30 September 2012

7 minute read

General Market Situation in 2011

In the short-term, indigenous EU beef supplies are contracting due to ongoing reductions in EU dairy cow herds. Over 66% of EU beef production is based on the offspring of dairy cows. The EU suckler cow herd has remained largely stable due to the retention of coupled direct payments. The ongoing contraction in EU supply, together with strong and stable prices in the world market, is expected to keep average EU beef prices in 2012 above the levels observed in 2011. However, economic uncertainty and the risk of renewed recession within the EU (and elsewhere) represents a significant downside risk to Irish and EU cattle prices.

Because Ireland exports some 90% of its net beef output, external market developments inevitably play a crucial role in determining Irish cattle prices. Prices for all categories of cattle were substantially higher in 2011 than in 2010 with prices for calves and weanlings showing greater increases than those for older cattle.

The aggregate value of Irish meat and livestock exports in 2011 is estimated by Bord Bia at €2.8 billion with the value of beef exports estimated to have increased by 15% to €1.8 billion overall as lower beef and live cattle volumes were offset by higher cattle prices. The European beef market stabilised in the second half of 2010 and improved further in 2011 as a result of increased demand for European beef on international markets and lower imports from South America. These factors contributed to an improved supply/demand balance in the EU beef market and reduced availability mitigated the effects of sluggish consumer demand.

Output in Ireland

In 2011, the output value of the beef sector increased to approximately €1.8 billion as trade was boosted by strong cattle prices. A decrease of over 4% in finished cattle supplies coupled with strong export demand in key markets led to a rise of 18% in average cattle prices.

Prices

Irish cattle prices increased in 2011 relative to 2010. The average price for finished cattle (R3 steer) increased by almost 18% to an average of €341/100kg ex VAT (note the graph below displays prices over the two years inclusive of VAT at 5.2%.) Average prices of weanlings and store bullocks increased by approximately 35% and 20% respectively. Despite an increase in the value of cattle production on Irish farms, higher output prices were more than offset by higher input costs. As a result, Teagasc estimates that the prevalence of market-based net margins for cattle production persisted in 2011.

Slaughterings

At 1.86million head, overall cattle disposals in 2011 were 9.5% below the levels for 2010 owing to a lower carryover of stock in 2011 combined with a weaker live export trade throughout the year as stronger prices affected competitiveness. Total cattle throughput at meat export premises in 2011 was down by more than 4% on 2010 levels to 1.57 million head. Prime cattle supplies (i.e. steers, heifers & young bulls) decreased by over 6% to 1.18million head, reflecting a lower carryover of supplies in 2011. Steer supplies fell 13% to 578,000 head and heifers by 7% to 415,000 head while young bull supplies rose 23% to 185,000 head. The main reasons for the decrease were a 7% decline in calf registrations in 2009 and an increase of 138,000 head in live exports in the same year. Also, producers retained heifers for breeding purposes. Average carcase weights for all categories of cattle increased by almost 3% owing to better grazing conditions during the year together with higher producer prices.

Beef Exports

The United Kingdom and Continental EU markets together comprised 96% of exports in 2011. The value of beef exports is estimated to have risen 15% in 2011 to nearly €1.81 billion despite the volume of beef exported falling to an estimated 510,000 tonnes (cwe).

Ireland sells around half of its beef exports to the United Kingdom. Overall, exports to the UK rose to an estimated 254,000 tonnes and were worth €850 million.

Shipments of beef to Continental EU markets were maintained at an estimated 237,000 tonnes in 2011 and were valued at €920million. An increase in exports to Germany, Spain and to lesser extent the Netherlands and Sweden offset lower volumes to the French and Italian markets. Trade with the Continent was assisted by growing export demand for European beef in countries such as Russia and Turkey.

Non-EU Market Developments

Beef exports to international markets are estimated to have reached 20,000 tonnes in 2011 as Irish exporters benefitted from increased import demand in Russia as well as increased trade to Switzerland, South Africa and the Middle East.

Notwithstanding the fact that the vast bulk of our beef exports go to other EU members, access to international markets is important in maximising overall returns for the beef industry.

Live Cattle Exports

The live export trade remains an important outlet for Irish cattle output by providing a floor for prices and an essential element of competition in the beef trade. Following the abolition of Export Refunds on live animals, except for breeding purposes, this trade is now almost exclusively with other EU Member States. Live cattle exports amounted to 214,500 head, a decrease of 37% or 125,000 on the exceptionally high level recorded for 2010. The decline in trade was particularly for calves – the largest category. Calf exports fell by 45% or 71,000 head while weanlings and stores each fell by around 20,000 head. The principal factors accounting for the slowdown in this trade were declining demand for Irish calves in the Benelux region, weaker feedlot demand in Spain and Italy and a fall in the relative competitiveness of Irish cattle exports to Northern Ireland.

Outlook 2011

In its short-term outlook for the beef sector published in mid February 2012, the European Commission is forecasting that overall beef and veal consumption in the EU will decrease over the next 2 years because of supply constraints and high prices. A continuing decline in the EU beef herd over the past 4 years is expected to persist in the short-run. Prices for all categories of cattle and live animals are expected to remain high throughout 2012 as a result of limited supply and competition from finished cattle being marketed earlier to offset high feeding costs. On the global market, the US and Australia are the main suppliers of fresh and frozen meat. At present, Russia, Japan and South Korea are the most dynamic importers. Beef imports into the EU should increase in 2012 as a consequence of limited to domestic availability and a gradual recovery in supplies from South America.

CSO statistics show that the beef cow herd in December 2011 numbered 1.06m head which was a reduction of 7,400 head (or 0.7%) on the figure for December 2010. Improved cattle prices have helped to stabilise suckler cow numbers. Irish cattle supplies at export meat plants are likely to fall by 100,000 to 120,000 head in 2012 on account of the strong live export trade in 2009 and 2010 and lower calf registrations over the period. While cattle supplies will be tight in 2012, an increase in the number of animals under 12 months at the end of 2011 compared to the previous year together with a substantial increase in the number of beef heifer calvings in the first quarter of 2012 suggest that cattle supplies should be more plentiful in 2013 and 2014 when increased numbers will also enter the beef supply chain from the dairy sector.

Beef Technology Adoption Programme

In recognition of the need to improve profitability at farm level in the beef sector and to achieve the targets set out in the Food Harvest 2020 strategy, €5mhas been allocated in 2012 for the establishment of the Beef Technology Adoption Programme (BTAP). Building on the success of previous Programmes, the purpose of the BTAP is to equip farmers with the knowledge and skills necessary to improve the productivity and profitability of their beef enterprises. Profitable beef production depends on achieving reduced production costs and increased farm output. Utilising a discussion group format, this new initiative is aimed at up skilling participants to enable them apply best practice and improve the technical efficiency of their beef enterprises by focusing on: financial and grassland management; animal breeding; herd health and producing to market specifications. This measure is intended to provide a useful stimulus to growing the overall output value of the beef sector.

September 2012