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AHDB European Market Survey

25 May 2012

AHDB European Market Survey - 25 May 2012AHDB European Market Survey - 25 May 2012

Both sheep and pig slaughterings in Ireland have increased so far in 2012 but there has been a marked decline for cattle.


Contrasting trends in Irish red meat production

In the first quarter of 2012, data from Eurostat indicate that Irish sheep slaughterings were six per cent higher year on year. This was driven by an eight per cent rise in lamb slaughterings following the low level recorded in 2011. However at 426,000 head the quarterly lamb kill was still slightly below 2010 levels. The growth in throughputs reflects the situation recorded in December when the census indicated there were 13 per cent more ‘other sheep’ (which are mainly lambs) on the ground. This trend appears to have continued into the second quarter as well; more recent figures from Bord Bia indicate that in 2012 up to early May there was an increase in lamb slaughtering of over eight per cent.

The increased slaughterings look even more impressive when viewed alongside the figures for live trade with Northern Ireland. Figures from DARD indicate that Northern Ireland has sent 13,000 fewer sheep direct to slaughter into the Republic. Despite this decline there were over 31,000 more lambs slaughtered at abattoirs in the Republic during the first quarter. Carcase weights were little changed on year earlier levels and lamb production was up eight per cent at over 8,200 tonnes.

With the breeding flock having already undergone some rebuilding in 2011, the situation looks set to continue with fewer adult sheep slaughtered so far in 2012 given increased producer confidence. During the first quarter, total adult sheep slaughterings were down eight per cent at nearly 52,000 head. This trend has continued into April and May with Bord Bia figures showing a decline of 12 per cent in slaughterings up to early May.

Irish cattle slaughterings in the first quarter of the year fell 10 per cent to total 355,000 head. This was driven by a 14 per cent decline in the number of male cattle killed and was expected as the December 2011 livestock survey indicated that the number of male cattle aged over one year was down 14 per cent. Further year on year declines in male cattle slaughtering can be expected.

There has been a very apparent shift in finishing patterns in Ireland over recent years with the number of steers declining dramatically while the number of young bulls has steadily increased given rising interest in the finishing of dairy male calves. The figures for the first quarter of 2012 show that steer slaughterings fell 26 per cent while bull throughputs rose seven per cent (the majority of these being young bulls). Over a two year period the trend is even more apparent with steer numbers down 39 per cent and bull numbers up 38 per cent.

The decline in male cattle numbers was somewhat offset by increased numbers of cows being slaughtered, up three per cent at 71,400 head. This is likely attributable to the fact that the dairy herd has expanded and as such there is an increased pool of cattle to cull from. Heifer throughputs fell 11 per cent as there were fewer on farm last December and there is possibly further dairy herd expansion underway.

While total slaughterings fell 11 per cent, beef production was only eight per cent lower at 120,000 tonnes. This was a result of increased male cattle and heifer carcase weights offsetting the lower numbers to some degree.

Irish pig throughputs during the first quarter of the year have been well ahead of 2011 levels, increasing by seven per cent to total 751,000 head. Bord Bia figures indicate that this has been the result of a large increase in sow and boar slaughterings as well as a smaller increase in clean pig throughputs. In the year to the beginning of May sow and boar slaughter was up 12 per cent while finished pig numbers were up only five per cent. This and the forthcoming partial stall and tether ban may indicate further rationalising of the national herd which has been in decline over a number of years. While the herd has fallen it is evidently more productive now with increased numbers of finishing pigs on the ground in December and coming through the system so far in 2012.

EU Spring Economic Forecast indicates weak consumer demand

According to the EU’s latest economic forecast, published on 11 May, no growth is expected in the EU economy in 2012 as a whole, with the Eurozone even experiencing a decline. Many Member States will remain in recession this year and any recovery in 2013 will be muted. Inevitably there remains considerable uncertainty about the economic outlook and how the euro crisis continues to be handled. The forecast points to falling domestic demand as debt reduction continues across all sectors of the economy. Private consumption is expected to remain constrained by high unemployment, slow growth in real incomes and a high level of precautionary savings as low levels of consumer confidence persist. The high household debt in a number of Member States is also expected to limit consumer spending.

Low levels of private consumption are often associated with trading down in consumer preferences, in favour of cheaper cuts and meats, as households look to tighten up on their spending. Price promotions also become more prevalent. As such, the forecast for 2012 suggests constrained demand for higher priced cuts with stronger demand for cheaper cuts, with pig and poultry meat the main beneficiaries.

As a result of the worsening economic growth outlook, the EU’s spring forecasts included a significant downward revision in private consumption expenditure in real terms. For the EU as a whole, expenditure forecasts for 2012 have been revised from +0.4 per cent in the Autumn predictions to -0.3 per cent. Portugal and Greece are expected to be the worst affected, with private consumption expenditure falling by around six per cent on the previous year in both countries. Only a few Member States are expected to experience expenditure growth above two per cent, mainly restricted to the Baltic States and Poland.

Private consumption expenditure in the UK is expected to remain relatively unchanged in 2012 from the previous year. In 2011, consumption growth in the UK was negative, squeezed by high inflation, the government’s consolidation plans, low nominal wage growth and an increase in unemployment. The rise in unemployment, in particular, has made consumers more cautious about spending. Household consumption is expected to remain weak in 2012 as welfare cuts and high unemployment curtail demand. Nevertheless, indications suggest that consumption will begin to pick up in the second half of the year as falling inflation boosts real income despite low nominal wage growth. The initial boost to consumption is likely to come from events planned for the summer, with more positive economic growth prospects for 2013 also playing a role.

Private consumption is expected to gradually increase throughout the EU from the second half of 2012 and into 2013 with an expected return of confidence, stabilising labour markets and falling inflation. Industry sources have indicated that private consumption expenditure needs to achieve growth of around three per cent before households begin to switch towards higher quality and more expensive meat products. However, with the latest forecast indicating private consumption expenditure for the EU as a whole in 2013 at less than one per cent, it appears that households will continue to favour cheaper cuts.

Australian beef exports boosted by increased availability

Helped by increased availability of domestic supplies (see EMS 12/19), Australian exports of beef and veal in the first quarter of 2012 were up one per cent at 213,000 tonnes. There have been some considerable shifts in export patterns so far this year. The first of these has been the decline in the Japanese market for Australian beef, which has been the largest market for Australia in recent years. In the first quarter of 2012 trade fell 17 per cent year on year due to a number of factors. Firstly trading conditions remain difficult with Japanese demand sluggish. Added to this there has been competition from the United States given the weak US dollar, especially compared with the strong Australian dollar, which meant that US product was more competitive. Lastly, the US market has been very attractive to Australian exporters meaning increased volumes have been diverted away from the Japanese market.

In March 2012 the US overtook Japan as the largest market for Australian beef, a position Japan has held for three years. This shift has been driven by the historically high prices for beef that have been on offer in the US so far this year (helping to offset the strong Australian dollar). This has been especially true for manufacturing beef (grinding beef) which has been in high demand due to its comparative cheapness. For the quarter as a whole, Australian shipments to the US were up by as much as 71 per cent.

The third largest market for Australian beef remains South Korea, despite a 35 per cent year on year drop in shipments so far in 2012. There are a number of reasons behind this fall. Firstly 2011 was a record year for exports to this market and so current levels are now broadly in line with 2010 volumes. Other factors are the slowdown in consumer demand in South Korea, increased competition from the US and sharply increased domestic production. The implementation of the USA/South Korea free trade agreement in mid March was too late to affect volumes significantly in the first quarter but is expected to further impact on Australian shipments as the year progresses.

Other notable patterns were a decline in shipments to Russia, down 30 per cent, and modest increases in volumes to South Asia, the Middle East and the EU.

With farmgate prices running below the unprecedented levels of 2011, the average unit value of exports has also fallen in the first quarter of 2012, down three per cent year on year at AU$4,700 per tonne. This more than offset the increased volume shipped to result in the total value of exports falling two per cent to AU$991 million.

US cattle and pig prices remain firm

Both cattle and pig prices in the US have been at high levels since the since the start of 2011. Despite easing back slightly in recent weeks, USDA expects prices to remain firm through the rest of the year.

Cattle prices typically peak in the spring before easing back over the summer. This year, the high point appears to have been reached earlier than usual, as the mild winter has helped improve weight gains by cattle in feedlots, leading to somewhat higher production. Prices fell during April, which is normally the peak month, but remained above their level a year earlier, albeit only by one per cent. The Nebraska steer price in April was $121.50 per 100lb liveweight, about six dollars lower than in March. The March figure was nine per cent higher than a year earlier but this was only around half the gap in January. Prices in other states have followed a similar pattern.

With cattle numbers at the start of the year at their lowest level for 60 years, USDA forecasts that beef production in the second half of the year will be seven per cent lower than in the same period last year. Despite some decline in domestic demand, prices are expected to rise in the second half of the year, perhaps exceeding $130 per 100lb. High prices have been mitigated somewhat by changes in international trade, with beef exports in the first quarter of the year down by 12 per cent, while imports were 26 per cent higher.

Pig prices have also been at a high level over the last year but have fallen back from their peak level recorded last summer, when the average price reached a record $76 per 100lb liveweight in August. Prices typically rise through the first half of the year but there has been no sign of this rise so far in 2012. At the turn of the year, the average price had fallen to $62 per 100lb and by April it had fallen by a further three dollars. The March price was below its level a year earlier for the first time in over two years.

Higher pork production is one of the reasons preventing a price rise this spring. During the first quarter it was two per cent higher than a year earlier and reports suggest that throughputs have been higher still in April. Nevertheless, demand remains strong, particularly from foreign markets with US pork exports in the first quarter 20 per cent higher than a year earlier. As a result, USDA forecasts indicate that prices may rise through to the autumn but without reaching last year’s highs before falling seasonally in the fourth quarter.

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