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AHDB European Market Survey

13 February 2012

AHDB European Market Survey - 10 February 2012AHDB European Market Survey - 10 February 2012

European finished pig prices remained at a high level through the second half of 2011. Normally, prices fall during the autumn before recovering slightly in the run up to Christmas.


EU pig prices remain high during 2011

European finished pig prices remained at a high level through the second half of 2011. Normally, prices fall during the autumn before recovering slightly in the run up to Christmas. This year, there was little sign of the seasonal fall and prices actually increased during October and November. They reached a peak of over €160 per 100kg in early December, their highest level since October 2008. Prices at this level are unprecedented at this time of year and the average was €23 higher than in December 2010.

Production of pig meat during 2011 was around two per cent higher than in 2010, although supplies were becoming tighter towards the end of the year. With the economic situation remaining difficult, consumer demand was subdued, particularly in Southern Europe. Instead, the main driver of firm prices was strong export demand, particularly from the Far East. Disease problems have led to reduced production in that region, most notably in China and South Korea, which resulted in a sharp increase in imports from the EU. Overall, exports of fresh and frozen pork from the EU between January and November 2011 were 25 per cent higher than a year earlier. Exports of processed products and offal rose at a similar rate.

Pig reference prices for EU and selected Member States, 2011

In North West Europe, prices followed a very similar pattern to the EU average. German prices remained at just below €160 per 100kg for much of the year before rising to over €165 in November and December. Prices in the Netherlands and Denmark followed a similar trend, albeit at a lower level. Prices in France rose even more sharply, increasing by 13 per cent between the end of September and mid November, peaking at €161 per 100kg, briefly above the EU average for the first time since early May. Polish prices rose later than elsewhere, peaking just before Christmas at €167 per 100kg.

Amongst major producing Member States, only Spain experienced declining prices during the autumn. Having been well above the EU average in the summer, Spanish prices fell below average during October and continued to fall to finish the year below €150 per 100kg.

Since Christmas, prices across Europe have fallen sharply. From over €160 per 100kg in week ended 18 December, the EU average price fell to below €149 in week ended 22 January 2012, before recovering slightly the following week. This fall was reportedly the result of reduced consumer demand after the holiday period, along with a slowdown in export demand once supplies for the Chinese Spring Festival had been shipped. However, tightening supplies of pigs are now beginning to push prices higher and there are reports that export demand is beginning to pick up again.

Australian beef exports set for record year

Meat and Livestock Australia forecast that 2012 will represent a record year for beef exports with volumes increasing almost three per cent to 975,000 tonnes. This growth in exports will result from improved Australian production coupled with lower supplies from other major global producers. In the longer term Australian beef exports are expected to continue growing as production recovers as a result of the growing herd and better conditions on the ground. By 2016, exports are forecast to grow by 18 per cent compared with 2011 levels, as production increases by a similar amount.

Following a number of years of decline, Australia is one the few major beef producing countries forecasting higher production in 2012. This will be driven by a three per cent increase in the number of cattle slaughtered, forecast to be 7.55 million head, although this will still be lower than in 2007 and 2008. The heavier carcase weights recorded in 2011, as a result of better seasonal conditions, are expected to ease back by one per cent to 285 kg per carcase. While this is lower than 2011, it is still much higher than in other recent years, helping to keep production levels up. At 2.2 million tonnes, beef and veal production is forecast to increase by more than two per cent in 2012.

The projected growth in production in Australia is against the trend of forecasts for most other major producing regions. Global beef production is expected to decline as supplies in the Americas are constrained and other regions, such as Europe, also decline. These tightening supplies are expected to be met with increased demand for beef across the globe, especially from Asia, South America and the Middle East. This will help to keep beef prices firm across all regions.

The continued strength of the Australian dollar is expected to reduce returns for both exporters and producers. The strong currency is also likely to make US product more competitive and attractive on key markets, notably Japan and Korea. New restrictions on shipments to Indonesia may also result in reduced exports to another important market. Instead, the expected growth in exports will be fuelled by the US and in a number of other smaller markets. In the US, domestic production remains low and high beef prices will encourage the importation of more Australian product. Volumes are predicted to grow by more than a quarter, although they will still not be at the levels recorded prior to 2010.

The live cattle trade has been under considerable pressure over the past two years, with volumes in 2011 expected to be down 22 per cent once the December figures are published. With further restrictions on access to the Indonesian market having been announced, numbers are expected to decline further in 2012. Shipments are forecast to fall by 16 per cent as increases to some other markets fail to fully offset the large decline in trade with Indonesia.

Further fall in German cattle numbers

Total cattle numbers in Germany in November 2011 were down one per cent on the same month in 2010 at 12.5 million head. This followed a similar fall in numbers in the previous year. The most significant reduction was in male cattle aged above two years which were down 14 per cent on the year. There was also a four per cent fall in numbers of males aged between one and two years old. Contributing to the fall in male cattle numbers was the decrease in the cow herd that has taken place since 2008 and the high level of live exports in 2010. Male cattle slaughtering in January to November 2011 was down four per cent largely as a result of a reduction in numbers available on farm for finishing.

Numbers of cattle aged less than 12 months were unchanged on the year. Firm domestic cattle prices during 2011 resulted in more on-farm retentions and lower rearing calf exports, which made up three quarters of all live cattle exports and were down six per cent on the year at 434,000 head.

The number of heifers aged over one year was down three per cent on the year. This suggests a continued easing back in heifer replacement demand for breeding purposes Overall heifer slaughterings were up one per cent on the year.

Dairy cow numbers were little changed on the previous year with cow slaughterings down one per cent in January to November on the previous year. This was largely as a result of the improved dairy market with milk prices having improved and milk production increased. In contrast, beef cow numbers were down three per cent on the year.

The total number of German cattle holdings was down four per cent since November 2010 to around 168,000.

Sharp rise in Chinese pig meat imports

China’s economy has grown at about eight per cent per year over the last two decades. Increasing incomes have led to a changing food consumption pattern, in particular, an increasing consumption of meat. Pork has historically been the primary animal protein source in Chinese diets, and its consumption level has increased significantly.

Similarly, Chinese pig production has increased over the past 20 years at an average rate of 2.1 per cent per year. However, at the same time, production costs have also risen, squeezing profit margins from many backyard producers despite relatively high pork prices. In 2011 pork production in China declined by three per cent as low prices through the first half of 2010 encouraged many smaller producers to exit the industry. In addition, producers were faced with unusually severe and persistent outbreaks of animal diseases, such as FMD, PRRS and pig epidemic diarrhoea in piglets in late 2010 and early 2011.

Imports of pig meat have risen dramatically to fill the resulting supply gap. Official trade figures indicate that Chinese imports of fresh and frozen pork were up 134 per cent compared with 2010. The average price of imports was up 65 per cent in renminbi term due to a combination of rising prices and an increasing share of more expensive cuts.

In May 2010, the United States resumed exports to China following the lifting of trade restrictions on pig meat associated with A-H1N1 influenza. This enabled the US to account for over half of all pork imports in 2011, compared to just 15 per cent the year before. According to Chinese data, some of this rise came at the expense of Denmark, whose shipments declined by 17 per cent. However, this contradicts Danish trade figures which show increased shipments, albeit from a lower base. Other EU Member States shipped increased quantities, particularly Spain, France and Germany. Overall imports from the EU increased by 24 per cent compared with 2010 levels. Canada was the other major supplier of pork to China and its shipments increased by 27 per cent in 2011.

Similarly, the total volume of offal imports to China increased by 26 per cent compared with a year ago. This coincided with a 23 per cent increase in the renminbi unit price of offal imports. Again, the growth in offal imports was mainly made up of increased shipments from the US. This was partly offset by reduced volumes from Denmark and Canada, previously the two largest suppliers, although again this contradicts the trends recorded in those countries’ trade data.

Fuelled by increased prices, China’s pork producers have steadily expanded the herd size during 2011 and this will help boost pork output in 2012 according to the USDA forecast. In addition, production growth is also being supported by China’s decision in July 2011 to resume a 100 Yuan ($15.60) per sow subsidy and introduce other policies to encourage herd expansion. Nevertheless, imports are likely to continue to grow in 2012, fuelled by relatively strong economic growth and continued firm demand for pork. Additional countries will have access to the Chinese market during 2012, including Brazil and more EU Member States.

Irish beef production declines

According to the Irish Central Statistics Office, in 2011 cattle slaughterings were four per cent lower year on year at almost 1.65 million head. A number of factors contributed to this decline. The declining suckler herd over recent years has somewhat restricted the number of beef calves available for finishing, and the steep increase in live exports in 2010, particularly of calves, further limited availability. There were considerably fewer steers and heifers slaughtered, down 13 and seven per cent respectively while young bull throughputs were 22 per cent up on year earlier levels. An increase in carcase weights offset the lower throughputs to some extent with total beef production down two per cent on the year at 548,000 tonnes.

Cull cow throughputs were slightly ahead of year earlier levels at 337,000 head, with production from these animals up two per cent to 107,000 tonnes.

The tight supply of beef globally has resulted in competition for Irish beef being strong throughout 2011. As supplies tightened in the final quarter of the year, steer prices continued to improve reaching a high of €3.94 per kg dw in the final week of the year, a quarter higher than the price in the corresponding week in 2010. Into 2012, the Irish steer price levelled off at around €3.95 per kg during January. Demand for manufacturing beef on the continent and in Russia has resulted in cull cow prices maintaining their upwards trajectory with prices in week ending 29 January at a record high of €3.34 per kg, almost 25 per cent higher than in 2011.

According to Bord Bia, supplies at export plants are forecast to be between 50,000 and 80,000 head lower in 2012 than they were last year. As a result, production in 2012 is forecast to decline between three and five per cent. In addition, it is likely that the number of adult cow slaughterings will reduce due to herd rebuilding and the expansion of the dairy herd.

February 2012

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