market tighten, with prices maintained and slightly improved.

The seasonality of milk production is highlighted well in UK daily deliveries, peaking in April 2019 at just below 38 million litres per day. August deliveries were five million litres lower, at just below 33 million litres. The commodity markets showed little fluctuation in the summer, lingering at or around the same levels as the previous month, giving an air of stability to farmgate price which began to taper off in early autumn.

Provisional figures released in August show 2018/19 milk yield across the UK averaging 7,968 litres – the highest ever UK average and a good improvement on recent years, where some wet summers had produced dips in yields where they’ve traditionally trended upwards. The UK had a total production in 2018/2019 of 14.991 million litres, up slightly on the previous production year.

Cow numbers continue to be relatively static, maintaining somewhere above 1.8 million head. The total EU dairy herd is measured as 22.9 million head, down some 1.6% year-on-year – fairly insignificant if their yields have increased at a similar rate as ours. The falling trend in producer numbers across England and Wales continues – in the previous 12 months to September 2019, a total of 660 producers left the dairy industry.

A continued good outlook is expected for the industry as we move into winter, especially with a reasonable grass-growing season behind the sector, in contrast to the drought conditions we saw in the summer of 2018.

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

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Beef and sheep

Beef prices have been very challenging for the sector through the summer of 2019, with prices down between 10% and 15%. Liveweight steers have been easy to buy at 175p per kilo, with heifers at around 190p per kilo. The all-prime cattle market was around 27p down on the five-year average at the beginning of September, although there were indications the market was starting to lift, even if ever so slightly.

AHDB report that cattle numbers recorded in mid-summer show a significant decline on the same time in 2018, with 21,000 fewer cattle on the ground than in 2018. This could lead to a reduction in supply, especially at the tail end of the year and into 2020. The problem is not only an over-supply for the market, but also a lower demand for beef at the point of sale.

Total prime cattle slaughter numbers are predicted to be at approximately 1.93 million head, a reduction of 3% on 2018 figures. This reduced supply may, combined with lower numbers following in 2020, put a better floor in the market. Whilst the reducing feed wheat and barley price is good news for finishers, it’s the farmgate price where many will be looking for an increase as we move into winter.

The lamb market has fared a little better than beef, with the liveweight price at or around 175p per kilo at the beginning of September – roughly at the level of the five-year average. With increased fuel, fertiliser and vet costs year-on-year, some will say the price needs to lift above the five-year average. However, the cost of feed will reduce if the grain markets continue to contract and potentially absorb the increased costs in the equation.

The 2019 lamb crop is estimated at 16.5 million head, down 4% year-on-year. This mirrors the contraction in ewe flock, a factor which should contribute to a tighter supply as we close out 2019. Seasonally, the lamb price usually takes a dip in late summer/early autumn before rallying into the winter months. With the potential for that supply to be lower than last year – especially after a good grass-growing season for most in the big production areas, meaning lambs finishing more quickly than last year – that seasonal hike may be significant. Of course, the great unknown is Brexit. Much UK lamb ends up in the EU and, as such, there’s a deal of concern about post-October trade deals, should we exit on the (currently) planned date.

Store lambs were at around £57 per head at the end of August, again in line with the five-year average, indicating those who come into the auctions to buy believe there will be a market to sell when they’re finished.

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

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Pigs and poultry

The pig sector is strong at present and the outlook continues to be positive, aided by the good yields across the northern hemisphere in the wheat and barley crops. Prices at the end of August and into September did take a very slight dip, but only marginally. The positive outlook appears to be backed up by the prices of 30 kilo stores, which, as we moved into autumn, were at £56/head – the highest price since November 2017. Likewise, the price for 7kg piglets straight off the field was also strong at £39/head, again, the highest since November/December 2017 when they were sitting at just over £40/head.

Predicted slaughter of clean pigs for 2019 is estimated at 10.77 million head in the UK> This is the highest figure since 2000 and it’s predicted to lift in again 2020 to 11.1 million head, which could mean there’s going to be an oversupply. However, the pig meat market in the UK is significantly under supplied by the UK-based sector – we’re generally thought to be at around 60% self-sufficiency. With imports coming from within the EU, the pig sector is one which could reap the rewards of the confusion shrouding the current Brexit process.

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

Free-range egg production, having crossed over the levels of enriched production last year, continue to be far and away the most popular egg type in the UK. This is a real testament to the power of public demand. In the second quarter of 2019, 7.9 million cases of eggs were packed (up 3% on the same quarter in 2018), comprising 4.5 million free-range and just under 3.5 million cases of caged eggs.

The egg market is familiar with volatility and continues to see downward pressure on price well into 2019. Free-range eggs averaged 80p per dozen to the half year point, with caged eggs at 54p per dozen, giving an overall UK-average egg price of 71p in the first six months of the year. However, since Defra released that data, there have been some further price reductions towards 75p per dozen for free-range producers. Once again, the potential for lower feed prices is good news for both the egg and broiler sector, even when set against the backdrop of increasing protein costs. But rather like the beef sector, most producers will be looking for a tightened supply or increased demand to give an increase at the farmgate.

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

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Arable

It’s been a stop/start harvest year for most and with the weather interrupting progress, many farms report they’re up to two weeks behind where they usually are at the end of August. The trials and tribulations for most are mitigated by good yields easily hitting ten tonnes per hectare in the better crops, when they can get the crop to harvest. However, with good yields reported across much of the EU, Canada and the US, this means prices have been sliding downwards.

Towards the end of August, the combination of good yields and a fluctuating and weakening of sterling meant the feed wheat prices slipped down below £130/tonne. Predictions for the UK wheat crop are for it to hit 15.5 million tonnes, well above the five-year average of 14.5 million tonnes, hence the soft market into which this year’s harvest is landing. Milling wheat is a little stronger, which is usual, but only at around £145/tonne. In August, the International Grains Council estimated the northern hemisphere crop would total 150.2 million tonnes, meaning the UK produces around 10% of output, even in a high-yielding year.

With confusion reigning over Brexit and the ability to fulfil export orders, the barley market has suffered similarly, with little demand on the forward markets beyond October. As a result, the price of feed barley has dropped below £120/tonne. Again, yields have been strong with the best winter crops hitting up to 10 tonnes per hectare.

Oilseed rape has also had its harvest problems in 2019. Good yields are reported in crops that haven’t had weather or pest damage, with some hitting five tonnes per hectare in peak areas of a field. But overall yield averages are much in-line with expected averages and the price remains steady at around £340 per tonne.

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

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Banking and finance

The confusion of Brexit does the industry no favours. A lack of clarity in the short term can cause consternation in such a long-term industry, as all involved in the sector understand. The banking sector continues to offer long-term finance to the industry, with debt balances increasing year-on-year by 2% to the end of July, rising to £19.379 billion – a more modest increase than earlier in the year. The overall increase year-on-year was £396 million, with a seemingly disproportionate month-on-month increase of £144m – some 36% of year-on-year increase. Summer is, however, peak time for cash demand within the industry, before crops are harvested and sold and before the large autumn sales.

Credit balances decreased between June and July by £26 million, giving a net funding requirement of £170 million in June. Overall credit balances sat at £7.734 billion, modestly up 1.4% on June 2018 (an increase of £105 million).

This continued and ongoing support from the banking sector to the farming industry grows and is constant. With the simple fact that, across the finance industry, banking continues to offer financing contracts running into 10/15/20 years and beyond, I can think of no greater support and commitment to the farming sector.

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

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