QMS Market Report – February 2009

Currently abattoir prices are over 15% higher than at this time last year. Auction market prices have fluctuated to a greater degree than deadweight prices and are currently 3% lower than at the start of the year but are 15% higher than at this time last year.

English and Welsh prices show similar behaviour with deadweight price broadly unchanged from the start of the year while auction prices have fallen 7%.

Beef cast cow prices began the year strongly and have continued this trend to stand at 120 p/kg lwt, an increase of over 7% since January. The market for dairy cows has fluctuated over the same period but remains around 90p/kg lwt.

UK slaughterings of prime cattle in January were down 1.4% to 189,000 head. The cow and mature bull kill reduced by 7.6% to 51,200 head, resulting in a January total cattle throughput of 240,200 head, a 2.8% reduction on last year.

Scottish slaughterings of prime cattle were 40,900 head in January, 7.3% lower than this time last year. This decline has been aggravated by the restrictions on store finishers buying store cattle from England last autumn. A 7% increase in the older kill to 5100 head offset the decline in prime cattle throughput and the total cattle kill in Scotland during January was 46 000 head, 5.9% lower than January 2008.

Exports of beef continued to reduce seasonally during December although compared to December last year beef exports were 13% higher at 7,200 tonnes.

Exports of beef throughout 2008 increased by 38% to 81000 tonnes.

Imports of beef to the UK increased at a more modest rate of 3% and totalled 245,000 tonnes during 2008. December imports increased marginally on November but were up 9% year on year at nearly 20000 tonnes.

66% of all beef imported during 2008 was fresh or chilled. This proportion has reduced from 71% of fresh and chilled product delivered in 2007.

News Round Up

Publication of regional December census results from across the UK shows a substantial decline in the cattle herd but with some marked regional differences. The beef breeding herd across the UK as a whole has fallen some 2.5% while the dairy herd has fallen around 4%. With regard to the beef herd, Northern Ireland reports a small increase while the Scottish decline of 2.5% is smaller than the decline in England (3.5%) or Wales (5%). A smaller breeding herd has also resulted in a smaller calf crop with GB calf registrations during 2008 falling around 1.25%

Irish census results reveal a stabilising of their cattle breeding herd as it stabilises at around 2.63 million breeding cows. The dairy herd has expanded 1.6% while the suckler herd has fallen by 0.25%. A further decline in the beef herd seems likely as the number of beef heifers has declined 11%.

The biggest user of the Hilton beef, or high quality beef, quota issued by the European Commission is Argentina. However because of the restrictions imposed by the Argentinean government deliveries during 2008 were slightly more than half the volumes supplied during 2007. Brazil similarly supplied less than a quarter of the volume they supplied in 2007. Two countries that increased their use of Hilton beef quota were New Zealand who almost doubled deliveries and Australia who supplied 13% more. However, in all cases the volumes involved were modest with no country supplying more than 7,500 tonnes.

The impact of the European Commission's decision to prevent imports of beef from Brazil has had a dramatic impact on the volume of beef imported into the EU during 2008. Total imports fell more than one third to 188,200 tonnes with Brazil accounting for the entire decline with shipments falling 139,000 tonnes.

Modest increases in deliveries occurred from Uruguay, Australia, New Zealand and the United States. In percentage terms the largest growth was in deliveries from New Zealand which increased threefold to 7,900 tonnes. While imports have declined, EU-27 exports have increased by 40% to 105,000 tonnes with substantial growth in trade with Russia and Switzerland playing a prominent role in this growth.

The economic squeeze is beginning to impact badly on international meat processors, particularly in Brazil. Brazilian exports during January fell 34% below year earlier levels as credit lines became difficult to negotiate and demand slowed. As a consequence prices are falling and the average value of a tonne of beef exported in February was 15% lower than last year.

Not withstanding the lower prices Brazilian consumption has fallen around 5% since the turn of the year. These pressures are blamed for one of the largest Brazilian beef companies, Independencia, filing for bankruptcy as it failed to secure sufficient credit lines, was unable to pay producers, suffered defaults on payments and squeezed margins as a result it has closed its abattoirs across the country, which had a capacity of 10,800 head per day.

Australia's red meat industry is becoming increasingly concerned over the proposal to introduce a Carbon Pollution Reduction Scheme which the industry body estimates will cost AUS$65m (approx. £30m) per year or Aus$8 per head for cattle (c.£3.75) and Aus$1.13 for sheep (c. 50p).

The Australian Meat Industry Council is calling for the red meat industry to be exempt until 2015. Primary producers will not be brought within the scope of the scheme until 2015.

Sheep

Prices and Supplies

Prime sheep prices have continued to increase albeit at a slower rate than at the start of the year. Auction market prices averaged 167p/kg lwt during February and are currently 32% higher than this time last year.

Heavy lamb prices continue to fair well across Europe with France and Ireland both experiencing increases on last years price of 8% and 2% respectively, although this is considerably lower than the 14% increase the UK has experienced – in Euro terms – when the exchange rate is taken into account.

Cast sheep prices are also continuing to benefit from the general tightness of the market. With cull ewes having touched £48 per head in the auction markets during February they remain at their highest nominal levels for more than a decade.

The UK lamb slaughtering statistics show an 11.4% reduction in the lamb kill during January resulting in 1.3 million lambs being killed.

In Scotland, the lamb kill showed signs of an early peak during the first weeks in January, brought about by the high prices offered drawing lambs out, but the kill slipped back towards the end of the month. Over the course of January, 157,000 hoggs were killed in Scotland, some 9000 (5.6%) fewer than last year when volumes were affected by the carryover of lambs not sold during the 2007 FMD movement restrictions

The ewe kill during January in Scotland was 3,400, 6%, lower than the corresponding month last year. Across the UK, ewe slaughterings were down 5.3% (11,700 head) to 208,500 head in January.

The seasonal trend in improving sheepmeat export activity over the final quarter continued when December exports of sheepmeat reached 9600 tonnes, the highest volume for any month during 2008. Throughout 2008, over 86,600 tonnes of sheepmeat was exported from the UK, more than 18000 (26.8%) tonnes up on year earlier levels. France took nearly 70% of UK sheepmeat exports during 2008 and, although accounting for less than one percent of the exports, Portugal more than tripled their purchases of UK sheepmeat during 2008.

Imports of sheepmeat to the UK reduced by 0.2% to 112,000 tonnes during 2008. During December there was a greater level of activity than in November with 6.1% more imports entering the UK. 73% of UK sheepmeat imports arrived from New Zealand, a similar proportion to 2007, despite delivering 1700 tonnes less.

News Round up

Publication of December census results from around the UK reveals a considerable exodus of breeding sheep, particularly from less favoured areas. The largest regional decline was an 8% decline in Wales followed by a 7% decline in Scotland, both countries with a high proportion of LFA land. The rate of decline was more modest in England at 4% and Northern Ireland at 3% where LFA land is less important.

Ireland' sheep slaughterings have fallen 11% during 2008 which has contributed to a 15% decline in sheepmeat exports. Prime lamb supplies are estimated by Bord Bia to have fallen 12% during 2008 while there was a 9% reduction in ewe disposals. This fall in ewe slaughtering may indicate that the decline in the Irish sheep population has slowed during 2008. The publication of the December census shows the Irish breeding ewe flock to have fallen 5% during 2008 a considerable slowing from the 9% decline during 2007.

The French sheep flock continues to decline. Provisional results of their November census indicate that the number of ewes kept for meat production declined 7% during 2008. The number of ewes kept for milk production declined by only 1% as returns from the production of sheep dairy products faired better than meat production.

Breeding ewe numbers have also declined in Italy but by a much more modest 1%. In Italy the keeping of sheep for milk production is dominant with more than 75% of ewes kept for milk production. Among these milk producing flocks ewe numbers have fallen 1% while the keeping of sheep for meat production increased by 1.2%. Imports of live lambs make up a significant part of the Italian lamb kill and during 2008 imports fell 16% leading to a reduction in sheep slaughterings of 6%.

Romania continues to expand its sheep flock. An increase of some 11% during 2008 take the Romanian flock to over 9m head, overtaking Greece and making it comfortably the third largest ewe flock in the EU after the UK and Spain.

The effect of exchange rate movements and their impact on the distribution of sheepmeat exports is highlighted by data from Meat and Wool New Zealand. Looking in more depth at their trade activities in the year ending September 2008 they report a decline of 7.9% in shipments to the UK and an increase 4.3% in shipments to the rest of the EU. Driving this change has been a 9.8% increase in market return from the Euro zone compared to a 5.1% increase from the UK.

The contraction in the New Zealand flock is expected to continue through into the 2009-2010 production year. Meat and Wool New Zealand expect a further 200 dairy conversions in spring 2009, down from 330 in 2008, which could displace a further 0.85 million sheep and beef stock units.

Pigs

Prices and Supplies
The DAPP increase during January gathered momentum and by the time of writing the price was nearing 140p/kg, an increase of 7% since the start of the year. This improvement has maintained the 25% improvement between this year's and last year's price level.

European prices continued to fall during February albeit at a slower rate than in January and are 5% lower than at the start of the year. Compared to this time last year prices are little changed across Europe.

Weaner prices have continued to improve, rising £5 per head since the turn of the year to just under £50 per head. This is over 50% higher than the prices returned at this time last year.

Scottish slaughterings of clean pigs reduced by 11.2% year on year to 59,400 head in January. The UK kill reduced to 878,000, 7% lower than January last year.

Sow slaughterings in the UK have fallen below 2007 levels with throughput in January being less than 19,000 head. This is a reduction of 34% compared with January last year where the kill was inflated by the backlog of sows in the system following the 2007 FMD restrictions.

Exports of fresh, chilled and frozen pork increased by 21% to 118,000 tonnes during 2008 with December being the second largest month in terms of volume exported. Bacon and ham exports grew by over 180% to 33,000 tonnes as the production of cured product increased. In total, pigmeat exports increased by 38% to 151,000 tonnes.

Imports of fresh, chilled and frozen pork reduced by 15% to 392,000 tonnes during 2008. Denmark is the main supplier, delivering over 148,000 tonnes with Germany the next most significant supplier with 56,000 tonnes. Bacon and ham imports increased by 6% to 291,000 tonnes with the Netherlands and Denmark dominating the supply with 129,000 tonnes and 112,000 tonnes respectively. In total, pigmeat imports during 2008 declined by 7% to 683,000 tonnes.

News Round up

With the exception of Northern Ireland, were sow numbers have increased 5%, the regional December census' show a continuing fall in the UK breeding sow herd. Wales has a very small pig herd but also reveals the largest decline in sow numbers of 22%. The Scottish herd has declined 13.6% since last December and 10% since June. The English sow herd has fallen 2.5% since last December but has increased by 2.5% since June. Over the past three years English sow numbers have been lower in December than June so this movement in 2008 may indicate a turning point in English pig production.

Sow numbers in major EU producing nations have continued to fall. Dutch breeding sow numbers have reduced by 4000 head during the four months between August and December 2008, accounting for 0.5% of the covered sow population, leading to a 3.3% decline over the past twelve months.

The Danish sow population dropped again, by 2% year on year in January, however this is the smallest contraction in the last five months and so shows possible signs of a stabilisation in the Danish pig herd. The Hungarian sow population had a year on year fall of nearly 11% at the end 2008 with Germany experiencing a 6% drop in sow numbers to November last year. The Polish sow herd fell 19.4% over the past year, to the lowest level for forty years.

European exports of pigmeat and pigmeat products during 2008 increased by 34% to 2.6m tonnes. Frozen pork exports increased by 23% whilst the exports of offals increased by 38%. The majority of exports were delivered to Russia, Hong Kong and Japan and were delivered mainly by Denmark and Germany.

Stuart Ashworth and James Park

March 2009