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Livestock and arable industry news

Autumn 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

One of the driest summers in 40 years has already put many dairy businesses under pressure. With plenty of herds already into winter forage just to keep yields going, the impact of the drought will be felt right into 2019 when the grass starts to grow again. With a good few weeks of the growing season left, rain did bring some relief at the end of July and into August, but it still leaves quality and quantity issues for all forage across the ruminant sectors.

The dairy industry has put in an amazing performance by continuing to maintain yields in the face of drought – GB milk deliveries were down just 1.1% year-on-year at the end of July. According to figures from the Agriculture and Horticulture Development Board (AHDB), this equates to 300,000 litres per day – so production isn’t too far away from last year. Production being slightly down has meant a few marginal milk-price increases throughout the summer for most producers. The Defra all-milk average price was sitting at 27.16p per litre in mid-summer, up 1.4% from May, with the gap for non-aligned contracts being only 0.53p per litre in favour of aligned contracts. Overall, the GB five-year average price was 27.97p per litre in May, up slightly on the same month in 2017.

Mainland Europe has also seen record temperatures and it’s likely that they, too, will be heading into winter with some degree of trepidation about forage. Milk production has, however, increased across all 28 member states – by an estimated 2.3% on year-to-date figures to May 2018 and sitting at 65.239 million litres. It’ll be interesting to see what happens to those figures when the drought-hit months of June, July and August are available.

With UK wholesale commodity prices down in July from where they were last year, it looks like there could be some downward pressure on the milk price in the coming months. Bulk cream and SMP (skimmed milk powder) saw the largest drops of £350 per tonne (14%) and £230 per tonne (15%) respectively, and the Global Dairy Trade price index was down 1.7% at the end of July from the previous event. The arid summer will have an effect on yields across the UK and mainland Europe – a tightened supply will lead to a tightening market, which could come in to buck the trend. Milk price hikes or dips are a secondary concern for most at present though – getting to next spring with forage available is at the forefront of most producers' minds as we head into winter.

https://dairy.ahdb.org.uk/market-information/#.W2sRA2eovIU

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Beef and sheep

Any farm reliant on forage has experienced one of the most challenging summers for 40 years or more, with a dearth of decent forage available and the added concern about how to get cattle and sheep through winter. Those on rotational grazing systems have needed to be agile in their management, with many needing to abandon them altogether just to keep stock moving and fed. Store cattle and lamb prices dipped through summer as more stock than usual came on the market from producers who were concerned they wouldn’t have enough forage to take stock on to a reasonable finish point fit for slaughter.

AHDB has revised its slaughter number estimates downwards for clean sheep due to an increase in the numbers of ewe lambs kept as replacements. The estimated total number of clean sheep for slaughter is 12.6 million – around a 5% drop on the same period last year (June 2018 to May 2019), equating to a reduction of 700,000. If this prediction is correct, we should see the lamb price holding up in the coming months.

In the first half of the year, imports of sheep meat were down significantly on previous years and still below the 2017’s figure, which was low to begin with. A strong lamb price seen in spring means these figures could be expected to rise when the June data is released, though many – including AHDB – expect this trend to decline once again into the third quarter of 2018. The key driver of UK lamb exports is currency. The weak pound continues to make the UK attractive on continental markets. But with such reduced forage around, the ability to finish lambs without increasing bought-in feed, means that many lamb producers are looking for a decent price to justify the outlay. With prices into summer sitting at just above the five-year average, the sector looks set for reasonable trading into the autumn and winter months – as long as a finish can be put on lambs at a reasonable cost.

The levels of prime cattle slaughtered in 2018 were forecast at just under two million. The prediction initially looks to be correct, with 991,000 slaughtered in the first six months. But it may not be so straightforward – the lack of forage could have quite an impact. The cold, wet, late spring meant some cattle were turned out later than usual, while the subsequent drought has resulted in some producers sending cattle for slaughter earlier than usual. Just like in the dairy sector, many farms are either grazing ground meant for silage, or are already starting to eat into winter stocks. The import/export balance to the end of May was as predicted, with total imports up 6% to 113,000 tonnes. Exports were also up by a more significant 16%, albeit with a lower volume when compared with the import figure of 48,000 tonnes.

Deadweight cattle prices had been sitting above the levels of the last couple of years. But the shortage of forage seems to have driven the market downwards, with the price in early summer hitting 370p/kg, then declining below 360p/kg by early August. Again, concerns at the forefront of producers’ minds will be around forage and winter stocks, though the market could offer a reasonable return if late grass growth can alleviate the current concerns.

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

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Arable

Harvest 2018 is well underway at the time of writing in early August. It’s estimated that over a third of the total UK cereal and oilseed area has been harvested already, and it comes as no surprise that the start of the harvest season in 2018 was the earliest in more than five years, after the scorching summer. Winter wheat is around a quarter done, with the five-year average yield at 8.2 tonnes per hectare. This has been boosted by some good yields in 2014 and 2015 – most harvest reports indicate that 2018 yields are around 5 to 8% below the average for the last five years. This is based on yields so far from southern and eastern England, but the current UK-wide estimate of 7.8t/ha is reasonable considering the weather.

As always, and especially focused in a dry summer, the heavier soils are producing the best yields. The lighter soils and lack of rainfall mean a production yield as low as 2.5t/ha for some. The hot, dry weather has been good news for grain moisture, with some coming in as low as 15% – even less on the hotter days.

As at the first part of August, winter barley is nearly all complete, even in the more northern areas. Yields are below five-year averages, though not by much – in some parts on an individual farm basis, it’s at or slightly above, with estimates for average yields at around 6.8t/ha. Again, heavier soils are giving higher yields, with lower-than-average yields being seen further north. Oats are showing a similar trend with around-average yields – approximately 5.7t/ha – or slightly below on lighter soils. Winter oilseed is over 80% complete, again the crops further north are still waiting to be harvested and yields are around 8% down on the historic averages – 3.2t/ha compared with 3.5t/ha. Coastal crops on heavier land have coped best with the extreme weather, topping the yield range which has run between 1.5t/ha to 5t/ha.

Overall, these predictions indicate a total wheat crop of between 13.3 to 13.7 million tonnes. With concerns around yields pushing prices up, those not on the lightest of soils seem set for a decent 2018 growing season. The biggest challenge for the arable sector is probably post-harvest where, without significant rainfall, it won’t be possible to get a plough in the hard ground, which could lead to problems drilling next season’s winter oilseed.

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

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Pigs and poultry

Pig prices have seen a marginal recovery from the reductions that occurred from summer 2017. Excellent news since the drops in the market, while not huge month-on-month, did have quite an eroding effect on farmgate prices. The rise is nothing spectacular and finished pig price is only 6 to 8p/kg higher than in the spring, but it’s a move in the right direction and means an extra £6 per finished pig. Weaner prices, both 30kg and 7kg have remained strong throughout the year at over £50/head and around £39/head respectively. Clean pig slaughter numbers for the UK are up slightly at around 170,000 per week – an increase of around 3% – with a forecast 10.71 million pigs slaughtered in 2018.

This is in contrast to the trend seen in continental Europe, where we’ve seen an overall reduction in production, particularly in Germany, the EU’s largest pig producer. With a 2018 peak of 481,000 tonnes in March, by July the trend was down by 2% to 441,000 tonnes. This trend is seen across all the larger producers, including Italy, Poland and France so potentially, there’s less pig meat hitting the market. Overall, this means the outlook for the UK market is good, with potential for prices to continue to tighten. The weather is probably the biggest issue with the heat having great potential to affect fertility rates, which could have a knock-on effect to numbers born from September onwards, meaning fewer ready for slaughter as we move into 2019.

Free-range eggs continue to outstrip those produced in enriched systems, a performance trend which started towards the end of 2017, clearly driven by consumer and retailer demand. The improvements in price for both egg types in the early part of the year has disappeared. The average farmgate price for the second quarter of 2018 saw free-range sitting at 81.3p/dozen, while enriched were at 52.4p/dozen. When combined, they’re down 2.1% on quarter one. The throughput of eggs going through packing stations in quarter two was up by 2.3% on the same quarter in 2017, also up a marginal 0.2% on quarter one, with a total of 7.7 million cases, potentially driving the market downwards – a trend that’ll continue if supply continues to grow.

http://pork.ahdb.org.uk/prices-stats/prices/

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Finance

Debit balances to the industry continue to grow at a slow rate, with total debt sitting at £18.868 billion in June 2018, an increase of £123 million from May and only £302 million higher than June 2017 – an increase of just 1.6%. In the same period, credit balances increased by £705 million (9.1%), meaning the industry overall reduced its debt positon by £403 million. This gives the industry an overall net debt position of £11.050 billion, compared with £11.632 billion in June 2017 – reducing its overall debt by around 5% in a year. The net debt to the sector in July 2016 was £11.757 billion, so this is a trend we’ve seen over two years.

While all the industry press coverage focuses on the total debt to the sector, they seem to forget that not every farm business borrows and some have cash in the bank. The levels of total debt at £18.868 billion are set against a balance-sheet worth for the whole industry, which is well in excess of £200 billion. This gives a gearing of less than 10%, and less than 6% when credit balances are considered. The total debt level to UK farming isn’t a relevant figure, especially when you take into account the assets backing up the borrowing. To bring the debate back to a banking context, it’s not the asset backing the debt, but the ability to meet the repayment schedule that banks lend upon.

The potential for the industry to leverage its assets is huge – providing it can demonstrate the ability to repay any debt taken under the agreed schedule. A pertinent point when considering the drought conditions the sector has dealt with this summer – crops with lower yields and a complete lack of forage, both through summer and especially winter. Planning a cashflow requirement early is a vital part of business management, so if the clamps are not as full as they should be for winter, or if crop income is down because of yields, now’s the time to start planning and putting in place sufficient working capital to get through winter.

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

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