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What could an increase in dairy cow culling mean for the markets?

Thursday, 7 May 2020

By Rebecca Wright and Felicity Rusk

The COVID-19 outbreak has introduced a great deal of challenges into the dairy market. In response to the rapidly changing market, several processors announced reductions to milk prices, hitting farmer cashflows, while others have asked their farmers to curb milk production.

As highlighted in a recent AHDB webinar (managing through current milk challenges) there are several ways in which milk production can be decreased.

One way of decreasing milk production is to cull less profitable, or ‘passenger’ cows. But what could an increase in culling rates look like, and what would be the impact on the beef supply chain?

Average GB milk prices recorded almost 32 months of consecutive declines between November 2013 and June 2016. Prices fell by 41% during this period, hitting a 9-year low in June 2016. As such, cull cow throughputs remained elevated throughout this period. In 2016, a total of 350,000 dairy cows were culled, 9% (+28,000 head) more than in the previous year. While milk production also recorded a decline in 2016, it was considerably smaller than the proportion of cows culled from the milking herd, at 3%.

If there was an increase in dairy cull cows coming forward then it is likely the beef processing industry could process these animals in terms of kill capacity. If say 3% of dairy cows were culled in the coming three months this would potentially be an extra 50,000 dairy cull cows on the market.

An increase in cull cows of 50,000 equates to 15,000* tonnes of beef on the market overall. An increase in total beef production during this period of 7%.

In 2016, cattle prices were generally suppressed, however cow prices were relatively more affected than prime prices. The 2016 annual overall cow price declined by 7% year-on-year, whereas the all-prime average declined by a more modest 3%. As mentioned above dairy cow throughput in GB was up during 2016. In contrast to this, suckler cow kill totalled almost 207,000 head, which is low compared to typical levels. Beef production in 2016 was the highest of recent years, with 2019 only marginally lower.

Therefore, under such circumstances, we might expect downward pressure on both cull and prime prices.

As a result, some beef farmers may look at their alternative options; older suckler cows may be put back in-calf again, young beef heifers may enter the breeding herd instead of going for slaughter and finishers may slow down the feeding of prime animals where possible. Again looking at 2016 we can see this happen, as cow prices declined the number of suckler cows coming forward decreased.

Overall, there is likely to be an increase in cull cow kill from the level AHDB had previously forecast for 2020 pre-COVID-19. Just by how much though will very much depend upon if and how quickly demand for both dairy and beef products recover. Although there has been significant uplift in demand at retail, so far this has not been enough to offset the losses in foodservice. There is also the product mix of demand to consider.  

 

*based upon a 300kg carcase weight.

 

Rebecca Wright

Analyst - Red Meat

Felicity Rusk

Analyst - Dairy & Livestock

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