AHDB warns on livestock farm margin pressure

2nd August 2022 | Farm Business, Livestock

The latest AHDB Livestock Outlook report predicts an increase in UK beef and lamb production over the next six months, but a contraction in national pigmeat and milk output. But the Board warns that all livestock enterprises face a challenging winter, with farm business margins affected by rising energy and input costs, and food price inflation increasing faster higher and persisting for longer in the UK than in Europe.

AHDB Group logo

The report forecasts an increase in UK beef production over 2022, with a higher than anticipated cow throughput. But overall beef consumption is predicted to drop by 4% with a slowing in the post pandemic foodservice recovery and lower retail sales as consumers switch to cheaper proteins.

Rising UK beef output and tight supplies in Europe could drive more UK exports, while the recovery in foodservice, although slower than expected, could suck in imported product growth rate.

The 2022 UK lamb crop is also forecast higher, following growth in the breeding herd, with total sheepmeat production is expected to return to 2020 levels after last year’s low.

But the AHDB forecasts “extremely sluggish” demand for sheep meat from retail and foodservice businesses due to changing preferences and rising prices
For pigmeat, the Board warns that the contraction in the sow breeding herd, which will speed up in the second half of 2022, could reduce UK pigmeat production by 6%. It expects a minimal fall in domestic demand.

But pigmeat exports will remain challenging, as Chinese demand slows. UK exports had been increasing, but higher domestic prices and reduced output could constrain future export volume growth. At the same time, falling production will lead to an increase in imported supplies over the second half.
For the dairy sector, The AHDB expects GB milk production to fall between 1% and 3.8% in the 2022/23 season, from the prior year, with the extent depending on the severity of cash flow pressures.

“Input price volatility, uncertainties around milk prices and labour shortages will discourage most farms from pursuing yield growth,” it notes. “Milk prices are high but are only just keeping pace with rising production costs.”

The current dairy products oversupply in China could limit its import demand for the rest of 2022, which will affecting global milk prices. Domestically, low economic growth and food price inflation will weaken demand, in turn reducing the scope for further milk price increases, predicts the AHDB.

“All livestock sectors will face challenges in the coming months as cashflows are put under pressure in preparation for overwintering,” warns AHDB lead analyst Patty Clayton. “It’s no surprise that we see a contraction in the pig herd given the profitability challenges this sector has faced in recent months. Dairy may be the next livestock sector seeing financial challenges as we head out of summer and higher feed costs bite at a time when demand, and hence milk prices, could start to wane.”

Sarah Baker, AHDB economic strategist, adds: “The impact of the Russian invasion of Ukraine is continuing to challenge global growth and is driving inflation across the board. Combined with the impact of leaving the EU and the Covid pandemic, inflation is undoubtedly the biggest issue in the UK, with serious ramifications for our agricultural economy.

“Inevitably, price inflation for essential goods such as food and fuel will force a reduction in consumption for many people, particularly those on low or fixed incomes. Retailers are working hard to keep the costs of food down for consumers, but this has consequences for agricultural producers who are already being affected by the fuel and input cost rises, squeezing business margins.”