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How the EU Referendum Will Impact The Prime Cattle Market




Full impact of referendum result on beef sector could take years to unfold

Limousin in field

Backlash from the EU referendum result dominates the likely direction of this autumn’s prime cattle market. The biggest single impact comes through a weaker pound, a stronger Euro and an exchange rate in excess of 85p.

 

This makes cattle produced in the Republic of Ireland (RoI) much dearer in Sterling terms, which ought to make their beef less attractive to the likes of Tesco, Asda, Sainsbury and McDonalds etc. One would hope that they will now focus their purchases on British origin stock - unless processors can provoke an unlikely compensatory slide in cattle prices on the other side of the Irish Sea. 

 

In the final days of June, when the Euro was worth 83p, the base price for commercial steers and heifers in the RoI was respectively 332p and 340p in Sterling terms. Which was well above base prices for similar stock in England and Wales and should have pushed up prices across UK.

 

British processors are, or were, alarmed by the eleven per cent drop in the value of Sterling in the week after 27 June and had decided it was safer to freeze their procurement prices, rather than make any other moves. But they are more relaxed now and therefore more confident about the cattle purchases they make. 

 

The stronger Euro has also reduced the threat of prime cattle values being overwhelmed by an early autumn avalanche of culled, midlactation, dairy cows. There were fears that up to 20 per cent of the UK’s 10,000 dairy farmers could leave the industry between July and Christmas, if the liquid milk market showed no signs of recovery and impatient lenders, including banks and feed companies, foreclosed. However the combination of an 85p Euro and unexpectedly early signs of a raw milk price upturn has eased beef finisher fears. A ten per cent year on year increase in cull cow sales is still expected over July-December. However current indications are that the export of cow beef into the Netherlands, RoI and other markets like Germany and France, will be unobstructed because their price is markedly more competitive in Euro terms and Euro-zone buyers are keen to maintain current purchase volumes.

 

At the same time the spot price for ex-farm milk is reported to be on fire and some processors are adding 1p-2p to their standard milk price over July-August, much earlier than both farmers and their creditors had expected.

 

The premium for Angus cattle over commercial cattle widened during late May and June and the value gap is expected to continue at current levels, or be even better, over early autumn at least.

 

This development was both sudden and a surprise, because even in mid-May booking queues seemed endless and processors were reacting by holding down ex-farm prices.

 

This supply driven price surge may not just be the result of some cattle being double booked but, because more than anyone expected they disappeared onto the commercial cattle market before they became overfat or overweight.

 

The current view is that breeders who turn out both commercial and retail scheme calves that can be finished quickly, at medium weights, will be more likely to maintain their incomes over coming months and years. And those finishers who concentrate on delivering medium weight cattle that have grown without pause, will earn most in pence per kilo terms too.

 

However, uncertainty over Brexit could specifically affect beef farmers in other ways. Expansion planned by processors, which include the joint take over by ABP and Linden Foods of Slaney Meat in the RoI and St Merryn’s beef/ sheep joint enterprise with Dunbia, may be put on hold.

 

Nor should beef famers anticipate a quick conclusion to the UK’s exit from the EU. Article 50 of the Lisbon Treaty may not be triggered for months until September at the earliest and extraction could take another two years.

 

Agricultural consultants such as Andersons have said current support systems (BPS), will be maintained until the UK severs its EU links completely - which may not happen until 2020.

 

After that a modest fall, something in the region of 20 per cent, is anticipated but sometime around 2025 overall support for agriculture could be 30-40 per cent down on current levels. Current assumptions are that a greater proportion of the remaining support will be directed at hill-farming and environmental measures.

 

The converse of this being some sectors, especially perhaps lowland farming, may get no direct support at all.

 



Source Details

 627 Mole Valley Farmers Newsletter



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