Andrew Atkinson
Director, Farm & Estate Management
Welcome to this quarter’s Farming Update, produced by Strutt & Parker's Farming Research Group.
This review reports on market and administrative issues that affect farmers’ business decisions and on which they may need to act.
Click here to read the full Farming Update Autumn 2017
Arable crops
Global
Earlier USDA forecasts of reduced global wheat stocks at the end of the 2017/18 marketing year (June 18) were based on lower production forecasts in the US, EU, Australia, and the Former Soviet Union (FSU). The latter of those, however, has performed a turnaround and the FSU is now harvesting a record wheat crop, up 8.6 million T compared with last year, driven by increases in yield in Russia, Kazakhstan, and Ukraine. The drought conditions on the prairies of North America have reduced the output for the US and Canada, however this has been outweighed by the FSU’s bounty. The USDA are, as a result, forecasting another record global harvest of 743.2 million T of wheat for the 2017/18 campaign which will lead to an increase in ending stocks.
In terms of coarse grains (e.g. maize, barley, sorghum, millet), USDA are forecasting reduced supplies and thus a decline in ending stocks. Although Ukraine expects to produce near record amounts of maize due to an increased area of cropping, globally this is outweighed by a drop in production in the US and Canada.
Changeable conditions on the continent have made the European grain harvest a stop-start affair. Grain quality has become varied as combines have been delayed by rain and wheat being cut at higher moisture levels than usual. This has led to higher than anticipated stocks of feed wheat in the EU, which is likely to displace some imported maize, and drive down feed costs for the livestock industry.
Global oilseed markets remain strong, despite increases in harvest estimates for US soya, Russian sunflower seed, and EU oilseeds (i.e. OSR, sunflower, soya and linseed). The EU are forecasting a higher than average oilseed crop: increases in some countries including Romania and France will more than outweigh the UK and Germany’s fall in production. The EU predicts the UK’s OSR crop to be 1.90 million T which is 20% lower than the 5 year average. This is due to the lower planted area, rather than yields.
UK
Harvest in the UK - as in the rest of Europe - has been hampered by wet and windy conditions since mid July, with farmers struggling to cut grain on time to retain grain quality. Only a small proportion of the milling wheat varieties grown have achieved milling quality, and many malting barley growers have seen their crop downgraded to feed barley too. In terms of wheat yields, AHDB has forecast the UK average at 8.0-8.2 t/ha (a 5-10% increase on the long-term average). This is, however, within the context of a highly variable national yield, with reports ranging from 7.0 t/ha on poorer soils to 12.8 t/ha on deep soils.
UK wheat prices for November have fallen sharply since mid August and are (at the time of writing) now under £130/T. The fall is due largely to the sheer quantity of feed wheat now needing to be sold this autumn, much of which will need to be exported. Merchants are warning that further falls are likely in order to make UK wheat competitive on the export market. Egyptian state wheat buyer GASC’s buying pattern supports the view that the Russian and Ukrainian grain exports are driving the market downwards, having largely bought grain from those two countries in its latest tender. Farmers able to store grain long-term may be in a position to ‘ride-out’ the dip in prices if the UK manages to export a sufficient amount over the winter. Milling premiums meanwhile have increased to over £20/T for autumn movement, with further increases likely.
The OSR harvest, which was largely finished before the worst of the rain waylaid the combines, was a cause for optimism in the UK. Although there was a markedly reduced area of land sown to OSR last year, yields are estimated at 3.5-3.7 t/ha (higher than the five-year average of 3.4 t/ha), with good oil contents reported, averaging at 45%, according to AHDB. Prices have risen strongly to around £330/T for autumn movement, as a result of the lower crop area, but further significant increases are likely to be limited in the short term, particularly if imports come in to satisfy crusher demand.
OSR planting is now in full swing with plenty of moisture providing good early establishment. However, the first signs of flea beetle damage have also been spotted. New slug pellet stewardship guidelines in 2017 restrict metaldehyde pellets within 10m of any field boundary. As such our agronomists advise the use of Ferric Phosphate pellets (Sluxx) for all field headlands.
Livestock
Beef and cattle
AHDB figures show that finished cattle prices have improved over the summer due to lower supplies. Deadweight prices in August were up over 30p/kg compared with both April 2017 and August 2016. Reasonable premiums of around 10-15p/kg are now being paid for the best carcases (R4L spec) compared with the overall averages. Costs however remain stubbornly high, with the weaker pound keeping purchased feed prices up. Margins are therefore very slim and in many cases negative, with few beef producers able to make profits even with the recent rise in prices. Unless beef cattle numbers fall significantly to reduce domestic supply and lift prices, it is difficult to see how profitability will improve in the short and medium term.
Beef and veal exports continue to attract good demand from Ireland and Germany, and imports from Ireland have slowed since the Brexit vote and weakening of the pound.
Lambs and sheep
Despite a slight fall in liveweight values during August, to 191p/kg, prices remain around 5p/kg above the same time last year.
UK sheep meat production held steady in July at 23,000 tonnes compared to the previous month, according to latest data from DEFRA. This represents a 4% drop in production compared to July 2016, and is the first month in 2017 where production has been lower year-on-year.
Imports in June declined, continuing the general downward trend seen over the last 12 months. Sheep meat imported in June totalled 6,181 tonnes, a 25% decline year-on-year. This is largely due to the continued decline in New Zealand exports to the UK. Exports from the UK however have increased in June compared with both last year and the previous month. Both imports and exports have been affected heavily by the weaker pound.
Dairy
The DEFRA average farmgate milk price for the UK rose to 26.75p/l, which is 6.8p (34%) higher than this time last year. As is customary, the quantity supplied during the summer has fallen. This year’s seasonal fall is in line with last year’s, but is significantly greater than normal at this time of year, which tends to be nearer 10%, after the ‘spring flush’. This is likely to have been caused by farmers relying more on forage than on purchased feeds this year and last. High production levels during the spring flush mean that, despite the fall afterwards, overall GB milk deliveries are currently running 0.8% above last year.
Arla and Morrisons have re-invigorated their “For Farmers” milk range, requiring higher welfare standards, including a minimum of 120 days of grazing per year. The extra 10p per 4-pint bottle of milk will now be distributed among just their 300 British suppliers, a change from previous arrangements which saw the extra 10p distributed among all of Arla’s European producers, and which attracted a degree of criticism for the brand. The “For Farmers” brand now also includes “Butter For Farmers”, “Cheese For Farmers”, “Cream For Farmers” and “Bacon For Farmers”.
In terms of cow prices, AHDB figures show that the average cost in July of a freshly calved heifer was £1416/head, which was 3% up on the previous month, and 11% up on 12 months earlier. The average cost of a freshly calved cow was £1198/head, which was 9% up on the previous month and 15.6% up on 12 months earlier. The increased prices is due to a lack of supply: the numbers sold in July were around 50% lower than the same month last year, which in turn is due to the fact that the rate of herd sales is slowing. In addition, fewer dairy heifers were bred last year: a result of poor market conditions last year.
Cull cow prices in June were on average £1.13/kg for a dairy sired cow, and £1.38/kg for a beef sired cow; both continuing an upward trend which began in late 2016.
Pork and Pigs
Pig prices have now been rising for nearly six months and prices now stand at a three year high. Despite this increase in price overall consumption is down, especially in the roasting joint department. It is thought that lack of promotional material by retailers may have contributed to the decline in sales. Exports are also down by 5% on last year despite the weaker pound. The reduction in exports is due in part to the decline in demand from China, this is down 15% on June 2016. However it is hoped that exports will perk up following the recent announcement that seven UK businesses have been granted more access to Chinese markets.
Fertiliser & fuel
Fertiliser prices have continued to increase over the summer, prices having now risen nearly 15% since they were first released in June. Prices for September delivery are now approximately as follows:
UK ammonium nitrate (AN) £198/T; Doubletop (Sulphur N) £213/T; Urea £220/T; TSP £258/T; MoP £250/T.
Limited purchases have been made in the last couple of months while farmers’ attention has been on the harvest. AN prices continue to follow the global urea price, which has been firming due to strong global demand. Farmers who have not yet taken any cover for nitrogen grades are encouraged to do so. This will protect against further price increases which are likely as the manufacturers set their pricing policy to discourage last minute buying in the spring which causes them logistical problems.
Red diesel price has fallen 3% over the last three months, to an average of 49.51p/litre plus VAT in July, according to DEFRA. This compares to a 1.5% fall in the price of road diesel and a 5% fall in the price of crude oil over the same period.