July 2009 Archives

Earlier this month Tesco put out a press release suggesting it was seeing some "green shoots" of recovery in the organic market.

Having been hit hard by the recession last autumn, the supermarket reported a month-on-month increase in organic vegetable sales since the start of the year, suggesting the market would be "back on track" by the autumn.

This positive news was reinforced this week by news from OMSCO that retail sales of organic milk have also climbed significantly.

Their data pointed to a 10.5% increase over a four week period, leading to the conclusion that "despite the recession, demand for organic milk has remained robust."

Encouraged by this market upturn, OMSCO is poised to launch a £1m multi-media campaign to promote the benefits of organic milk. "The most important thing for us to do is to remind consumers of the nutritional differences of organic milk," said marketing director Richard Hampton.

But OMSCO will have its work cut out...

The recent increase in the United Dairy Farmers' milk price in Northern Ireland will come as a big relief to the province's dairy farmers, who have been struggling along with sub-cost of production values for many months.

But it does not signal the start of any meaningful or sustainable price recovery.

That much is made clear by the co-op's chief executive David Dobbin, who explains that world dairy markets remain depressed - especially for butter and powder that dairy farmers in Northern Ireland depend on.

Currency has not helped either, as the weakening US$ has driven international values lower. And Australian and New Zealand dairy suppliers are already quoting at well-below EU prices for when their new season gets going in September.

Meanwhile, EU intervention stocks of butter and powder are building up at an alarming rate, putting further long-term pressure on the dairy market...

Is the recent news that Robert Wiseman Dairies is raising its milk price by 0.3p/litre the first chink of light at the end of a long, dark tunnel for British dairy farmers, or a false dawn?

Since prices peaked last October, UK milk cheques have shrunk by an average 18%, while costs have stayed obstinately high. About the only consolation is that milk producers elsewhere in Europe have had it even worse, suffering price falls of up to 30%.

The Wiseman increase has come about because of the stronger cream market. All liquid milk processors have benefited from this improvement, so the hope must be that other dairies follow suit in the very near future.

But even if they do, dairy farmers should temper any expectation that the crisis affecting the sector is coming to an end.

Liquid milk is only half the story and, as we explain in this week's Farmers Weekly and on FWi, the outlook for the manufacturing side of the industry is still bleak.

Butter and skimmed milk powder continue to bumble along at rock bottom prices on world markets, while in the EU the best option for many is intervention...

As with most EU commission documents of any importance, this week's Dairy Market Situation 2009 report has been well leaked.

First sightings of the draft were made a week ago, so today's emergence of the real thing contained few surprises.

The EU Commission's blank refusal to agree to any cuts in milk quota - or even to freeze its planned 1%-a-year increases for the next few years - has already been well rehearsed.

Similarly, many of the measures identified by the commission as essential to support the dairy market for the next 12, precarious months are already in place and being acted on.

For example, EU agriculture ministers have already agreed in principle to extend intervention purchasing until the second half of next year, while export refunds have been in operation since last January.

More controversially, the EU has suggested allowing member states to make state aids of up to €15,000 to individual dairy farmers under the Temporary Crisis Framework set up to help businesses deal with the credit crunch...

With harvest underway in parts of the UK and spot prices under pressure, news that an El Nino weather pattern could be developing in the southern hemisphere provides at least a chink of light at the end of the tunnel.

El Nino patterns are the result of warmer than average sea temperatures across the Pacific Ocean, leading to abnormally warm and dry conditions in eastern Australia and South-East Asia, and wet conditions across central parts of South America.

This is especially threatening to the Australian wheat crop. Based on current plantings and recent favourable rainfall, analysts are currently expecting an Australian crop of 23m tonnes.

But should an El Nino develop, then drought conditions in the run-up to harvest later this year could lead to a much reduced output, reducing Australia's exportable surplus and tightening world markets accordingly.

Weather bureaus currently put the chance of an El Nino developing at over 50%. And certainly there is a positive link between an El Nino and global commodity prices....

If, like me, you tend to read magazines and newspapers from the back, you will be quick to notice the major changes we have made in this week's Farmers Weekly to our market price reporting.

The new Prices and Trends section takes a completely fresh look at what's going on in the agricultural marketplace, delivering all the information you need in a clear and concise format.

As with any re-launch, a lot of work has gone on behind the scenes to arrive at this point, with two major pieces of research and a lengthy design process.

First we wanted to understand how important the market data we offer is to our readers. The answer came back loud and clear: It's crucial!

Our research revealed that, for many farmers, it is the first section of the magazine they turn to. About 70% said they looked at the data every week, while 78% listed it as a main reason for buying Farmers Weekly.

Next, we needed to find out exactly what readers wanted from a new-look Prices and Trends. In a nutshell, they wanted better design, more comment and analysis and price information on inputs...

I recently blogged about the state of the lamb market, suggesting that things could be starting to improve.

In particular, a new report from the Kent Business School and the IGD painted a more positive picture of the way demand was holding up in the recession.

Based on data from Tesco Clubcard holders, it seemed that fresh lamb sales were up by 15% over the past 12 months, while cheaper cuts such as stewing lamb were up by 30%.

The report also pointed to good demand for products that offered a strong regional identity and came from systems the consuming public deemed to be "welfare friendly".

Well, there is further good news for sheep producers this week, as the recent slide in auction prices seems to have come to a halt.

Certainly live lambs sold through the auction marts have rebounded, with this week's Standard Quality Quotation reaching 149p/kg lw, up 7p on the week following seven weeks of steady decline.

The explanation is that export buyers have returned to the auction ring as British lamb has now reached competitive values in Continental markets.....

So European milk producers are out on the streets again, this time giving the new crop of MEPs in Strasbourg a taste of their anger.

One has to admire their determination. Some have travelled many hundreds of miles to deliver the message that the current market situation is unsustainable and threatens the very security of EU milk supply.

Producers from as far afield as the Czech Republic, the Netherlands and Portugal joined the protest.

And it's easy to understand why, as prices slump to around 22 cents/litre (19p/litre) - well below the cost of production for the vast majority of EU milk producers.

But while the protest is commendable, I'm not so sure about their proposed remedy.

The European Milk Board is as insistent as ever that the EU Commission should impose an immediate 5% quota cut to tighten the market.

It also wants the EU milk supply adjusted every year to ensure that supply does not exceed demand and producer prices always come in above the cost of production....

When it comes to negotiating sugar beet prices, the NFU can hardly be accused of lacking ambition.

The £34.50/t it is demanding for 2010 beet has certainly grabbed the headlines in recent months, representing as it does a 33% increase on this year's crop value.

The NFU argues this is necessary to give farmers the confidence to invest and ensure a long-term supply of beet for the nation's sugar factories.

Not surprisingly, British Sugar bosses disagree vehemently, pointing out that, even at this year's £26/t, they were able to secure all the beet they needed to operate at full capacity.

Of course, any price negotiation is about compromise, so aiming high and settling for something less is just normal practice. That was certainly the case last year, when beet growers demanded £30/t and settled for £26/t.

There is little doubt that BS can afford to pay more....

A while ago I blogged to express my concern at the direction the lamb market was taking.

This followed publication of data from the TNS Worldpanel - a regular analysis of the nation's shopping basket - which showed that, while pork, beef and poultry were doing OK in the recession, lamb was struggling quite badly.

For example, over the 52 weeks to 17 May, the total volume of lamb consumed by GB households was down by 5.3% at 98,700 tonnes, even though consumer spending was 4% higher.

And over the four weeks to 17 May, sales volumes were 14% lower than year-ago equivalents, while expenditure was 5% down.

It did not bode well for lamb values and since then farmgate prices have fallen dramatically as the supply of lambs has picked up seasonally. They are now below year-ago levels for the first time in a very long time.

But, while this trend is clearly worrying, with sheep producers' margins already wafer thin, there is still room for some optimism - especially if one reads the latest research from the Kent Business School and the IGD....

Almost as quickly as the first combines emerged from their winter quarters to cut the first barley of the season, the rains arrived and they were hurriedly put away again.

Perhaps it was the Royal Show, which has become almost synonymous with bad weather, or maybe the start of the Ashes series was to blame. Either way, this week's weather has been more like winter than summer and little, if any, barley has been cut.

Looking at the way the grain markets have been going in recent weeks, many growers may be hoping for a slightly longer rain delay - anything to tighten the market and give prices a boost.

That is likely to be wishful thinking and, with weather prospects improving for the second half of the week, the chances are more barley will be cut in the coming days.

According to the Farmers Weekly roundup, spot prices for barley today are just £77/t. That is way below the cost of production and unlikely to tempt anyone to sell unless they are absolutely desperate .

There have even been reports coming in of farmers erecting temporary grain stores in their farmyards to make room for new crop without becoming forced sellers of their 2008 leftovers...

Recent issues of the Irish Farmers Journal have featured many articles and pictures of farmers demonstrating about the state of the agricultural economy.

This week's front cover, for example, has Irish farmers gathered outside a supermarket distribution centre in Co Kildare protesting at the discounting of lamb and beef.

The previous week's front cover had Irish farmers gathered outside the EU council building in Luxembourg protesting at the poor state of the dairy market.

Quite apart from the Irish penchant for a good old get-together, the wave of demonstrations is hardly surprising when you look at the latest farm income figures from the national farm advisory service Teagasc.

These show that, for 2008, average family farm income fell 14% to just €16,993 - equivalent to about £14,600. This was mainly due to the sharp rise in input costs and a decline in returns on dairy and tillage farms.....

My colleague Ian Ashbridge forwarded me the Kite Consulting report on the outlook for the dairy market earlier this week with the comment "you like dairy reports, Phil" and the suggestion I might like to blog on it.

He was right! In recent months I have reported and blogged on a succession of industry reports, including those from DairyCo, Dairy UK and the NFU. And I have to admit I find them fascinating, even though they have a tendency to be somewhat gloomy.

This latest report from Kite Consulting is equally interesting - and what's better, it has a more positive spin.

OK, it does not belittle the dire warnings that have emerged from the NFU and DairyCo - the suggestion that the British dairy industry is at a "tipping point" and the prediction that over half the UK's dairy demand will soon be met by imports.

But it does take a much more upbeat look at what the future might have in store for those who weather the current storm.

In particular, it suggests that dairy markets are now at the bottom of the price cycle and will start to pick up in 2010 as global demand outstrips supply and stocks of dairy commodities shrink.

With a downturn in output in parts of Europe and the USA, Kite Consulting's John Allen predicts that raw milk prices could even go above 30p/litre. "It's not considered a matter of 'if' the market turns, but simply a matter of 'when'."......

When we first got in touch with the NFU to see whether they were interested in joining forces to re-launch the Inputs Price Monitor, we really had no idea how it would turn out in practice.

In fact we were not even sure the NFU would want to "get into bed" with us at all. The union is understandably wary of making exclusive arrangements with the press, and it would also mean giving away potentially important data to non-NFU members.

But we knew from our research that there was a real thirst for more information on input prices, and an apparent willingness among farmers to share this information on an anonymous basis.

So we were cautiously optimistic when we launched the new Farmers Weekly/NFU Inputs Price Monitor at Cereals 2009 that we would get a good uptake.

And so it has proved to be, with over 200 farmers so far submitting details of their recent purchases of fuel, water, electricity, fertiliser, agro-chemicals and livestock feed.

It's a great result, and is already throwing up some really interesting and useful pointers.

For example, it has shown that, on average, farmers have been paying £177/t for their UK ammonium nitrate - pretty close to the recommended retail price put out a month ago. But many farmers have been able to get hold of AN for closer to £170/t, suggesting there is lots of scope for negotiation....