QMS Market Report February 2010

A seasonal decline in price during the first quarter of the year is a reasonably common occurrence in the beef market as prices correct from the Christmas highs. Cull cattle prices continue to slide and have dipped below year earlier levels.

The Scottish kill of prime cattle in the final quarter of 2009 was 4% higher than in 2008. In contrast, early indications are that the Scottish kill during January could be 3% lower than in 2009. While the weekly kill often declines between December and January the decline this year is over 1000 head per week; last year the decline was 200 head. Prime cattle supplies have, therefore, tightened considerably in Scotland between December and January with prices falling as well.

At a UK level, the kill in the final quarter of 2009 was 8% higher than in 2008. Early indications are that stock availability during January in England and Wales was better than in Scotland, but still lower than in December.

Over the whole of 2009 the UK heifer kill increased 6%. The young bull kill increased 3%, with strong growth in the final quarter, while the steer kill fell 1%. The high level of heifer kill leaves little capacity for herd rebuilding in the short term while the growing interest in young bulls reduces the potential number of steers to kill during the early part of 2010. Provisional Scottish slaughter statistics suggest that the heifer kill in January was lower than the same month in the previous year for the first time in 10 months.

The average European union price for prime cattle has started 2010 slightly lower than twelve months ago. Of the major beef producing countries, Germany and Ireland are reporting prices 5-6% lower than last year and France 3% lower.

Customs and Excise trade data show a steady seasonal growth in exports through the final third of the year although they failed to match the levels of last year during September and October. Lower exports in September and October may reflect the reduced availability of cow beef as UK slaughterings of cows fell well below year earlier levels in the final third of the year. While growth in deliveries were achieved to the Netherlands and Italy sales to France were little changed on last year and deliveries to Germany and Ireland declined.

Beef imports continued to run below last year's levels with significantly lower deliveries through September and October. As more farms became approved to supply the European Union, Brazil have increased deliveries, but they still remain some 80% below the levels of two years ago. Despite domestic market disruption Argentina have maintained deliveries. Uruguay and Botswana have delivered more than last year. Having struggled to match last year's deliveries during September and October, Ireland delivered some 1000 tonnes more beef during November 2009 than in 2008.
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Use of the EU's Hilton beef quota allowances are lower than last year with certificates issued for 13,700 tonnes in the six months to December 2009, this is over 1000 tonnes less than last year. The use of Hilton quota reflects the challenges faced by Brazil and Argentina in supplying Europe.

While Brazil may still be constrained in the beef they can send to Europe, they have increased their global exports during the final quarter of 2009 by 15% as global markets began to come out of recession. Nevertheless, over the whole of 2009 Brazilian fresh and frozen beef exports fell below 1m tonnes. Looking forward Brazil hopes to grow sales to China to 400,000 tonnes over the next two years following China's decision to recognise 16 Brazilian States as free of FMD.

Australia, which vies with Brazil as the largest player on the world market also saw beef and veal exports decline, by 3%, during 2009. Recession suppressed demand in major markets such as Japan and the USA whilst a strong Australian dollar reduced the competitiveness of exporters. US beef captured market share in Korea from Australia and Australian exports to the EU declined to 9,193t from around 11,000t. However, Australia increased deliveries to south Asian markets such as Indonesia, Malaysia, the Philippines and Taiwan where exports reached record levels. There was also strong growth in exports to China where beef consumption has risen extremely fast over recent years and its domestic producers can only satisfy a quarter of demand.

In May 2009, the European Commission opened a tariff free quota of 20,000 tonnes for imports of grain fed beef. This was an important element in resolving a trade dispute with the USA over restrictions on trade in hormone treated beef by the European Commission. Originally seen as only open to the US and Canada, Australia challenged this assertion and following discussions have now been allowed access to this quota.

In an effort to improve its position on the world market and improve their ability to manage animal disease outbreaks, New Zealand has introduced a National Animal Identification and Tracing scheme, based on electronic identification, to improve traceability in its beef supply chain. They have, however, refrained from imposing the programme on the sheep sector for the time being.

Sheep

Prices and Supplies

Producer prices continue to hold well above last year's levels. However as January progressed prices became volatile moving wildly from one week to the next. The strong increase in price seen in late 2009 has halted and prices are currently showing signs of stabilising if not declining slightly.

The movement in price will be influenced by the movement in sterling exchange rate with the Euros which has seen sterling strengthened by 3% since the beginning of January

UK lamb slaughterings between June and December 2009 were 5% lower than during 2008, rather more than the 2.5% decline in UK 2009 lamb crop. The December kill in particular was sharply down, by more than 10%. However the Scottish kill continued to fare better than the UK as a whole with the December kill falling only 7% below year earlier levels. Provisional slaughter numbers for the Scottish kill during January show the decline to have accelerated and may be by almost 20% below year earlier levels although this may be affected by transport disruption caused by snow in early January.

Despite high cull ewe prices the UK ewe kill continues to retreat. Over the final quarter of 2009 the ewe kill was 11% lower than last year and over the whole year 7% lower.

While Scottish, UK and Irish producers are getting more for their lamb, the same cannot be said for other significant lamb producers across Europe. French prices have slipped since the turn of the year and currently stand around 1% below last year, Romanian prices are some 5-10% lower while Spanish producers are seeing prices more than 15% below last years levels.

Exports of sheepmeat were particularly strong through September and October and provisional data for November was slightly ahead of last year and is likely to be revised upwards. After a difficult July and August, deliveries to France recovered and growth in sales was achieved during September and October. Growth was also achieved in sales to Belgium, the Netherlands, Germany and Italy.

After a strong trade during June, imports of lamb fell seasonally and were below year earlier levels through August to October. Imports during November were higher than last year. Both Australia and New Zealand delivered more sheepmeat to the UK during November 2009 than 2008. Australia also delivered more during September and October.

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The decline in New Zealand's ewe flock during 2008 has led to a significant fall in exports during 2009. In the crop year ending in September Meat and Wool New Zealand report sheepmeat exports falling almost 8%. The European Union remains the most important market taking about half of the volume but returning nearly two-thirds of the value. Within the shipments to Europe fresh chilled deliveries increased 5%, to account for one-third of all deliveries, while frozen product declined by 11%. NZ deliveries to the US were badly hit by the recession and fell by almost 20% with product being diverted to the Japan and China.

Looking forward MWNZ expect export activity to recover during 2009-2010. However, weather induced effects are impacting on supply patterns. At the start of the season, October and November, lambs were slow too finish as cool weather slowed grass growth and the kill was 20% lower than last year. Numbers then built and were added to by accelerated marketings due to drought. However, in the run up to Easter, rains have arrived and grass growth has recovered, producers are know trying to re-coup income through selling heavier lambs with the result that slaughter numbers have declined and several processors are concerned that they will be unable to meet European demand for lamb. The strength of the $NZ is impacting on trade and producer prices in New Zealand are currently lower than last year.

With New Zealand unable to supply as much sheepmeat as usual to the World market, Australia has been able to gain market share. In the January to November period Australia increased lamb exports by 12% with particularly strong growth in sales to the Middle East and the United States but also some growth in deliveries to the EU. Australian production recovered slightly during 2009 and exports continued to absorb around 37% of Australian lamb production.

Pigs

Prices and Supplies

Producer prices stabilised through November and into January before showing some signs of seasonal lift at the end of January and early February. Prices remain higher than last year and are at their highest January level for more than a decade.

Weaner prices continue to reflect the movement in prime pig prices and have also shown some improvement since the turn of the year.

Sow prices have also caught the mood of the market and after sliding from October, they too have recovered towards the end of January, but have started the year lower than last year.

Across Europe pig prices remained flat through January but have begun to rise as February progresses. Nevertheless, in most major pigmeat producing countries producer prices are lower than last year. The average producer price during January was more than 5% lower than last year in Denmark, Germany, France, Poland and the Netherlands.

Scottish slaughterings showed their usual seasonal lift in the run up to Christmas, but remained well below previous years levels. Provisional data for January shows the Scottish kill returning to an average weekly throughput of around 11,000 head.

UK clean pig slaughterings finished the 2009 strongly with the final quarter kill almost 8% higher than last year. This is a reflection of the 6% increase in UK sow numbers reported in the June census. Over the whole of 2009 the prime pig kill was 1% higher than in 2008.

Sow slaughterings too increased considerably in the final quarter of 2009, being some 9% higher than in 2008.

Pigmeat exports continued to fail to reach the levels seen in 2007 and 2008, but did follow the seasonal pattern of growth through September and October.

The weakness of sterling through late 2009 may have been a contributory factor in the decline of import volumes during October.

News Round up

The Danish pig herd has returned to a growth phase according to the January survey of the industry. Sow and gilt numbers have increased 5% for the level in January 2009 and are also at a higher level than in 2008. The pig herd has also increased in size in Poland during 2009, sow numbers in November 2009 were 6% higher than in 2008. However, the Polish pig herd is still at historically low levels and having been 100% self sufficient in pig meat in 2007 they are estimated by only around 83% self sufficient in 2009.

In contrast the German pig industry is reported to be in decline. At their November census the German sow herd was reported to be 3% lower than a year ago. However, while the sow herd has declined the number of weaner pigs continues to grow reflecting the increased live trade in weaner pigs from Denmark and the Netherlands.

The pig herd has also declined in the United States. Challenged by high feed costs and lost export markets, particularly in China, following the outbreak of “swine flu” Us pig farmers have seen profitability reduced. During 2009 the sow herd has fallen 3.5%. Some American analysts suggest that the herd will have to fall 10% before it returns to profitability. Such a decline will create opportunities for European producers in the important Asian markets of Japan and China.

Another beneficiary of a declining US pig herd will be Brazil. Over 2009 pig meat production in Brazil has increased 7% and exports have exceeded 500,000 tonnes, about 20% of production.

Stuart Ashworth and Iain Macdonald – February 2010