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QMS (Quality Meat Scotland)

05 March 2012

QMS Market Report - February 2012QMS Market Report - February 2012

Lamb prices dipped in mid-January but have since picked up in February.
QMS - Quality Meat Scotland

Cattle Prices and Supplies

In the third week of the month deadweight steers were at a two-month peak of 348p/kg. With demand easing at the retail level due to the rising cost of beef, upwards movement in producer prices has been driven by a significant tightening of supply. Auction prices have shown more volatility than deadweight values, and despite picking up in February they are 4% below their 2011 peak.

Cull cattle prices have moved sharply higher in the opening weeks of 2012. Again a tightening of supply appears to have been the cause; cull cow auction market volumes were down 13% year-on-year in the first six weeks of 2012.

UK abattoir slaughter data for January shows that the slowdown in throughputs evident throughout the second half of 2011 (H2) continued into this year as 12% fewer prime cattle were slaughtered than in January 2011. However, the way the New Year holiday fell led to the reporting period for January 2012 losing at least one day’s kill. Therefore, a better indication of the way throughputs are trending is given by a comparison between weekly kill figures for December and January. On the year average weekly prime cattle throughputs are down 8%. Steer and heifer slaughterings were 6% lower while young bull volumes fell 21%.

In Scotland, average December and January weekly throughputs were also down 8% year-on-year. Steers fell by 7%, heifers by 5.5% and young bulls by one-third.

Average weekly cull cow slaughter numbers trailed year earlier levels by around 4% at the UK level. However, in Scotland marginally more mature stock was culled over the two-month period than a year earlier. This contrasts with the significant decrease indicated by auction market volumes.

Supplies of cattle into Irish abattoirs have contracted sharply compared with the first seven weeks of 2011. Weekly data indicates that slaughterings have fallen by approximately one-third.

Farmgate prices for prime cattle across the EU have, on average, held firm through the first two months of the year. Values have fallen back 3% in Ireland but risen 2% in France and Germany. Falling Irish prices imply a large decrease in demand given that supplies have tightened significantly.

Provisional calendar year trade data shows that the UK exported 34% more beef in 2011 than in 2010. Delivered volumes rose 36,300t on the previous year to reach 142,500t. Volumes have been steadily increasing since the EU ban on British beef ended in 2006. Nevertheless, 2011 exports were only just over half of 1995 levels; the year before the BSE-induced moratorium commenced.

Of the UK’s principal export markets shipments to Belgium, France and Ireland all increased at a similar proportion to overall exports, while a higher growth rate was seen in shipments to the Netherlands. However, exports to Italy and Germany disappointed; down a respective 9% and 26% year-on-year. Of the UK’s smaller EU customers, Spain and Sweden bought significantly more beef than in the previous year. Growth of 70% in exports to Spain may prove difficult to sustain due to the country’s well documented economic problems. On the other hand, the doubling of exports to Sweden is a promising development given that its economy continued to grow strongly in 2011. This offers the prospect of further inroads being made into the Swedish market in 2012.

Beef imports fell marginally in 2011, down 3,500t on the year to 234,700t. The balance of deliveries changed from 2010 as a 2,200t increase in fresh deliveries was more than offset by a 5,500t decline in frozen product. This rebalancing followed the higher culling of mature stock in 2011 which reduced UK requirements for imports of frozen beef from Ireland for manufacturing.

Sheep Prices and Supplies

Scottish auction prices have been trading above £2 a kilo while deadweight hoggs, at the GB level, averaged 442p/kg dwt in the third week of February.

Average weekly throughputs for December and January show a 3% year-on-year decline in lamb volumes at UK abattoirs. The decline appears to have been far greater north of the border with the Scottish figure showing a 13% contraction. Slaughterings at Scottish abattoirs have trailed year earlier levels since August. These figures imply that the strong prices seen recently have been underpinned by tight supplies.

Thus far in 2012 cull ewe prices have shown stability, trading in a tight band around £75/head. Ewes are approximately 20% more expensive on the year.

At the UK level, around 2,700 fewer ewes were culled each week in December and January than one year ago. This decline of 7% has helped support producer prices.

On average, heavy lamb prices across the EU have held stable at just below €5/kg over the past month. While French prices are unchanged, Irish and Dutch hoggs have become around 2.5% more expensive.

Currency movements at the end of last year led to a deterioration in UK export competitiveness. Due to the deterioration in the Eurozone economy, Sterling closed the year at a sixteen month high, thereby inflating UK prices quoted in Euro.

Signs of reduced competitiveness appeared in December trade figures as monthly volumes were down 4% on the year compared with 10% growth in the calendar year as a whole. However, tight supplies also contributed to the slowdown in trade. Substantial growth in sales to France during the September to November period resulted in annual exports surpassing 2010 levels. Germany, Holland and Ireland were also growth markets, but trade with Belgium was at its lowest since 2007.

December imports trailed year earlier levels for the first time since September as deliveries of lamb from New Zealand fell back. Annual imports were down 12.5% at 88,700t with 15% less lamb brought in from New Zealand. Tight supplies at the global level meant that other exporters of lamb to the UK struggled to fill their quotas.

The UK became a net exporter of lamb during 2011 for the first time since 2000 as exports of 98,800t exceeded imports by 10,100t.

Pig Prices and Supplies

Farmgate pig prices have fallen back steadily since the turn of the year and dropped below the 140p/kg dwt mark in mid-February for the first time in ten months. Nonetheless, values remain more than 3% higher on the year.

The expansion in UK production now appears to be exerting downward pressure on prices with demand in a lull following the festive season. Average weekly kill figures for December and January show that UK abattoirs slaughtered 5% more prime pigs than 12 months before.

The market for weaners has shown more stability in recent weeks with prices averaging around £44.50 a head. The combination of lower input costs and better prices for finished pigs in the final quarter of 2011 resulted in producer confidence returning. Weaners are currently worth 9% more than at this time last year.

Having eased back in January after Sterling strengthened against the Euro, cull sow prices have begun to move forwards once again. The combination of tight supplies and strong demand on the continent, plus competition between domestic processors has allowed values to move higher.

Feed costs remain significantly lower than year earlier levels. However, the cost of grain has moved steadily higher since December due to supply-side worries. In addition, oil prices have spiked to record levels in Sterling terms as sanctions have been imposed on Iranian oil exports and Sterling is weaker against the US Dollar than when oil prices quoted in Dollars peaked in the first quarter of 2011. Subsequently fuel and energy costs have risen. It is therefore likely that some producers will have noticed a tightening in their margins.

Producer prices in the EU recovered by 6% in February and the average price of a grade E pig stood at €1.58/kg dwt in the third week of the month. With GB prices falling, the gap between the UK and EU averages has narrowed to 5c/kg (3%) from 17c/kg (13.5%) a month ago. This has reduced the ability of cheap pigmeat imports to compete with UK product.

UK pork exports in 2011 expanded by 10,200t year-on-year to total 144,400t. Shipments were down on a year earlier for the second successive month in December, and were at their lowest since January.

Provisional UK trade data shows a 2.5% increase in pork imports during 2011 with volumes reaching 371,700t. However, monthly imports in December trailed year earlier levels for the third time in four months.

March 2012

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