Farm business outlook 2022: Sheep exports vital to maintain prices

The factors which came together to drive up sheep prices in 2021 are unlikely to disappear in the year ahead.

Andersons remains generally positive about prices, assuming some increase in the level of exports, although rising feed and fertiliser costs will have an effect on margins, says northern director David Siddle.

Concerns about Brexit saw many farmers marketing their lambs before the end of 2020, meaning significantly fewer were carried forward into 2021.

This and a modest, and for some a poor, lambing period in spring 2021, along with reduced imports and higher domestic demand due to Covid-19 restrictions, saw prices reach unprecedented levels.

They have remained well above long-term averages, even through the autumn and early winter period.

Small increase in 2022 breeding flock

The breeding flock may expand in 2022 as a result. However, AHDB initial forecasts suggest an increase of no more than 1-2%, due to the number of potential breeding females probably slaughtered as hoggets in spring 2021 because of the buoyant prime lamb market.

The decline in Basic Payment Scheme (BPS) revenue will continue to squeeze out less productive flocks, and ageing producers with no succession plan may decide to leave while prices are high.

With Brexit fears reduced to a large degree, more lambs may be carried forward to 2022.

This, together with weaker consumer demand due to rising living costs, may prevent hogget prices from matching last season’s extremes.

Imports from New Zealand in the year ahead look likely to remain constrained by high shipping costs, the rebuilding of that country’s flock following drought, and demand from China which will draw away supplies.

Tight supply meant that UK exports featured less during 2021, but they remain a crucial part of the UK sheep meat trade, with 30% of output typically exported in most seasons.

Sheep outlook summary

  • Price outlook is generally positive, but rising costs will affect margins
  • Overly high costs of production and falling BPS payments will increase pressure for farmers to improve or leave the sector
  • Understanding production costs and the adoption of more progressive management practices will become much more important

Higher exports needed in 2022

To maintain good prices in the year ahead higher levels of exports are likely to be required, not least because domestic demand may ease as the service sector reopens and consumers may move away from pandemic levels of cooking at home.

New regulations and logistics associated with exporting to Europe, our major market, have not gone away and will add costs, some of which will inevitably be passed back to farmers.

The latest Breed Survey, the first since 2012 and a joint initiative between industry boards and British Wool, showed some interesting trends.

Changes in structure 

Traditional stratified sheep breeding based on pure-bred hill breeds providing crossbred (Mule) ewe lambs for lowland units appears to have declined, as more lowland farmers look to close their flocks and try cross-bred or composite breeds.

Support payments, which have cushioned the industry for many years, look set to decline at pace, at least in England, and there are some signs sheep farmers are seeking to change and improve productivity.

The survey highlighted scope to significantly increase the use of estimated breeding values (EBVs) in ram selection and to make more use of simple management practices such as regular weighing of lambs and scoring ewes for body condition.

Most flocks did not take sward height measurements or use electronic identification to manage their flocks beyond current legal requirements.

Best flocks focus on forage

The best-performing flocks tended to focus on forage-based systems with an increasing reliance on clover and other legumes for nitrogen, which will put them at a competitive advantage in the year ahead.

We estimate total cost of production (including a return on family labour) for well-managed productive flocks at 190-210p/kg liveweight range. This should have generated profits excluding support payments at recent prices.

Many flocks will have much higher costs of production and, as the BPS payments decline, the pressure to improve or leave the industry looks set to mount.

Understanding costs of production, benchmarking and the adoption of more progressive management practices will become much more important in the future.

Futures markets and commodity risk management online course:

  • Risk management strategies for a more predictable financial performance
  • Educated conversations when collaborating with your advisors
  • Negotiate better prices with your grain merchants

View course