Market Update Summer 2023

Wheat

Since the last Rural Matterspublished in the autumn - the Futures prices for London Wheat dropped from circa £290/t to £220/t. This drop was a result of a variety of factors, but there are now glimmers of hope as the market starts to slowly recover. Recently, factors such as poor crop conditions in the United States, and rising tensions surrounding the Black Sea grain deal for Ukraine, have resulted in a £20/t recovery in feed wheat prices (£239/t on 14th Feb). In addition, the domestic demand in the UK remains

The barley prices from the 2022 crop harvest were much higher than in 2021, which proven to have knock-on effects for 2023. It is predicted that full-season exports are expected to be 1.000Mt, up 31% from 2021/22. Domestic barley availability has increased due to a larger crop year on year. From July to November 2022, UK barley exports totaled 474Kt, a 24% increase over the previous year. However, as the season draws to a close, the export pace is expected to slow slightly as supply runs out.

Oil Seed Rape (OSR)

The May 2023 Paris rapeseed futures closed at their lowest price since

December 2021. The downward pressure on rapeseed futures has also been seen in UK delivered prices, which have now been trading below the £500/t mark for the past month or so. Over the last few months, some of the pressures driving down the price include: the continuation of the Black Sea corridor, as well as the German environment minister's proposal to phase out crop-based biofuel production by 2030

Maize

The maize markets have been driven higher as a result of weather concerns in South America. Chicago maize futures have been climbing, regaining strength last seen in November. As the South American drought continues, global maize markets are likely to continue to react, filtering down to domestic values.

Oats

The oat market remains isolated from the larger grain markets, but all eyes are on the grain corridor in the Black Sea. Although isolated, the European oat market continues to be hard going. Currently, Scandinavian oats seem to be leading the way. In terms of UK oats: Milling oats are trading but activity is light with farmers not keen to engage in the market; the markets for feed oats remain limited and growers should consider selling to avoid missing the opportunity to empty stores.

Dairy Update

-

Christina Smith

According to the most recent AHDB data, milk production in the UK increased by 2.7% in January and

Dairy Update

remained around the same through February. The market is continuing to decrease as a result of persistently strong milk volumes. The demand is being impacted by the squeeze on consumer spending which is anticipated to have an impact on domestic demand, especially with fewer sales of more expensive luxury dairy products. Defra reported that the average milk price in the UK for January 2023 was 49.20ppl, a decrease of 2.4ppl (4.7%) from the previous month. It is important to note that this price is based on a standard litre but in reality, many producers do not hit the standard litre requirements and therefore receive less than this average price. The standard litre generally has to have constituent values of 4.2% butterfat, 3.4% protein and produce milk volumes over 1 million per annum. A premium can also be gained from bactoscan and somatic cell count levels and missing these targets can result in significant ppl penalties. Milk buyers are also driving the producers to use more sustainable and regenerative practices which is being incentivised in a small increase in the ppl received.

The first quarter of 2023 has seen reductions ranging between 1.2ppl and 6.45ppl and some buyers have already announced additional price reductions for April. (AHDB 2023) The unexpected increase in farm input costs and the potential of milk shortages caused milk prices to climb through 2022 at an exponential rate. So far this year the majority of feed, fuel and fertiliser costs have reduced in price in comparison to 2022 where we saw unsustainable, record high prices for these inputs resulting in more pressure on the producer despite receiving an increased ppl for their milk. The prices of cull cows have been exceptionally high partly due to a contraction in the national beef herds across the UK and subsequently this may be influencing producers to either cut back on their dairy herd or sell older less efficient cows and bring in younger heifers to the herd. If the milk price continues to reduce this may be exaggerated further. Although the bigger units can benefit from economies of scale, availability of skilled labour continues to pose a challenge with no prospect of this being rectified in the short term, this is possibly encouraging producers to invest in robotic milking systems to allow for a decreased staffing level. Milk producers are now also facing pressures with legislation for example the 22week slurry storage requirements which will require significant investment for some businesses in order to ensure they are compliant. In general, the dairy industry as a whole is capital intensive and therefore is often a heavily borrowed sector. Many producers took advantage of receiving a higher milk price last year and have put in a substantial amount of investment into a range of new technologies, purpose built sheds and machinery to improve both performance and efficiency and these investments were made easier with historically low interest rates that encouraged expansion, however with interest rates rising resulting in an increased cost of borrowing this may impact on the profitability of these business and might delay further expansion.

Christina Smith 01292 268 181 christina.smith@galbraithgroup.com

Beef Update

- Beth Dandie

It’s been a significantly strong start to 2023 for the UK beef price. In the week ending 4/3/23 deadweight heifers achieved 490.9 p/kg and steers following on at 489.0 p/kg. This is up by 76.6 p/kg and 80.5 p/kg from the same week a year ago respectively, a near 20% increase.

Cull cows are also experiencing record prices in the live ring. The high prices have allowed many beef farmers to ‘cash-in’ to get out of the uncertain beef industry at a time where the future of subsidy is also unknown. While cashing in on the least productive older cows will have increased efficiency in the farmer’s herd, where numbers have decreased significantly the supply of the next generation of cattle is in question. The lack of numbers of beef cattle has created a shortage throughout the UK which is creating the higher prices for beef.

High finished cattle prices in turn leads to increased demand for store cattle. In Scotland this is also being driven by English finishers. They are looking for bigger, heavier bodied animals which they will pay a premium on. It is in question whether Scottish abattoirs will remove the weight limit in order to maintain the supply. A short term supply of future beef is predicted to come in from the dairy herds when the price of milk is anticipated to drop

Optimism is felt amongst the industry with the recent drop in fertiliser and grain prices, however many producers may have bought last year where prices were up and it wasn’t clear whether these were set to continue. High finished prices are required by finishers and will be should the price of feed, fertiliser and fuel rise again with inflation.

At the recent February Galbraith Bull Sales held at United Auctions, Stirling, a strong trade was achieved across all breeds. It’s not a surprise after the demand for larger bodied animals that the Charolais breed topped the sales with a Harestone bull selling for 30,000gns and a clearance of 84%. A new breed record average was also made by the Simmentals of £7,260 where 97 bulls found new homes, up 8 bulls on the year.

Sheep Update

- Ian Armstrong Lamb

In previous years the lamb trade reaching over £2/kg Liveweight would have been cause for celebration but this year it has felt mediocre after the extreme increase in cost of production.

The 2022 lamb trade started on the back of the dizzy heights of £3/kg+ set by the hogg trade in July. This autumn was a good time to cash lambs - with lambs reared straight off grass achieving £2.30/kg in September through October. As can often be seen prior to Christmas, there was a small lift to £2.40/kg as processors stocked up for the festive season. The trade backed off to what feels like the now normal price of £2.00-£2.20/kg in January to March.

Lamb producers were left nervous in March 2023 with the well-known pre-Easter boost slow to materialise. The price of lamb feed increased by approximately 50% on the year, but finishers did not see the commodity price increase anywhere near in line with this level. This is partly due to the price of feed resulting in producers shy to offer expensive feed, slowing down the time to finish and pushing the supply of lamb later into the season. As a result, we are seeing less competitive prices being paid in early 2023 due to a greater supply of old season lamb at the time that producers would expect it to be in greatest demand. The cost of production has never been higher with the process of growing grass (seed, fertiliser and contractors) increased greatly. This has affected the grass-let market, with higher prices paid particularly for winter grazing where we see hill farmers being prepared to ship their ewes further to find grass in an attempt to keep them in good condition while avoiding feed supplement.

Forage crops have shown their importance this year. Neeps, forage rape and kale have been a very cost effective method of growing lambs and reducing the feed required to finish. While fencing is still an issue, many arable farmers are understanding the importance of adding forage crops into the rotation for soil health making it mutually beneficial and hopefully something that will see support in the future.

While the 2022-23 season has been satisfactory but challenging to lamb producers, it has driven innovation and efficiency. It has forced producers to utilise their grass more effectively, highlighting the importance of rotational grazing, quality forage production and keeping grass young. With margins slimmed the 2023 lamb crop will need to be from a healthy flock with effective vaccination programmes and lameness control that utilises grass and minimises feed in order to be operating profitably. n

Ian Armstrong 01224 860710

One of the key characteristics of land is that it is finite. From the land that we have we need to produce all our food, energy and materials. We should look to create carbon neutral production systems and produce commodities in a way that prevents further declines in biodiversity.

Is it possible to achieve all three on one tract of land? One answer could be agroforestry. Agroforestry is an integrated approach that combines trees and agriculture on the same land. Agroforestry already exists on a large scale in the UK in the form of shelterbelts, riverine woodlands and hedgerows.

The aim of agroforestry is twofold; to spread business risk by diversifying income between separate commodities and to enhance natural ecosystem services. Ecosystem services provide public benefits such as carbon storage, flood mitigation and amenity value. Research published in 2022 summarised the results of several agroforestry papers, finding multiple benefits to soil quality, habitat and food supply (from both trees and crops). Over and above existing practices, more intensive agroforestry methods such as silvopasture and alley cropping may be more difficult to establish but can yield long term rewards.

I spoke with an innovative forester who is doing things differently. Tim Mack, from Elderslie Estates in Scotland, has leaned on his extensive global forestry experience to trial Eucalyptus glaucescens (Tingiringi gum). Whilst the Australian tree may appear to be an unconventional choice as a forestry crop in Scotland’s exceedingly wet and cold climate, it has some advantages that have been tested by Tim since planting in 2016. Over the last decade E. dalrympleana, E. glaucescens, E. gunnii and E. nitens have been considered and trialled in Scotland for biomass due to their rapid growth rates and high calorific value. This, combined with a short rotation cycle of 10-12 years and hardy temperature tolerance makes the timber crop highly competitive.

As part of Tim’s test trial, he permitted a neighbouring grazier to put 20-25 sheep into the 2 hectare plot. The sheep were able to graze on the 2 metres of herbage between trees. One of the advantages of Eucalyptus over native broadleaf species is that the thinner canopy of the trees allows more light in for the photosynthesis of the undergrowth. The sheep in the trial plot were found to respond well to the vegetation underneath the trees and grazed without damage to the Eucalyptus. An advantage of Eucalyptus is that it is unpalatable to both deer and livestock, meaning early grazing can begin whilst the plants are still young.

As the effects of climate change and the costs associated with increasing weather variability mount up, many have turned to nature-based solutions to create more resilient agricultural systems. Parkhill Farm in Fife made the decision of alley cropping their SSSI site, planting apple trees in widelyspaced rows across a field of malting barley. Apple trees are under-planted with a permanent wildflower mix, encouraging pollinator species and pest eating insects so that the apples can grow without pesticides. The farm also has shelter belts and wildlife corridors consisting of Scots pine, oak, rowan, silver birch and wild cherry. The 15 acres of forest provides shelter for cows during the summer and for sheep year-round.

In Montpellier, France, one farmer has conducted his own experiment, planting rows of deciduous woodland spaced widely with cereal crops in between rows. The trees were found to stabilize ground-level temperatures and regulate water so that there were reduced droughts, flooding and soil erosion. Since planting the farmer is now reaping better harvests on the test field than on comparative fields without trees. As the climate changes, solutions developed elsewhere may become increasingly relevant, even if most of northern Britain is considered too wet at present for systems of this kind.

However, intensive agroforestry requires significant capital, potentially over many years, for initial planning, planting, establishment and fencing. Whilst some capital costs can be offset in Scotland using an agroforestry grant if native broadleaf species are planted, the grant is restrictive and is widely considered not fit for purpose. The grant pays out at two different stocking levels, an initial payment and annual maintenance payments, claimable for 3 years. Following the 2022 COP 15 Biodiversity conference in Montreal and the commitment by signatory countries to protect biodiversity, there is a stronger commitment by the Scottish Government to publicly fund projects that restore habitats and biodiversity. As awareness of the global pressures on sustainable resource production grows, producers should be rewarded with public funding for demonstrating that their systems can achieve success in production, carbon and biodiversity.

Whilst currently available public grants can assist in covering capital expenses, it may be useful to seek additional funding from the private sector. In the face of perceived global food insecurity, many buyers are seeking to invest in their domestic food supply chains to improve resilience. Private sector funding seeking to partner with sustainable agroforestry practices may secure income over the long term. Rural businesses work best when innovation can be applied, to increase both the resilience and long-term sustainability of trading. Integrating forestry and agriculture is just one approach in which rural businesses can restore ecosystem services, and other methods should be examined prior to making an informed land management decision. Galbraith maintains an excellent position to assist landowners with expertise in maximising forestry, agriculture and natural capital assets. n

Kitty Campbell highlighted the risk of under-insurance as a result of inflation in our Summer 2022 issue and as both inflation and the cost of building materials continue to rise, combined with increasingly unpredictable weather and the impact of rural crime trends, a careful review of insurance policies is again at the top of our agenda.