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QMS (Quality Meat Scotland)


04 December 2012

QMS Monthly Market Report - November 2012QMS Monthly Market Report - November 2012


QMS - Quality Meat Scotland

Cattle

Prices and Supplies

Having edged forward and surpassed the 360p/kg mark for the first time in September, deadweight cattle prices have since lacked direction. Over the past couple of months, prices have moved less than last year and the year-on-year premium has narrowed slightly to 5%. Auction prices have been more volatile, however, with the prime cattle average dipping towards 190p/kg in the first half of October, before returning to the £2 a kilo level it had traded at between June and September. In mid-November, prime cattle prices were up 5% year-onyear.

Scottish Deadweight Prices

Cull cow prices at Scottish auctions dipped sharply at the end of September and fell further in October. Following three weeks of stability, prices cooled again in the second week of November to stand at 106p/kg lwt; down nearly 20% since September. There has been a similar movement in deadweight prices too. Having traded at 272.5p/kg dwt in mid-September, they had fallen to 255p/kg by mid-November. Over a six-month period deadweight prices have fallen by 12.5% while auction prices are down nearly 20%.

Prime Cattle - Auction Price

Slaughter data for September showed that prime cattle supplies remained tight. Monthly throughput at UK abattoirs fell 8% year-on-year; matching the decline in the year to date. While a continued decrease in carcase weights suggests that higher feed costs have encouraged producers to bring cattle forward at a younger age, they were still up 5kg on the year. Since supplies of heifers remained considerably tighter than supplies of steers it suggests that producers retained more heifers for future breeding.

Scottish Auction Prices for Cull Cows

During September, 11% fewer prime cattle were killed in Scottish abattoirs than a year earlier. Over the first nine months of the year, supplies were down 10.5%. A clear divergence between slaughterings of heifers and steers is also apparent in the Scottish data as 7% fewer steers and 18.5% fewer heifers were killed than in the same month last year.

Clean Cattle - Scottish Slaughterings 3 Week Rolling Average

At the UK level, slaughterings of mature cows and bulls stabilised relative to last year in August and September after running significantly higher during July. This contrasts with the opening half of the year during which 7.5% fewer cows and bulls were slaughtered. Over the first nine months of 2012 the year-on-year decline was still 4%, suggesting that the breeding herd at least stabilised or may even have expanded slightly. Nevertheless, the change in trend during the third quarter (Q3) may well be linked to forage supplies and feed costs, and, if so, movement towards herd expansion is likely to have slowed.

In Scotland, mature stock have continued to be slaughtered in greater number than last year. During September there was a 7.5% increase, and this pushed the annual increase up to 3.5%.

Supplies of prime cattle into Irish export plants remained tight through October; falling 10% year-on-year. However, the decline narrowed in the second half of the month and numbers fell by less than the 15% average rate of decline seen in the first ten months of the year. The slowing decline suggests that the increased numbers of young cattle in the December census are reaching the market. Nevertheless, slaughter volumes remained well down on last year and one factor has been the higher prices offered to producers by Northern Irish plants.

In the 12 weeks to 30 September, consumption data from market research firm, Kantar, showed that 8% less beef was purchased by UK household’s year-on-year. However, in the month of September, the year-on-year decline was much smaller at 2%. In the first nine months of 2012, consumption fell 5% with declines across the range of products. However, since mince volumes fell by the least, it indicates that the decrease in consumption was driven by households trading down between cuts and towards cheaper proteins.

UK vs EU27 Price (Steers R3)

Prime cattle prices across the EU have, on average, fallen slightly since the start of October. Young bulls and heifers fell by just under 1% in the four weeks to November 4, while steers slipped back by less than 0.5%. In Euro terms, UK prices have fallen in similar way to the EU average over the past month while Irish prices have stabilised. Though UK cattle prices are up 5-6% on the year in Sterling terms, currency movements have resulted in them being 11-12% higher in Euro terms. However, this has narrowed from 20% in the summer. Nevertheless, EU prices have increased to a lesser extent: averaging 8% higher than last year for steers, heifers and cows; and 4% higher for young bulls. Meanwhile, since Irish prices have grown at half the rate of the EU average over the past year, they have gained a competitive advantage against UK beef on the continent.

UK Beef Exports


UK Beef Imports

September beef export volumes were the highest of the year so far. However, at 10,850t, they were down 9% on September 2011, and in the first nine months of 2012, volumes fell 22% year-on-year to 82,700t. Lower domestic production continued to place downwards pressure on the volume of product available for export. Despite well documented economic problems, three European customers have imported more UK beef so far this year: Ireland, up 12.5%; Belgium, up 2%; and Spain, up 22.5%. However, exports to many other EU countries are down by 40-50%. Moving on to third countries, shipments of mainly frozen beef have doubled to Ghana in 2012 and there has been a regular monthly trade of around 100t. However, deliveries to Hong Kong and China have fallen by a quarter since last year.

Tight domestic supplies coupled with a stronger Sterling have encouraged trading partners to deliver beef into the UK market. Total imports have subsequently risen 2% year-on-year in the January to September period. However, separating imports into fresh and frozen shows a significant difference. While 17% more frozen beef has been imported, deliveries of fresh product have fallen by more than 3%. This may, in part, reflect a greater need to import beef for manufacturing purposes due to the decline in slaughterings of mature stock at the UK level. However, provisional figures for September showed a sharp year-on-year decline in both fresh and frozen beef imports. When placed alongside tight supplies and a reduced export decline, this indicates weak domestic demand.

The UK has bought in significantly more beef from most EU suppliers so far this year. The one exception has been Ireland; the UK’s largest supplier. A 7% fall in fresh product has more than offset a 16% increase in frozen beef, leaving overall shipments down 3% in the January to September period.

News Round Up

The detection of Schmallenberg antibodies in two Finnish cattle means that it has now been found in 14 EU Member States and Switzerland. Of these 15 countries, eleven have reported cases of disease (Belgium, Denmark, France, Germany, Holland, Italy, Ireland, Luxembourg, Spain, Switzerland and the UK) while the remaining four (Austria, Finland and Poland and Sweden) have only discovered antibodies. The detection of antibodies indicates that the disease has previously affected the animals.

During H1 2012, India became the world’s number 1 beef exporter by volume. Over the six-month period, the country shipped out 548,000t, up 40% from the 390,100t exported in H1 2011. Of this total, 28.5% (156,800t) was delivered to Vietnam (up 74% year-on-year); and this was three times the volume exported to the second largest destination, Malaysia. Other than Vietnam, the vast majority of Indian product is sent to the Islamic world as the country has a comparative advantage in the production of halal beef at competitive prices. In addition to Vietnam and Malaysia, its other main customers in Asia are the Philippines and Thailand, and in the Middle East, it delivers large volumes of beef to the UAE, Saudi Arabia, Jordan and Iran. Its principal North African customers are Egypt and Algeria.

Going forward, the USDA has forecast that Indian beef exports will reach 2.16mt cwe (carcase weight equivalent) next year. This is 29% higher than the expected 1.67mt cwe in 2012. If this is achieved then the country will account for close to 25% of the global trade in beef. Most of this meat comes from buffalo (as cattle slaughter is limited by the sacred status of cattle in Hinduism) and production is expected to rise by 14% to 4.2mt in 2013. The lack of an official FMD status prevents Indian beef from being delivered to countries with strong import regulations, such as the EU, Japan, the US and Russia.

In the first nine months of 2012, Brazil managed to grow its beef exports by 11% year-on-year to 678,150t. However, with sales revenues of $3.2bn (£2bn), this works out at an average value per tonne of $4,750 (£2,950); down $300 (£180, or 6%) from the same period in 2011. Geopolitical factors continued to play a part in Brazilian trade flows with a more stable environment in Egypt allowing exports to rise by more than 50% to 96,000t, while shipments to Iran more than halved to 46,000t as international trade sanctions tightened. In addition, exports to Libya almost tripled to 11,400t, while Israel and Lebanon purchased around one-fifth less beef than a year earlier (11,900t and 9,700t respectively). Meanwhile, deliveries to China, Malaysia and a number of the more politically stable markets in the Middle East showed significant growth from a small base. Its two largest EU markets, Italy and the Netherlands also bought more Brazilian beef in the nine months to September; shipments rose by 24% and 11% respectively to 15,800t and 10,700t.

The USDA is expecting a reversal in US beef production in 2013, forecasting a decline of 4% from this year’s estimated 11.8mt. This decline is based on the country’s falling cattle herd plus the effect of this summer’s drought on herd liquidations. Nevertheless, due to strong demand from overseas, exports are predicted to decrease to a lesser extent; falling 1% to 1.1mt. Due to lower production, the country’s import requirement is expected to rise 11% to 1.2mt.

Meanwhile, the summer drought led to an expansion of credit to the US agricultural sector as feedlots took out loans in order to purchase cattle from herds that were being liquidated. A report by the Federal Reserve Bank of Kansas City showed that lending to feeder livestock producers increased by 60% year-on-year in Q3 2012 and was at a two-year high of approximately $10bn (£6.25bn). The cost of these funds averaged 4%, compared with 5% a year earlier. The drought also led to a sharp increase in short-term loans to cover higher feed costs. Lending for current operating expenses rose by 36% on the year to almost $40bn (£25bn) in Q3.

Sheep

Prices and Supplies

After a sharp decline in September, lamb prices cooled further in October. However, GB prices have been more stable in recent weeks and in the second week of November they recovered some ground to be down only marginally on the month at 361p/kg dwt. At Scottish auctions, lambs averaged 151p/kg lwt in the second week of November. Although this was down on the previous week, it was slightly higher than prices had traded in the second half of October. Despite some stabilisation, lambs are trading much cheaper than at this time last year. At GB abattoirs, the year-on-year discount is 9%, compared with 20% at Scottish auctions.

Lamb SQQ Auction Price


GB Deadweight R3L Lamb Price

Carcase quality has been slightly better than last autumn. During October, 62% of lambs marketed at GB abattoirs graded at R3L or better compared with 60.5% in October 2011. Into November, carcase quality has continued to prove better than last year and, by implication, this will have limited the downside to prices.

Whereas in the first half of 2012 (H1) lamb slaughterings at UK abattoirs had trailed year earlier levels by just 2%, during Q3 the shortfall widened to 9.5%, with September numbers down 11%. This can be explained by the wet summer which has led lambs to come forward much more slowly. A further consequence of slower growth rates has been that lambs reaching the market have been lighter and this has exacerbated the decline in production volumes. Q3 sheepmeat production volumes fell 10% year-on-year with an 11.5% fall in September.

Clean Sheep - Scottish Slaughterings 3 Week Rolling Average

At Scottish abattoirs, supplies were even tighter than in the UK as a whole. Q3 numbers fell 12.5% yearon- year. Carcase weights also declined during Q3 and this resulted in production volumes falling by 15%. Having been 2% higher than in 2011 in the first half of the year, by the end of Q3, production had fallen into a 5% deficit.

However, since late September, increased numbers have been reaching the market as lambs which would normally have been marketed much earlier in the year have finally reached adequate slaughter weights. This change in market conditions has been the principal driver behind the slump in prices.

Kantar data for the twelve weeks to the end of September shows increased household purchases when compared with the same period of 2011. Demand for lamb has improved since the spring as prices have become more competitive against other meats at the retail level. During the first nine months of 2012, consumption rose by 4% on the year with average prices fractionally lower. When the data is broken down into categories, it can be seen that consumption has been driven by lower prices on leg roasting joints.

Cull ewe prices have fallen seasonally as volumes reaching the auction ring reached their peak ahead of tupping. In mid-November, the average ewe sold for just over £40 a head; down 34% on the same week last year and only slightly higher than at the end of October where it had traded at a 37-month low.

This fall in ewe prices has come in spite of a much lower ewe kill compared with last year. 148,000 ewes were slaughtered in September, down 7.5% on the year, while 10% fewer ewes were killed over the first nine months. The combination of tight supplies and low prices indicates weak demand. Since provisional June census figures for the UK showed increased ewe numbers, decreased slaughterings gives further support to the implication that producers have begun to rebuild their flocks.

In the week ending November 4, an average heavy lamb traded at €4.69 a kilo dwt in the EU; down slightly on the month. Average prices also fell below year earlier levels as UK and Irish prices are heavily weighted in calculation of the average. In Euro terms, UK prices are down 3.5% year-on-year while Irish lambs are down 10%. Of the other major lamb producers, French prices are flat while German and Romanian lambs are up by 6% and 15% respectively.

Heavy Lambs: GB Vs French Price


UK Lamb Exports

Although the fall in UK producer prices has helped export competitiveness, a stronger Sterling against the Euro has offset much of this improvement. Whereas the Euro was worth around 80p in mid- November 2012, a year earlier it had been valued at 86p; a 7% difference.

Having run 1.5% ahead of year earlier levels during H1 2012, UK lamb exports fell sharply in Q3 as supplies tightened. Total deliveries fell by 5,000t (18%) in Q3 to 22,400t. 31% of domestic production was exported in Q3 2012; down three percentage points from the same period last year.

Shipments to France, the UK’s principal customer, fell 20% in Q3 and were down 13% in the first nine months of the year at 36,500t. Tight supplies limited deliveries to most other EU markets; though Belgium and Holland bought 1% and 4% more, respectively. Further afield, there was some growth into Africa, with Ghana and South Africa tending to buy around 50t per month during Q3. Hong Kong has been another growth market and deliveries were up more than three-fold in the January to September period.

In response to reduced domestic production, the UK has imported more lamb in recent months. Whereas there was a year-on-year deficit of 14% in H1, imports rebounded in August and September and this pushed Q3 figures 4% above 2011 levels. Greater availability of cheaper lamb from New Zealand has been the driver. Imports from New Zealand rose 14% year-on-year and accounted for 65% of total imports in Q3; up from 59% in the same period of 2011. More of the additional import requirement came from Ireland and France but less was brought in from Australia and Spain.

UK Lamb Imports

News Round up

Latest estimates of the 2012/13 New Zealand lamb crop put it at 3-4% larger than last year, creating the potential for a greater volume of lamb to be available for export. Furthermore, the weather has been beneficial to lamb growth and lambs have reached the market quickly. Consequently, exports rose 20% year-on-year to 17,900t in October, the first month of New Zealand’s 2012/13 season. Much lower prices have also assisted exports and the EU purchased 24% more New Zealand lamb in October than a year earlier, despite weak consumer confidence. Of the 7,900t shipped to the EU, 45% was delivered to the UK. Meanwhile, deliveries to China increased by 85% on the year to 3,000t while New Zealand grew its market in the Middle East by over 40%; delivering 2,250t.

Lamb prices have fallen sharply in Australia and are currently at their lowest since Christmas 2007. In mid-November, the Eastern Trade Lamb Indicator stood at 303c/kg dwt (198p/kg dwt), around 15% below its level of a month earlier and down nearly 25% from two months ago. Last November, prices had traded at close to 500c/kg dwt (325p/kg dwt). A well-supplied market has been the principal factor driving the market lower as a period of dry weather has encouraged producers to sell. Indeed, during the second week of November, a 38% increase in numbers pushed prices down 11.5%. Furthermore, in the first nine months of 2012 Australia killed 14.6m lambs, 11% more than in the same period of 2011. This increase in supplies has come as a result of two years of healthy rainfall (2010 and 2011) which encouraged producers to rebuild their flocks. However, since lambs have been drawn out early by a period of dry weather, supplies may begin to tighten somewhat at the start of next year.

As a consequence of increased supplies, Australia has had the opportunity to expand its exports this year. In the January to October period, shipments reached 141,500t and are on course to break their 2009 record of 153,400t. Significant inroads have been made into the markets of the Middle East and China where there is strong demand for lamb at the lower end of the value scale. In October, demand from the UK and China led monthly exports of manufacturing product to rise by a third yearon- year to 1,400t.

Meat and Livestock Australia’s monthly survey on co-products found that sheepskin prices were down two-thirds from last year at approximately 640c per skin (£4.20) for a 16.1-20kg lamb. However, those surveyed noted that prices had stabilised over the past month as strong demand from China offset the downwards pressure on values from grass seed contamination and a strong Australian Dollar. Nevertheless, the fall in sheepskin values when compared with autumn 2011 will have contributed to the decline in prices processors have been willing to pay producers for lambs.

Pigs

Prices and Supplies

In contrast to their historic seasonal trend, ex-farm pig prices have been on the up. The GB DAPP reached a record high of 159.96p/kg dwt in the week ending November 10. This was the tenth successive week during which producer prices had risen. Farmgate prices have subsequently moved 13p/kg (8.5%) ahead of year earlier levels and are up 23p/kg compared with two years ago. Prices have continued to improve even as gains to prices on the continent have come to an end. Some of the recent increase has been attributed to supplements offered by a number of processors to help ease the burden of sharply higher feeding costs.

Pigs DWt Adjusted Euro Spec Average - GB

September was the first month of 2012 that clean pig slaughterings failed to surpass year earlier levels. Throughputs fell 1.5% to 784,500 head. Despite an increased sow kill, much lower average carcase weights for both prime and mature pigs resulted in monthly pigmeat production falling 2.5% below September 2011 levels to 64,500t.

30kg Weaner Pigs - GB

September pig slaughterings were only a fraction higher in Scotland than a year earlier. By contrast, over the first nine months of 2012, Scottish processors killed 8% more prime pigs year-on-year. The slowdown in growth reflects the addition of a processing plant in September 2011. Carcase weights averaged 77.8kg in September 2012; 2kg per head lower than in the same month last year. The sharp fall in carcase weights indicates that producers are selling at younger ages due to the rise in feed costs.

Clean Pigs - Scottish Slaughterings 3 Week Rolling Average

Kantar data shows a 1% increase in UK pork consumption during the twelve weeks to September 30. This marks a welcome change in the marketplace as consumption had trailed year earlier levels for much of 2012 and was still down by 2% over the whole January to September period. Sales in the four weeks to the end of September were up 1.5% year-on-year as lower prices, on average, meant that volumes rose despite less cash spending. Nevertheless, volumes of loin roasting joints sold showed the largest increase despite average retail prices rising 16%.

In recent weeks, weaner prices have reversed a sharp fall seen during the summer. The change in market conditions appears to have been encouraged by the forwards movement in finished pig prices, as this has given producers some confidence. At the start of November, weaners traded at £45 a head; up £4 (9.5%) on the month and by more than £6 (15.5%) from their low at the beginning of September. On the year, weaners were valued 7% higher in mid-November.

Prices for feed grains picked up again in late October / early November as prospects for global supplies deteriorated. In addition to the well documented tight supplies in the USA, there have been similar problems in the Black Sea region. While there may not be an explicit export ban placed on wheat by the Ukrainian and Russian governments, the volume available for export is expected to be extremely low. As a consequence, London wheat futures have been trading at record levels above £220 a tonne. However, soyameal prices are trading at a five-month low as the US soybean harvest has been upwardly revised by 4% and forecasters continue to expect a record Brazilian harvest in spring 2013. As November began, feed wheat and soyameal futures were around 50% more expensive than a year earlier.

Although producer prices for weaners and finished pigs have picked up significantly over the past couple of months, cull sows opened November at a 7-week low of 113.1p/kg dwt. The divergence can be explained by a greater sensitivity of the sow price to the export trade: as EU prices have slipped back from their highs reached at the end of September/start of October, the sow price has had to cool for UK processors to remain competitive. Sows opened November 3% more expensive year-on-year.

UK vs EU Price (Grade E Pigs)

As mentioned above, prices on the continent have fallen back sharply over the past month. This put to an end three months of increases. At the beginning of November, the average price for a grade E pig in the EU was €1.828/kg dwt; down 5% on the month. As GB prices have continued to rise over the past month, they are now 6% above EU levels, compared with an average deficit of 1.5% in the seven-week period to October 14. In Euro terms, GB prices are up 17% year-on-year while EU prices have risen by 16%. However, Italian and French producers have seen prices go up by just 8%.

UK Pork Exports

An export health certificate granting greater access to China for UK pork exports helped push deliveries above year earlier levels by 7% during Q3. Monthly exports increased to a 21- month high in August before setting a new record of 15,700t in September. In the first nine months of 2012, exports totalled 112,000t; up 4,000t (4%) year-on-year.

UK Pork Imports

Pork imports continued to trail 2011 levels into the autumn with September volumes down 4.5% on the year. However, the decline has narrowed since the first half, during which they were down 12.5%. The UK imported 254,900t of pork in the first nine months of 2012 compared with 278,500t a year earlier.

News Round up

The recent spike in farmgate pig prices across the EU came at a time where prices were falling significantly elsewhere. During September, while the EU average price increased by 6% from August to average €1.90/kg dwt, global prices cooled by 17% to an average of €1.64/kg dwt. Compared to the same month last year the change in market conditions was even greater, with EU prices up 23%, whereas global prices fell by 15%. All eleven member states to have reported production volumes for the month of September to the EU Commission saw a decline when compared with the same month in 2011. In this context it is not surprising that prices rose so significantly.

Meanwhile, the EU Commission has predicted that pigmeat production will ease only slightly in the year as a whole, before declining significantly in 2013. A 0.4% fall to 22,95mt is expected for 2012 as although pig numbers have decreased herd liquidations ahead of the impending sow stall ban are expected to have limited the decline in production volumes. In 2013, production is expected to contract by a further 3.2%, to 22.22mt, as the effects of a smaller sow herd feed through to slaughter pig numbers. The additional downwards pressure placed on production by high feed costs has also been factored into their forecast for 2013. In terms of trade, it is estimated that imports will remain minimal at just 14,000t while exports will have to decrease by 15% to just under 1.9mt from 2.2mt this year. Consumption is also predicted to fall back next year.

In the first nine months of 2012, Russian imports of pigmeat rose 3% on the year despite having to pay much higher prices; indeed the value of imports rose by 16% in its domestic currency. The country’s WTO accession at the end of August appeared to have a considerable effect on import volumes as monthly shipments collapsed ahead of the accession date before jumping by 33% year-on-year in September. The US and Canada have seen significant growth into the Russian market place this year, in sharp contrast to Brazil which has faced trade restrictions.

In spite of trade restrictions on shipments to Russia and Argentina, Brazil managed to grow its total pork exports by 41% year-on-year during October. Deliveries totalled 54,200t. Russia remained its largest customer while Ukraine took second place as some product previously sent to Russia has been diverted there. Hong Kong was also a significant buyer of Brazilian pigmeat. A sharp depreciation in Brazil’s currency, the Real, has increased the country’s competitiveness in the global marketplace. Against the US Dollar, the Real fell by 13% in the year to October 2012 as a consequence of a number of cuts to interest rates in Brazil plus government intervention in the currency markets.

US pork exports rose 7% in the January to September period, totalling 1.34mt. Though deliveries to its largest customer, Japan, fell 8%, this was more than offset by expansion into Mexico, China, Russia and Canada. The expansion has in part been fuelled by an increased number of slaughter pigs with census figures estimating the overall pig population to have risen slightly to 67.5m head in September. This came despite a slightly smaller breeding herd of 5.8m head as sow productivity increased to a record level of 10.13 pigs per litter. Overall pigmeat production increased by 2.2% year-on-year between January and mid-November 2012 as this summer’s drought and subsequent spike in feed costs led to herd liquidations and slaughter pigs being marketed earlier than usual. However, as a consequence, production is expected to fall significantly over the winter and this is likely to limit the availability of supplies for export. Ample supplies of pigmeat in China are expected to place further downwards pressure on US exports; indeed September export data showed deliveries to China down by half on the same month last year despite record levels of pigmeat sitting in US cold stores. This decline in shipments to China offset increases to other markets and left overall monthly export volumes flat year-on-year.

December 2012

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