The outbreak of the Coronavirus is starting to impact on farms and the situation is changing daily. When the outbreak first occurred many thought that farming would be relatively safe, with milk contracts having performed well in recent times and indeed some buyers putting prices up.
What this time should teach us all is that businesses of all kinds are reliant on all parts of the supply chain; from primary producer through to the end consumer to work well. Major changes at any point will impact on those both up and down the food chain.
In a crisis there is usually a ‘knee jerk’ reaction before markets settle at a less extreme position. However, the big problem for farming is that the commodities produced are often perishable and part of a long production chain that cannot be sped up or slowed down quickly, meaning that produce once it is ready needs to be sold.
Looking at individual commodities;
Milk is a huge part of the South West farming landscape. A number of local buyers have lost their markets at this time as a result of the service sector, café and restaurant trades all being forced to close. Whilst it could be assumed that the milk would be consumed elsewhere we are seeing a significant shortfall in demand. With milk production normally beginning to run up to peak production there is a real issue for many farms. Some dairies have decreased their milk prices and some have also delayed payment taking payment terms to 45 days to try and cope with this to avoid unsold milk.
- Lamb deadweight prices have fallen dramatically from a high on 21st March of 551ppkg to 456.2ppkg on 4th April. To keep it in perspective though the price at the same time last year was 456.2ppkg.
- Whilst it is worrying to see these sorts of falls it does need to be kept in perspective. Keeping the lamb on farm is not an option for most with grass and forage being managed with a normal year usually expected. Keeping animals longer will not help the quality of the animal nor will it help forage production for next winter.
- Beef will be affected by the virus as much as other commodities but it may taken longer for the impact to be seen. Again with people unable to eat out the issue with may well be the cuts of beef that are being chosen. Most people tend to treat themselves when eating out but not so when eating at home. As a result we could see significant price changes, although so far the market has been following reasonable prices in the last few months.
- Cereals will be affected, in particular by the brewing industry’s demand for malting barley. Consumption is likely to be much less as people stay at home. There was panic buying of bread in the early stages of the virus giving a spike in demand but as matters settle the market will come back into equilibrium. For many it is not a time of year when much grain is physically sold off farm and the impact will be more likely felt on next year’s crop and will depend on world stocks as the new harvest season starts.
Given difficult markets, what actions should individual farmers be taking to minimise the disruption to their farms?
- Quantify the impact – revise forecasts and budgets to consider what the loss of 1 milk cheque or £40 per lamb would have on the cash position of the farm.
- Revise purchases of livestock – is it worth the risk to buy now when milk prices are very volatile?
- Check through milk contracts to understand what the legal position is.
- Check insurance- is there potential for a claim for unsold milk?
- Capital projects will have been put on hold for the time being – perhaps they should be delayed into another year?
- If there is likely to be a cash problem talk to your lenders. Remember individual bank managers are under pressure at present too so they will need time to assess your position.
- Capital projects will have been approved by lenders before the virus. It is worth revisiting these to ensure they will still be affordable.
- Talk to your families and your advisors. These are all issues that are being faced every day and speaking to someone with the experience of similar situations can be a big help.
- There is well publicised Government help and we have looked to collate this in our summary factsheets and we can help you access any reliefs you are entitled to.
We are here to support you during these unprecedented times. If you have any queries or need any advice, please do not hesitate to contact me or your local Thomas Westcott representative