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Livestock and arable industry news

Summer 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 cold, late spring might well have an upside, with this being one of the latest turnout years in recent memory. As we got half way through April, the numbers of cattle turned out – notably, those of the black and white variety – was minimal, as both grass growth, and the ability of the sodden pasture to stand up to poaching, were issues. The extra costs involved in keeping cattle inside were also a problem, which some farms could only accommodate by buying feedstocks. However, the spring flush and the associated dip in milk price could turn out to be less acute than anticipated in the early months of the year.

In parallel to this, the Global Dairy Trade (GDT) markets in April saw their first universal upturn across all commodities since the beginning of February, rising by 2.7%. The biggest climber was Anhydrous Milk Fats (AMF), which were up 5.3%, with Cheddar and SMP 4.6% and 3.6% respectively. The only slight downside was that Whole Milk Powder (WMP) was up only 0.9%. This makes up nearly half of all product sold, so can have a restraining effect on the market. Overall, this is positive news for the sector, though it’s always worth remembering that, while the GDT is a good indicator, it doesn’t physically drive UK farmgate price.

Final figures from AHDB Dairy show overall milk deliveries for the production year 2017/18 to be 12,402 million litres. This is 349 million litres up on the previous year, although still 113 million litres behind the heady heights of 2015/16, which saw the highest levels of production since the 1980s. In stark contrast, February and March saw an estimated 19 million litres of milk uncollected in the face of the logistical problems presented by atrocious weather.

https://dairy.ahdb.org.uk/news/news-articles/april-2018/all-prices-up-in-latest-gdt/#.Wt8zbW_wbic
https://dairy.ahdb.org.uk/news/news-articles/april-2018/gb-milk-production-up-350m-litres-in-2017-18/#.Wt83yG_wbic

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Beef and sheep

What is there to say about the lamb price for the tail-end of old-crop lambs? Monumental. A price increase of over 45% and the deadweight price smashing through the £6/kg deadweight mark. Those that operate a business model of hanging on to lambs until the bitter end, usually expecting better prices than before Christmas, must be on a real high. While battling through a very difficult lambing season, especially for those with early-lambing ewes, the thought of prices sustaining the lofty levels for new-crop lambs must have kept many going in trying times. Interestingly, throughput of lambs through the auctions is higher than spring last year – by around 10% – so clearly the demand is good and the imports mustn’t be there simply to keep the supermarket shelves stocked.

Many farms are reporting having fewer lambs on the ground after completing lambing, so the scarcity of supply could continue. But it’s unlikely we’ll see prices maintained at super-high levels right through the selling season. How many might review their modus operandi with a view to keeping some store lambs through until the post-Christmas season?

The beef prices aren’t as spectacular as the lamb prices, but they’re holding their own. Liveweight heifer prices are keeping above the £2/kg market for most of the spring period and steers aren’t far behind, at around £1.90/kg, or slightly higher. So while not startling, it’s a slightly higher base to start the usual ascent to higher prices, a trend we’ve seen in recent markets from early summer until autumn. This should set the sector up for a reasonable trading period. Getting more exports out of ports also helps home markets, with beef exports up by 7% in February, reaching nearly 9,000 tonnes of fresh and frozen cuts. Exports grew to Ireland, the Netherlands and France, while shipments to Germany have nearly doubled, albeit from low levels. We mustn’t forget that we import far more than we export – 20,900 tonnes of beef was landed at UK ports in February, more than double our export figure – but overall, this will help the UK sector as we move towards Brexit, particularly if sterling remains weak.

http://beefandlamb.ahdb.org.uk/market-intelligence-news/uk-beef-exports-continue-grow/
http://beefandlamb.ahdb.org.uk/market-intelligence-news/liveweight-lamb-prices-soften-slightly-deadweight-breaks-6-mark/

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Arable

The cold spring saw the seed drills working much later than usual, with crops also slow to grow. But the onset of some proper spring weather and the ever-absent sunshine will see many cereal crops catch up to usual growth stages in no time. Oilseed rape started to bloom in the south in the third week of April, giving a welcome splash of colour. Despite it being 2 to 3 weeks later than usual, it hopefully wasn’t too cold for the pollinators to be out and about, given the cooler air that followed April’s mini-heatwave. Likewise, the potential for disease problems for growers increases with later flowering, with sclerotinia stem rot being the main threat as the warmer weather and higher levels of humidity make conditions perfect for the disease. This disease can affect yields by up to 50%, though it’s easily controlled with timely spraying.

The markets continue to look steady. Feed wheat remains around the £140 to £150/t bracket, with milling wheat only showing a £5/t premium with little to look to, given that the futures markets in mid-April were showing little, if any, premium for November 2018 prices.

It usually pays to take a look at the USA to see how their cropping year is going, given the large impact they can have on the global price. It would seem it’s not just western Europe that’s struggling with a poor spring, as only 3% of the intended area of spring wheat is being planted. On average over the last 5 years, around 25% of the crop was in the ground at this time of year. While there’s still time for the planting to catch up, any reduced area could affect output. Likewise, if the challenging conditions continue, they could also affect maize cropping, with some growers opting for soya instead. This could affect soya prices globally – which would be welcome news to the more intensive livestock sectors, although the reduced soya yields in Argentina could somewhat counteract this: yields are down by around 700 kg per hectare due to poor growing conditions. The US winter wheat crop condition is also behind last year’s, with only 31% of the total area being rated as good or higher, compared with 44% in 2017. Again, this has potential to shore up somewhat tepid grain markets in the coming months.

https://cereals.ahdb.org.uk/markets/market-news/2018/april/20/grain-market-daily-200418.aspx
https://cereals.ahdb.org.uk/markets/market-news/2018/april/23/in-this-weeks-market-report.aspx

 

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Pigs and poultry

The news from the USA noted in the arable section will be welcome to both sectors, especially the broiler industry. It has a near-unique position of being the only meat industry with a growing demand and consumption in the UK, aided by static grain prices. Combine that with the potential for an increased area of soya planted in the US, which could create a dip in protein costs, and the sector looks set for a good year if the cropping comes to fruition.

For the egg sector, there was a strong end to 2017, with 4.3% more cases put through UK packing stations. This increase in eggs packed (7.5 million cases in total), compared with the same quarter in 2016, actually represented a drop of 0.5% on quarter 3 of 2017. The average farmgate egg price was 69.7 pence per dozen, slightly up on quarter 3, with the range between enriched cage eggs at around 55p per dozen and free range at 82p per dozen. Hopefully, the price slide of the last couple of years is very slowly stopping. Finally, at the end of 2017, the production of free-range eggs overtook that of enriched cage production – a sign of the times, and evidence of a moving market driven by consumer trends.

UK production of pig meat in March totalled 75,500 tonnes, down on a month-on-month and annual basis by 2% and 4% respectively. This doesn’t take into account the early Easter though – production was actually up 5% on last year. This means there are more clean pigs on the market, which usually means only one thing for producers – lower prices. However, the pig price through April actually rose, albeit only slightly, by under 1 pence per kilo. This is still a good indicator of decent demand and challenging currency for producers on the continent.

The pig price for finished animals has still been lower throughout 2018 than for the same period in 2017, something producers will have to factor into cashflows for the coming year. However, confidence remains in the UK pig sector as prices for 7kg weaners increased to over £37/head, up nearly £2 since the start of the year. Again, this is still behind the 2017 price, but an indication that the industry is confident it can turn a profit in the current markets.

Although we import over 40% of the pig meat we consume, there’s also good news on our pig meat exports – they were up 10% in the early part of 2018, and much of that came from business with EU member states, as well as America.

Overall, the markets are down on 2017, but the industry’s ability to adapt to changing markets will give a good outlook for 2018.

http://ahdb.createsend.com/t/ViewEmailArchive/r/D17D44BF4422BB912540EF23F30FEDED/C67FD2F38AC4859C/
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/678221/eggs-statsnotice-01feb18.pdf

 

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Finance

Debt levels to the end of February saw another marginal year-on-year increase of just 1.9%, rising to £18.376 billion – an increase of £346 million on 2017. The slowdown in demand for debt can mainly be explained in terms of better markets across all sectors of the industry; hopefully it will retain more of the income it’s been generating. Debt has increased only marginally over the last 12 months, compared with other years where markets either conspired against the industry or prices were such that it inspired high levels of confidence for investment. Given the same levels of growth between now and the peak of demand in any year (in November, before BPS comes in), it’s possible that debt levels across the UK could peak at £19 billion for the first time ever.

Credit balances sat at a good level of £7.923 billion, still showing a very healthy increase of 10.5% on the same month in 2017. This figure tends to drop slowly from the high of December (when BPS payments come in and combine with autumn stock sales and plenty of grain cheques to boot) so the drop of £389 million in the 2 months from December 2017 wasn’t unexpected. In the same period, debt levels rose by £86 million, so the industry had a cash burn of £475 million in a 2-month period. From December 2016 to February 2017, the industry had a cash burn of £561 million, a decrease in demand of over 15%. This can only be attributed to better margins across the industry as a whole, giving fewer cash-negative businesses and less demand to draw down on savings or pull on overdraft facilities.

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

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