While there are more positive signs long term, the dairy and beef sectors are potentially facing a difficult winter, according to Trevor Lockhart, Chief Executive of the Fane Valley Group.

Trevor Lockhart, centre, CEO, Fane Valley Group was the guest speaker at the NIGTA lunch and is pictured with David O'Connor, left, Vice President and Alan Johnston, President.
Trevor Lockhart, centre, CEO, Fane Valley Group was the guest speaker at the NIGTA lunch and is pictured with David O'Connor, left, Vice President and Alan Johnston, President.

Speaking at the quarterly lunch of the NI Grain Trade Association, Trevor pointed out that 18 months of higher milk prices had encouraged global production to escalate at twice the rate of the growth in demand. This oversupply situation has been exacerbated by a decline in demand from China and more recently by the Russian ban on European dairy products.

According to the Fane Valley CEO the supply and demand dynamics have therefore shifted firmly in favour of product buyers who are now utilising built up stocks and only entering the market to fill their short term needs.  As a consequence global dairy markets have fallen by approximately 45%. In spite of EU measures such as private storage aid, local farm gate milk prices have fallen sharply as they begin to reflect the overall weakness of dairy markets and the stubborn resistance of buyers to purchase ahead. 

Although the emergency support measures introduced by the EU will be of some small benefit private storage is not an attractive outlet for processors particularly as the product will re-emerge   at a later date. Against this backdrop and the prospect of cheaper feed costs in the USA and the southern hemisphere peak season being only a matter of weeks away Trevor forecast that the downward pressure on dairy markets looked set to persist for the short term. He added that although local processors will do everything possible to support milk prices through the forthcoming period the winter months will be extremely difficult for all concerned.  

Turning to the beef situation, Trevor highlighted the various factors which had combined to once again shift the supply and demand balance against the producer.  He explained that although the ‘horsegate’ scare had resulted in a significant increased demand for ‘in-spec’ cattle across the UK the improved farm gate prices had been short-lived. Higher levels of EU beef production and imports coupled with reduced exports and falling beef consumption had since created a ‘perfect storm’ which had led to a huge build-up of frozen manufacturing beef stocks within Europe which in turn had significantly undermined the market.

Enjoying the NI Grain Trade quarterly lunch are Alison Lowham;Nathan Langtry and Rachel Murray.
Enjoying the NI Grain Trade quarterly lunch are Alison Lowham;Nathan Langtry and Rachel Murray.

Of particular note was the impact of a ban on ritual slaughter methods in Poland which resulted in this meat being sold widely within Europe as opposed to moving eastward and a decision by many UK retailers to reduce the promotional activity around beef in the aftermath of ‘horsegate’. 

By way of illustration Trevor explained that the price of the various grades of forequarter or manufacturing meat, which constitutes a significant part of the value of a carcass had fallen by £1 to £1.50per kilo over the past year. This he said has had a material impact on the available returns and pushed beef finishing into significant losses, a position he warned was unsustainable. 

On a more positive note Trevor drew attention to emerging opportunities to potentially export beef products outside the EU from the Republic of Ireland and the UK both of which could, in the first instance, assist in regularising the beef stock situation and underpin an improved market outlook. But first he pointed out the industry must overcome several hurdles the most important of which was securing the necessary market access approvals for both Northern Ireland and the individual factories who wish to engage.  

One possible viable market is manufacturing meat into the USA.  The decline in USA internal beef output along with the opportunity for South America to fill the void in Russia, has resulted in an opportunity for beef exports to the USA at prices above current EU levels.  The Philippines and China may also offer opportunities for Ireland and/or UK. 

Overall however, Trevor stressed that the short term outlook remained very uncertain.  He added “When you consider the recent price reductions and the short term market challenges together with the prospects of a significant tax bill for many producers in January  based on an earlier period of higher  prices, then in the absence of a return to improved markets, the cash flow strains on livestock farms will inevitably build as we progress through the winter. ”