Livestock and arable industry news

Autumn 2017

Oliver McEntyre, our National Agriculture Strategy Director, gives us his insight into dairy, beef and sheep, arable, pigs and poultry and finance. Discover the latest news and updates from the industry. 

Dairy

The rules of supply and demand are strengthening prices across the dairy markets 

The dairy commodity markets are going from strength to strength after a torrid 2 years. Some are predicting a shortage of cream throughout the remainder of 2017 and into early 2018. This has contributed to a steadying of farmgate prices and, for some, a slight rise. As always, supplies tend to tighten as summer progresses so, when combining this with the price of commodities, we are already seeing a rise in values (notably cream, which has risen over 65% in value since April). The butter price too has almost doubled in value – it’s currently sitting at £6,100/tonne, which is up a staggering £2,900 per tonne on July 2016. These prices are being driven by milk supply, with production in the UK levelling off year on year – while there are lower levels of supply across Europe, particularly in Germany, France and The Netherlands.

As ever when prices rise, many producers consider increasing herd size or looking to chase yields upwards, which in turn puts more milk onto the market. The laws of supply and demand then kick in and, potentially, prices could dip in this scenario. Holding steady supply would be a good thing when it comes to stability, but some individual farms may feel now is the time to kick up production. If you are thinking of expanding, ensure your milk buyer wants and can utilise the milk. Nonetheless, with prices currently strong after a turbulent 2 years, producers can’t be blamed for wanting to capitalise on the situation. 

Statistics are sourced from the Agriculture and Horticulture Development Board (AHDB) www.ahdb.org.uk/.

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Beef and sheep

Demand for UK beef is high, while a decrease in imports is good news for UK lamb. 

The buoyancy in the beef markets continued throughout summer, with deadweight prices above the 5-year average by in excess of 20 pence/kg. The Agriculture and Horticulture Development Board (AHDB) reported that processor stocks are low on the continent and, while that was the case, demand across Europe and therefore the UK – especially given the rather weak position of the pound – is making exports more appealing to UK target markets. The AHDB estimated numbers of prime cattle ready for slaughter in Q3 at 495,000, and 505,000 in Q4; however, they now estimate around 10,000-15,000 more cattle available in the second half of 2017. This should be accommodated within the market, providing demand for beef is maintained with consumers and more is made of the export market should a surplus of beef be held in stock. Demand for beef usually increases in the lead up to Christmas, so this should underpin the market in the tail end of the year.

The lamb market has benefited greatly from the weaker pound, and prices through summer were up by over 10% on 2016. This is because the UK market has seen the usual levels of export, but imports are down by around 16%. This comes with an increase in the number of lambs to slaughter already this year, which is in part because of the decent, mild spring giving a good lambing. It’s worth remembering, however, that last year’s lamb crop was slow to finish due to poor summer grass quality. These factors combined, plus a reported shortage in Australia and New Zealand, make the export market very appealing and suggest a strong outlook for the remainder of the 2017 crop.

Statistics are sourced from the Agriculture and Horticulture Development Board (AHDB) www.ahdb.org.uk/.

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Arable

Unfavourable weather has had a detrimental effect on milling wheats, causing a dip in feed wheat price.

There’s a stop/start feel to the progress of combines at the moment, with the weather being most unhelpful. Continued showers and, at times, heavy rain, mean that grain is being taken at a higher moisture level than usual. This is increasing costs for those with driers at their disposal, and headaches for those who don’t. Yields are looking good for the 2017 harvest, with some reporting crops of winter wheat at an average of 8.2 tonnes per hectare and winter barley at 7.2 tonnes per hectare1. These good yields are making up for some crop loss due to lodging in some parts of the country. The weather is particularly bad for the quality of milling wheats; as the longer damp conditions continue, the more the Hagberg value will drop – though a scarcity could have a positive effect on prices for those who do manage to meet the quality required. Lower quality milling wheats will see more going to the feed market, and prices for milling wheat have already risen slightly in reaction, while feed wheat prices have dipped slightly.

News from other parts of the world has a huge effect on prices, and global wheat output forecasts slipped in July – driven down by poor weather and quality. The International Grains Council cut its 2017-2018 wheat output by a marginal 3m tonnes to 735m tonnes, but global wheat ending stocks remain high at 241m tonnes2, meaning there will be a steady global supply.

Overall, with yields being reported as good and the prices remaining reasonably strong, as well as the backdrop of the weaker pound, the outlook for 2017 harvest remains stronger than recent years – providing the weather relents and growers can actually take the crop.

1. Statistics are sourced from the Agriculture and Horticulture Development Board (AHDB) www.ahdb.org.uk/.

2. Statistics sourced from the International Grains Council www.igc.int.

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Pigs and poultry

Pig price remains strong, while the slight dip in grain prices will be enjoyed by both sectors. 

In May, the share of retail pork price received by producers increased to 43% – up from a 3-year low of just below 40% in February. This is a welcome increase, which can be attributed to a dip in the retail pork price while farmgate price has remained strong, but it still has a way to climb before it reaches the 3-year high of 42% that was set in June 2014. Despite this, the pig market is still a joy to producers, with prices 50p/kg above where they were in the lull 18 months ago. Combine this price increase with the dip in grain price as concerns rise about milling wheat crop quality, and the industry looks set to see out the year in very positive style. 

Likewise, the poultry sector is very reliant on grain prices to maintain a margin. So, while the news of poor-quality milling wheat is bad for the arable sector, the dip in price of feed wheat and the potential for more milling wheat not to make spec is greeted differently in the pig and poultry world.

Chick placings for 2017 are up year on year by over 5%, and the continued demand for poultry meat means the market is more than capable of holding its price. Likewise, the egg market has continued to see an increase in production with 3.8% more eggs being packed in the second quarter of 2017. Price wasn’t affected by this however; the average UK egg price has risen by 2.6%, with free-range being averaged across the UK at 86p/dozen for producers in Q2 and eggs produced on enriched systems being around 22p/dozen less.

Within the industry the gap between free-range eggs (48%) and those produced on an enriched system (49%) continues to narrow. While the price for either is not hitting the highs of 2013, there’s still a margin to be made and the outlook is good.

Statistics are sourced from the Agriculture and Horticulture Development Board (AHDB) www.ahdb.org.uk/.

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Banking and finance

Debt levels seasonally increase to over £18.5 billion, but credit balances are also rising. 

As is usual at this time of year, the debt levels across the industry increased from the end of Q1 to the end of Q2. The increase in 2017 was £404m, which outstrips the cash demand in 2016 by nearly £100m. Overall, debt levels for the whole of agriculture stood at £18.563 billion at the end of June 2017 – up 3.2% from June 2016.

Credit balances are also higher than 12 months ago, with the industry holding £7.113 billion of cash on accounts, which means that for every £1 held on deposit, the industry borrows £2.60. Reviewing this figure over the last 2 years shows that at the end of Q2 in 2015, the borrowing per £1 deposit was £2.96, and in 2016 it was £2.88 – possibly a demonstration of the industry strengthening its capital position, while remaining an overall borrower to fund the sector.

The increase in credit balances represents a growth of 10.1% year-on-year, and this increase is far higher than historically seen. Perhaps this can be attributed to the buoyant markets in milk, beef and sheep, as well as the improvement in grain price compared to 2015 and 2016. It could also be down to decisions within some sectors to hold cash in the event of another market dip, rather than looking to borrow in the event of a potential price storm.     

Statistics are sourced from the Bank of England www.bankofengland.co.uk/statistics/pages/bankstats.

 

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