FARMERS have earned the reputation of always moaning about something, and recently many of them have been complaining bitterly about the low prices they are receiving for their produce.
Just as slight shortfalls in supply can push prices up, it only takes a market to be oversupplied by as little as one per cent to force prices down. Currently, the prices farmers are receiving for many different commodities are depressed for a variety of reasons, but the main one is oversupply.
Potatoes are a good illustration of how bad things are. Modern chilled storage systems allow potatoes to be stored in perfect condition until the following year's crop is ready for harvesting. Unfortunately this year's market is grossly oversupplied and some producers are having to pay to have their unwanted potatoes dumped.
The oversupply is mainly due to consumption falling by 12 per cent on the year previous. According to the Potato Council that is the result of supermarkets reducing potato packs from 3kg to 2.5kg. Apparently, consumers thought they were buying the same amount of potatoes when, in reality, those packs were nearly 17 per cent lighter.
The price of prime beef has also fallen dramatically from its peak last July, when an R4L bullock was fetching 423p/kg dead weight to its current price of about 346p (R4L is the description of the shape and leanness of a typical carcase). The price of Scotch beef had to ease as it had become amongst the dearest in the world, but few could have predicted such a dramatic collapse in values to the extent that many finishers have been losing money.
The oversupply situation was exacerbated by the strength of sterling against the euro that makes exports less competitive and imports more attractive.
Lamb has also seen prices ease in response to a glutted market and declining home consumption. This year's favourable spring and summer allowed farmers to have a good lambing. Not only are there more lambs on the ground, but they have been thriving in the sunshine and fattening faster than usual. End result is that a typical lamb weighing about 18kg dead weight is down £9/head, or 12.5 per cent on the year. Fortunately, the larger lamb crops that many producers have to sell will go some way to making up the price shortfall.
Although most British lamb is consumed at home, we depend on exporting our surplus in peak season, but as with beef, the strong pound is hampering exports. Scots eat very little lamb compared to the English and Welsh, but attitudes are changing south-of-the-border. Lamb is now seen as an expensive option by many consumers and annual consumption has decreased from 7.5kg per person back in 1990 to its current level of just 1.9kg.
Milk producers enjoyed a relative period of prosperity until price cuts were imposed in the beginning of June in response to soaring production. A combination of rising milk prices and weakening feed costs had lifted the ratio between a litre of milk and a kilogram of feed in January to its highest level for four years. What that improved figure meant was that for every pound spent on feed, the return in terms of milk income was about 20 per cent greater than it had been a year earlier. Much the same had happened in the other main milk-producing regions of the world - hence the current global over-supply.
Fortunately, while milk producers are not enjoying the current round of price cuts for their milk, they can at least look forward to lower feed costs this winter. There is an abundance of good quality silage and hay this year, and fodder is well down in price. Straw and feed grains are also much cheaper, but that is at the expense of arable farmers.
All around the world there are prospects for a bumper harvest, and that has been depressing prices. The price of feed barley and wheat is currently more than £40 per tonne back on the year, with some growers on target to lose money on this year's crops.
No wonder farmers have been complaining and calling for more support from processors and retailers, and a fairer share of the market returns. Having said that, I have yet to hear a farmer offer any sympathy when prices get so high as to threaten the viability of abattoirs and processors!
As always, farmers are price takers and in years of plenty have to suffer the financial costs of an over-supplied market.
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