Soaring feed prices risk losses for milk and meat sectors
© Adobe Stock/Suslov Denis Rapid and steep feed price rises are ramping up milk and meat production costs into possible loss-making territory.
Soya bean meal prices have jumped by about £50/t in two months, putting spot supplies to farm in the region of £460/t for full loads. Prices through to April fall by only a few pounds a tonne each month. This compares with about £320/t a year ago.
The London May 2021 feed wheat futures contract has risen by more than £12 in a month, to sit at £211/t as Farmers Weekly went to press on Wednesday (20 January). Some straights, such as sugar beet pulp, are unavailable in many areas.
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The price rises mean the milk:feed price ratio for some producers relying on spot feed markets is heading for 1:1, which is a disincentive to production. The ratio is a measure of how much feed can be bought with one litre of milk.
In September and October last year, it was 1.23kg and 1.26kg, respectively, based on Kingshay, Promar Milkminder, Defra, AHDB and Department of Agriculture, Environment and Rural Affairs figures. The five-year rolling average on the same measure is 1:1.24.
“Feed prices are on fire at present and there is very little relief in the short term, with tightening supplies, continued weak currency and a strong demand, particularly from China,” said Edward Lott, a partner at Kite Consulting.
“We will have to see if weather conditions in the key growing areas around the world improve in the next two to three months to ease prices for later in the year.
What’s happening in feed markets?
Markets have been firming for many weeks on strong demand, compounded in the case of soya by an oilseeds dock worker strike in Argentina.
A recent US Department of Agriculture (USDA) world supply and demand report estimated lower crops and stocks of maize, wheat and soya.
Additional upward pressure came late last week with Russia imposing higher export taxes on feed wheat, on top of existing taxes and tonnage restrictions, in a bid to curb high domestic prices.
The AHDB also reports rumours of limits on maize exports from Ukraine and dry weather jeopardising yields in Argentina, with the economies of both these countries badly affected by the pandemic.
Chinese demand for feed wheat and soya is strong as it rebuilds its pig herd, while US wheat consumption is up, as is wheat use in Russia.
Soya bean production was estimated down only slightly from the previous USDA report, but rocketing global demand is pushing prices up and encouraging more speculative money into futures markets across agricultural commodities.
“Producers could be looking at £40-£80/t increases in ration prices,” Mr Lott said. He explained in dairy this would put the milk:feed price ratio close to 1:1 at average milk prices, which is a negative incentive for production.
“Most dairy producers are pretty well covered for the winter, so the position is masked today, but beyond April there could be 1-2p/litre added to feed costs.”
Feed pointers
- Possible future £40-£80/t ration price increases beyond late spring would add 1-2p/litre to milk production costs
- Calculate milk:feed price ratio – these are generally reducing and, if moving towards 1:1, this is a disincentive to milk production
- Plan forage with focus on high intake, maintaining milk solids output and reducing waste
- Measure relative value of different feeds/straights
- Assess scope to increase return from milk contract
- Consider daily bulk tank sampling for milk urea levels to help manage total protein and avoid overfeeding
Source: Kite Consulting and The Dairy Group
Avoid knee-jerk reactions
“We are discussing feed purchasing strategy with clients and starting to budget for the effect on cashflows to avoid knee-jerk reactions. The key action farmers can take is to plan their forage strategy for the year to ensure sufficient high-quality forage to achieve high intakes, maintain output of milk solids and reduce waste.”
Consultant Richard Lane of The Dairy Group stressed the importance of regularly sampling silage at the clamp to help in balancing the diet and avoiding overfeeding protein.
“It’s definitely a year to challenge total protein in diets – we have been reducing them without loss of performance. If you can group cows at different stages of lactation, that can also help,” said Mr Lane. He advised using some feed-grade urea in diets, enabling easy daily monitoring of milk urea levels as a good indication of protein in diets.
At farm supply business Wynnstay, feed director Eric Thomas said many producers had secured their feed price last autumn through to the spring, but would see big increases when they came to book further ahead. He suggested an 18% dairy compound or blend could rise by £40/t, with beef cattle rations going up by roughly the same amount. The market returns for milk and finished stock will determine whether producers can afford such a rise.
