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AHDB European Market Survey


30 March 2012

AHDB European Market Survey - 30 March 2012AHDB European Market Survey - 30 March 2012

Total red meat production in France in 2011 was 3.64 million tonnes, one per cent higher than in 2010. In comparison, Italy experienced a of five per cent year-on-year reduction in production to 2.6 million tonnes.

AHDB

World grain and protein meal update

At this time of year, grain markets are driven by a combination of old and new crop drivers. The old crop season has been characterised by very tight supplies of maize around the world. This has been the main factor supporting prices. Wheat, on the other hand, has seen a large surplus but has had to follow the maize market to avoid demand overload.

In 2012, one of the main price drivers has been growing conditions for South American maize crops which have generally been too dry. This has further increased global maize supply tensions. In addition, rumours of additional Chinese maize buying have added further support.

For wheat, much of the current marketing season has been dominated by the return of supplies from Russia and the wider Black Sea region, typically the world’s cheapest wheat. However, a combination of harsh winter weather and logistical issues has stemmed the flow of wheat from the region, reducing export competition and allowing prices to rise. With the arrival of spring, Black Sea exports are expected to pick up.

Within Europe, the availability of old crop wheat is coming into focus, especially due to slower than expected imports of Black Sea grain. This is replicated in the UK, where the surplus of wheat that can be either exported or held as free stock is estimated at 2.6 million tonnes. In the 30 weeks to the end of January, HMRC data show that 1.8 million tonnes of wheat was exported.

For the new crop, early indications suggest that maize supplies could rise considerably, depending on weather conditions. The US, the world’s largest producer and exporter, has experienced the warmest March on record. This, as well as early delivery premiums, has encouraged farmers to plant maize weeks earlier than usual – although frost risk exists until mid-April. Due to strong forward prices, it is widely expected that the US maize area will expand in 2012 to the highest level since the 1940’s.

However, concerns are rising for a number of growing wheat crops, although it is too early to gauge accurately the final harvest outcomes. Winter kill of Ukrainian wheat crops has been widely reported, but is likely to be re-planted with maize this spring. In Parts of Germany, France, and Poland, winter kill is also a concern, but the full extent has not been quantified. The growing concern for EU crops is the ongoing dry period, especially on the Iberian Peninsula but also further north.

Looking at protein meals, a key driver of recent prices has been a severe dry spell for developing soyabeans in South America at the turn of the year. The dry weather and hot temperatures have reduced yield potential for the soyabean crops. The latest global soyabean production figure from analysts Oil World stands 22.7 million tonnes lower than the previous season at 242.9 million tonnes.

Chicago soyabean prices have risen by 12.5 per cent from the start of the year due to the supply concerns. Soyameal values in the UK have followed suit. Latest Hi-Pro soyameal (ex-mill Liverpool) prices for April delivery stood at £351 per tonne, having gained £53 (17%) since the start of January.

Differing trends in French and Italian red meat production

Total red meat production in France in 2011 was 3.64 million tonnes, one per cent higher than in 2010. In comparison, Italy experienced a of five per cent year-on-year reduction in production to 2.6 million tonnes.

In France, there were contrasting trends for the two main species. Beef production rose significantly despite a fall in cattle numbers, while pig meat production fell. The growth in beef production was due to higher slaughterings of adult cattle, which increased by three per cent to 3.6 million head. Increased culling, especially of beef cows, due to a lack of feed and lower profitability of beef production, resulted in an eight per cent rise in cow slaughterings. In contrast, there was a three per cent decline in male cattle slaughtering and a marginal fall in slaughterings of calves, which totalled 1.4 million head. The latter was partly due to a decreased demand for veal. Lower domestic demand and the increased supply of beef contributed to a nine per cent increase in French beef and veal exports in 2011.

The long-term decline in the French pig herd contributed to the reduced level of pig meat production in 2011, despite a 24 per cent reduction in pigs being exported for slaughter. Along with increased sow productivity, this meant that slaughterings were down by less than one per cent at 24.8 million head in 2011. There was little change in average carcase weights. In contrast, sheep meat production increased three per cent year on year with an increase in both lamb and ewe slaughterings.

Unlike the situation in France, production of beef and veal in Italy fell significantly, while its pig meat production also reduced. Adult cattle slaughterings declined by six per cent to 2.7 million head, with reduced throughputs for all the major categories of bovines. For male cattle, slaughterings were down nine per cent as profitability of young bull beef finishing has been reduced by high feed costs. The smallest decline in slaughterings was for cows, down two per cent, while calves and heifers experienced falls of seven and four per cent respectively. With slightly higher carcase weights, production was down six per cent, given a decline of seven per cent in male beef production which accounts for 56 per cent of total beef and veal output.

Italian pig slaughterings fell by four per cent to 12.3 million head in 2011 mainly as a result of the declining sow herd. This was partly offset by a small increase in average carcase weights, but this was not sufficient to prevent a four per cent fall in production. The marked decline in sheep meat production that occurred in 2010 continued into 2011, in response to ongoing problems in the milk sector and resultant fall in numbers of dairy ewes put to the ram.

Differing trends in German beef trade

German exports of fresh and frozen beef and veal were ten per cent lower in 2011 than they were in 2010 at almost 375,000 tonnes. The level of exports fell as much as 31 per cent in the last quarter compared to the previous year. In contrast, imports of beef and veal to Germany increased by five per cent compared with 2010.

The largest proportion of beef exports from Germany was to other EU Member States. However, the 85 per cent market share was three percentage points lower than it was in 2010 and much lower than in 2009, when 96 per cent of German exports stayed within the EU. With increased prices, exports to Germany’s three most important markets of the Netherlands, Italy and France were all well down as product was diverted to the growing market in Turkey. This trade consisted of both young bull and cow beef. Despite falling volumes, trade with the EU was worth €1.4 billion to German exporters, an increase of three per cent compared with 2010.

Among non-EU markets, 20,000 tonnes of beef was sent to Turkey in the first full year after the market opened up due to trade tariffs being lowered as growing domestic consumption led to supply shortages. This was a 40 per cent increase on 2010. There was a 31 per cent decrease in shipments to Russia, mainly concentrated in the final quarter of the year when imports were restricted in response to the Schmallenberg virus.

Tight supplies, both within the EU and on the global market, meant that the average export price was 18 per cent higher than in 2010. As a result, total export value was up six per cent on the year to €1.6 billion.

Overall, 83 per cent of German beef imports came from other EU Member States, having increased six per cent year on year. The largest supplier was the Netherlands, with a 29 per cent share of the market, where shipments to Germany, mostly veal, were five per cent higher than in 2010. Germany imported 18 per cent more beef from France in 2011 as there was strong demand for young bull beef, and there was a 22 per cent increase in shipments from Austria.

Imports to Germany from non-EU countries fell by one per cent, largely the result of the loss of 4,000 tonnes of beef imported from Botswana, in the wake of the FMD outbreak there. In addition, 1,000 tonnes less beef was shipped from Argentina, a fall of 3 per cent year on year. This was largely offset by extra shipments from Brazil, Uruguay, and the United States. With the average price of German imports increasing by 13 per cent year on year, the total value of imports into Germany was 18 per cent higher than in 2010 at €1.7 billion.

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