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Market Trends- Uncertain times ahead

The farming sector is facing another period of uncertainty. The future of subsidies is causing the most concern with every client asking ‘what next?’

Back in February, someone told me ‘you need to plan at least three years ahead in farming’ and they are correct. But at this stage forecasting is a challenge. 

Prices continue to fluctuate across most sectors, with short-term optimism in the sheep sector, but milk and finished beef prices continue to be a concern. It will be interesting to see how a potential 28% increase in spring barley area impacts the arable sector.

Global markets across almost all commodities are coming under pressure because of the coronavirus pandemic.

It is likely that the UK and EU will experience a knock-on effect from New Zealand being potentially unable to ship product into China, and looking for other markets instead.

LAMB

The sheep sector has experienced a short-term boost, particularly for those who bought store lambs at the back end of 2019.  The deadweight price for lamb in January 2020 was 457.7 p/kg whereas in January 2019 it was 430.6 p/kg. On a 19.5kg lamb this equates to a rise of £5.28.  Australia and New Zealand have both increased red meat exports to China as a result of the African swine fever virus and have therefore reduced exports to the UK. This in turn has inflated UK prices (AHDB, 2020). The coronavirus pandemic is having an impact on trade globally. New Zealand’s lamb continues to achieve higher prices in China than in Europe, but if exporting to China becomes difficult the European market may be seen as a good alternative (AHDB, 2020).

BEEF

In general, 2019 beef prices have been poor, leading to very small or negative net margins from finishing enterprises. The average deadweight price for steers in 2018 was 377.27p/kg whereas in 2019 it was 348.73 p/kg (AHDB, 2020). This equates to a drop of £99.89 on a 350kg steer.  Despite prime cattle prices remaining lower than last year, a reduction of store cattle in the marketplace has created competition and inflated store prices at the start of 2020. Store steers have strengthened by 3% to 4% on last year and heifer prices have strengthened by 6 to 7% (QMs, 2020). Coronavirus had not had a material impact on UK beef prices in February because the market is relatively self-contained, but as global markets continue to be affected by the pandemic, we can reasonably assume an impact.

MILK

The price cuts in March will likely lead to cash flow pressure with forward production projected to increase. Dairy businesses are likely to come under pressure. The UK average milk price for January 2020 was 28.77ppl, down 0.55ppl (1.9%) on the previous month. The prices paid on non-aligned contracts were 0.72ppl less than those for aligned contracts in December 2019. The five-year average GB price was 27.11ppl in December 2019 which was a decrease of 2% from December 2018, when it was 27.66ppl. This indicates the relative stability of the five-year average over 2019. 

ARABLE

The arable sector is entering a period of uncertainty with a winter which has led to most farmers being behind on their winter work. As of February 2020, the November 2020 wheat futures stands at £160 per tonne, which is being strengthened by global crude markets and data released from the us which fell below market expectations. The increase in spring cropping is likely to have a material impact on the 2020 season with a projected increase in the barley crop of eight million tonnes.  A proportion of this barley will more than likely end up in feed rations and it will be interesting to see how the markets react to this.