Farming News – January 2012
Despite recent gales and torrential rain and the country looking and feeling like a sponge, believe it or not, parts of England remain in underlying drought. Times look somewhat better for our beef and sheep producers in 2012. The drought in South America has impacted on markets for maize (and hence wheat), soya and hence oilseed rape. Prices have risen in the short term, but profit-taking by institutional investors appears to be reducing the impact. Farm and Country Finance will continue to support the farming and rural communities in the year ahead with its offering of sources of farm finance.
Happy New Year!
If you would like to discuss any of the issues in this month’s news, please contact us at Farm and Country Finance
In terms of total cow numbers, the milk herd is in decline and has been for some years and there is a stable or even slightly larger specialist suckler herd. As over half of UK beef is derived from the dairy herd, total supply in the UK is more likely to decline than increase. This is exacerbated by the cost of production with feed prices unlikely to fall significantly, at least until next harvest. Accordingly, beef finishers are unlikely to grow beasts to big weights to compensate for lower numbers in the system.
This is Olympic year with an influx of likely visitors wanting to sample the national fayre be it in fast or traditional guise. The demand cannot be met from domestic supply, so imports will be required to fill the gap. A deal with the so-called Mercosur trading block in South America would open the EU market to greater supplies from that continent, but it looks unlikely to be agreed in 2012. While supplies of cheap beef may eventually arrive in the UK, production costs in South America are rising and, by the time any deal is agreed, world prices may rise closer to EU prices which would limit the impact of cheap imports.
At least for the first several months of the New Year, prospects for ex-farm milk prices appear reasonable. Whilst butter and skimmed milk powder prices fell towards the end of last year, cheese and cream values are currently stable.
There is a relatively short supply of milk, at least until the spring when cows are turned out onto plentiful new grass.
Through 2011, farm gate milk prices rose from around 24p per litre to 27p. As retailers maintained their margins, it was inevitable that processors took the brunt with processor margins expected to fall further in the first half of 2012, due to the retailers’ battle for market share, while processors are unable to force down raw prices because of strong commodity markets.
Spot values decreased by around 10 pence per kilogram early in 2012 as demand dropped off after Christmas and the Euro weakened against sterling, making access to the UK market easier for EU producers. Given that sheep and beef prices are likely to remain high this could play into the hands of the pig industry in the medium term. Unit costs of sow production have been reducing in the last few months. The ban on dry sow stalls is already in place over here and will come into force across the remainder of the EU in 2013. As usual, there will be those of our continental ‘friends’ that will be less willing to comply than we are, but this should still reduce the number of producers and hence supply.
Pork remains a staple in the Chinese diet and China has agreed to open its doors to British exports, which is good news if we can meet their inspection criteria. Promotion of British pigs and meat is set to increase by the British Pig Executive using the Olympic Games and its alleged party mood to create a global shop window.
There seems to be plenty of good news, at least as far as prices go, for sheep farmers.
Generally prices for sheep meat were high throughout 2011. Encouraged by good prices for cull ewes, some producers took out not just the older ones, without lambs, but some that might have been kept for the following year, for another chance to produce. This increased total meat supply but conversely some flock owners have decided, because of the continuing high prices, to keep more ewe lambs back for breeding down the line, thus reducing lamb supply through autumn.
Over all EBLEX is forecasting sheep meat production in the UK to be broadly similar in 2012 to that in 2011. Much now depends on conditions at lambing time.
Global demand for sheep meat remains strong and supplies limited. All pretty good news but in the medium term the UK industry should be careful not to shoot itself in the foot by scaling up production too quickly. Production costs and the likelihood of lower payments from the Single Payment Scheme should be taken into account.
The British Egg Industry Council has estimated that British egg producers have invested £400 million to meet EU legislation which came into force on 1 January 2012. It also suggests that in at least ten other EU countries the ban has not been fully complied with, claiming that around 25% of EU cage egg production will be illegal. HM Government has refused to impose a ban on the import of illegal battery eggs suggesting that to do so would be an illegal act under EU law – no surprises there then.
It is the case, however, that British producers are not facing new competition since eggs from the now errant sources have been available historically. But there is the usual moral wrong in this case, that being that our compliant producers are faced with a lack of protection where they have made the investment required and look to their egg sales to pay for it. It would seem that the BEIC has embarked on the first stage towards launching Judicial Review proceedings by formally writing to Defra to challenge the UK Government on its refusal to ban imports of illegally produced battery eggs and egg products.
It is understood that The British Free Range Egg Producers Association suggests that chick placements to produce poults, for egg production in the UK, were down by around 7 percent in July 2011, compared with the prior year, which should result in the number of young birds available to replenish the laying flock reducing through into 2012. Whilst in overall flock numbers this may not be high, it is hoped that it might translate into a significant drop in the number of laying birds and contribute to a rebalancing of egg supply and demand and helping to restore prices.
The continuing drought in South America is likely to reduce maize (corn) and soya bean crops in Argentina and Brazil. Consequently, USA corn prices jumped £25 per tonne at one stage, pushing feed wheat values higher, resulting in UK feed wheat rising back to around £150 per tonne from £140 in early to mid December. Prices are now sliding back, as some traders take profits.
Crop values have resisted downward pressure from Australian imports which was a feature of the pre-Christmas market. Values jumped in the early days of the New Year close to £360 per tonne but profit-taking by commodity traders has since taken these down hence the spot market is again towards the mid £340s per tonne
The continuing problems in the Eurozone continue to weaken values for next harvest, which have now slipped under £320 per tonne.
Barley prices remain firm. Feed barley is no longer selling at a premium over wheat, though it is still tracking at wheat levels in most parts of the country. The malting barley market remains tight across Europe, resulting in buying scrambles where loads a rejected on quality.
World supply and demand of malting barley is close in a ‘usual’ year; whilst beer consumption in western Europe is in decline, it is increasing in the rest of the World and with increasing affluence comes greater demand. The tight supply and higher prices in Europe have attracted interest from abroad and it is rumoured that as much as half a million tonnes may be coming from South America, despite the drought. When it arrives it could take the spike off UK prices, so farmers may well decide to sell their remaining crop, not contracted forward, rather than taking the risk of storing a perishable commodity.
The sugar beet harvest continues in the seasonally wet field conditions, and yields of both raw roots and sugar remain pleasing. Despite the recent monsoon, parts of eastern England are experiencing the most arid year for almost a century and water replenishment is not yet at a rate sufficient to maintain supplies for irrigation in the summer.
Growers of roots may yet have to think about cropping plans to match thirsty plants with available water supplies.
Spot sales values appear similar to a month ago at circa £90 per tonne, while the Weekly Average Price is likely also to be similar to last month at circa £105, compared with values closer to £170 per tonne a year ago.
The mild weather continues to affect storage conditions. The balance between the suppression of tuber sprouting with cold temperatures, without adversity in sugar content and fry colour of potatoes destined for crisps or chips, remains a real issue for some. According to the Potato Council’s December report, crisps and frozen chips account for almost twenty percent of potato consumption in the UK. There is an indication that we continue to pay more for convenience rather than peeling and cooking.