New report looks at outlook for UK agriculture in 2019

While trade is a major concern as we move towards the March 2019 Brexit deadline, so is lack of labour
While trade is a major concern as we move towards the March 2019 Brexit deadline, so is lack of labour

AHDB has produced a report on the outlook for UK agriculture in 2019, but the report's author warns that forecasts could change depending on the outcome of Brexit.

The report looks at various sectors of farming for the next 12 months. But Phil Bicknell warns in his foreword about the uncertainty of a post-Brexit market.

"The following outlooks are based on the assumption a deal is concluded with the EU, so if there is any change in the core assumptions, we will revisit them," he says.

"The uncertainty associated with Brexit underlines the challenge of producing future outlooks or forecasts. We have already seen increased volatility in many agricultural commodity markets over the last decade, powered by the removal of protectionist measures and an increasing exposure to world supply and demand dynamics.

"Collectively, that means looking forward at our industry is far from straightforward," he says. "Although, for some, Brexit fatigue set in long ago, there is also no avoiding the fact that it will have an impact on the agri-food industry."

On the dairy industry, the report said that farm gate prices in the United Kingdom were expected to continue to hold or rise slowly through the autumn due to the delayed relationship with market prices, but that prices linked to market returns were likely to come under downward pressure subsequently, following on from the weakening commodity prices seen from early September.

Farmers on cost-plus contracts, often aligned to retailers, may see their prices increase, it said.

It pointed to Brexit issues for the dairy sector: "While trade is a major concern as we move towards the March 2019 Brexit deadline, so is lack of labour.

"The dairy industry has relied on foreign labour for many years, on-farm, in factories and for haulage. The lack of an affordable labour pool would push costs up, putting further pressure on margins throughout the chain."

'Subdued'

The report, the latest in AHDB's Horizon series, raised some concerns for pig farmers. Production was expected to rise in 2019, it said.

"With extra supplies of British pig meat on the market, a rise in demand will be required to support prices. However, retail pig meat sales remain subdued and within this the higher value fresh pork segment is in decline," said the report.

It said that imports of pig meat had fallen in 2018 and it was likely that this would continue in 2019, but demand had fallen in China, limiting UK exports in 2018.

There may be a possibility of increasing exports to China in 2019 as a result of African swine fever affecting domestic production there, but the report said this was "provided the UK also maintains access to the EU."

It said: "Balancing all these factors, supplies available for consumption on the domestic market are forecast to be broadly stable again in 2019. Nonetheless, global pork production is expected to be higher next year, meaning prices could remain under pressure unless demand responds."

'Challenging year'

The report said the beef breeding herd had been in contraction for the last couple of years and this trend was set to continue in 2019.

"After a challenging year, on-farm deaths and slaughterings of cows have been higher than usual. Strong demand for manufacturing beef for much of 2018 has resulted in cow prices being supported, and as of September, over 30,000 head more cows have been slaughtered," said the report.

"As a result of this, the forecast is that the breeding herd in 2019 could decline by as much as two per cent.

"Using the assumption that demand will remain fairly stable in 2019, reduced supplies available in the UK may have a slight impact on export volumes, which are expected to decline slightly in 2019.

"Irish production in 2019 is expected to be down slightly due to high numbers of calf exports in 2017 and 2018. This is expected to have an impact on Irish exports to the UK, declining slightly.

"However, this may present an opportunity for Polish beef to grow market share by exporting more to the UK."

Record breaking highs

AHDB said that farm gate prices for lamb had recorded some record breaking highs in 2018, as the market reacted to a lack of new season lambs.

Severe weather early in the year had made lambing hard for many, with reports of higher on-farm mortality and warm, dry conditions later brought challenges to finishing, said the report.

The weather could determine the nature of the market in 2019, too, it said. "Lamb rear rates are unlikely to recover back to a five-year average next year, due to ewes being in suboptimal condition for tupping in the autumn."

Globally, available supplies were likely to record little year-on-year change over the next 12 months. New Zealand production was forecast to decline slightly, although Australia was forecasting some small uplift.

Demand in China was expected to remain strong, which may limit any increase in UK lamb imports, depending upon farm gate prices across the world, said AHDB.

'Variable cereals harvest'

The report described the 2018 cereals harvest as "variable." The impact of the summer’s hot, dry conditions had varied across the country.

In the UK the year ahead was likely to be "tight" for both wheat and barley, said the report. "However, we do have some areas of uncertainty on the demand side of the equation," said AHDB.

The Vivergo shutdown may affect industrial usage, it said, but this year’s weather had resulted in a challenging year for livestock producers and grain usage was five per cent up in the first two months of the season.

"We expect to see more grain moving towards animal feed – the question is, which grain? There’s an opportunity for more maize and less barley to be used in compound feeds – especially given domestic barley production is down.

"Maize imports are already off to a strong start this season. Additionally, poultry placings are on the rise, driven by increasing consumer demand.

"There is a limit to the amount of grain other than wheat that can be included in poultry rations. Therefore, this increased demand is likely to keep overall wheat demand fairly static, largely offsetting any bioethanol demand. Lastly, there is milling demand.

"Recently, a processor has shut down a mill in the South. While this is not likely to affect national demand for milling wheat, a regional impact is possible. Southern grains may have to travel further afield to find a home, potentially impacting local pricing."

AHDB said: "We are unlikely to see much stock recovery, especially for wheat. This should keep prices elevated relative to world levels."

'Runaway rally'

The report said that rapeseed markets had been affected by both the weather and political disputes in recent months.

Production in the UK was down by five per cent on the year at just over two million tonnes, despite an increase in the planted area.

Given this, and a difficult harvest in the rest of the European Union could have been expected to produce a "runaway rally for rapeseed prices."

But record global oilseeds inventories were expected in 2018-19, largely driven by an Argentine rebound and record yields in the United States.

The EU was importing a record volume of soya beans, predominantly from the US, which had redirected volumes due to the restrictions and tariffs placed on them by the Chinese market, said AHDB.

"Those EU crushers who can utilise soya beans, are. These factors have mitigated the impact of falling rapeseed volumes, thereby capping any price rises.

"Should the trade dispute end, or adverse weather in South America limit production, this could well give further support to the rapeseed price."

'Challenging conditions'

Like other growers, potato farmers had been affected by weather conditions in 2018, said the report. "The challenging conditions this season have been felt in price reactions," it said.

"A combination of lateness of supply and industry concerns surrounding the size and availability of the new crop resulted in the 2018-19 season starting around £190/tonne higher than the end of the previous season.

"In addition, old crop was traded well into September, when typically it would have been used up by the end of July. Prices have started to fall back in recent weeks as main crop lifting begins in earnest, resulting in greater supplies available to the market, " it said.

"What can we expect for the rest of the season? While a smaller crop is anticipated this year, there is also the potential for a much shorter season.

"This could alleviate some of the supply pressure. Packers could benefit, both from the ability to use old crop longer and from sourcing supplies from Scotland.

"Nearly half the area grown in Scotland is for packing and, reportedly, yields are faring much better north of the border.

"Chipping and processing markets may be under more pressure. There is a requirement for tubers with certain characteristics suitable for frying and these are anticipated to be suffering from a tighter supply situation.

"In order to mitigate this, processors have reportedly been looking to source from non-traditional markets, such as packing markets with sufficient dry matter.

"This could potentially cause a further tight supply situation in these markets, as competition for supply increases."

The AHDB report offers a broad ranging view of the year ahead for UK agriculture. But the report stresses that its forecasts hang on the outcome of Brexit.