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AHDB European Market Survey

12 March 2012

AHDB European Market Survey - 9 March 2012AHDB European Market Survey - 9 March 2012

New Zealand lamb prices have fallen dramatically in recent months and are currently a quarter lower than prices recorded last November.


Growth in EU pig meat exports

There was considerable growth in the EU pork export trade in 2011. This was facilitated by an increase in domestic production of around two per cent and subdued EU demand. In addition, there has been strong demand on the global market, particularly from the Far East, as disease problems there have led to reduced production and so an increasing import demand. The weak euro also contributed to competitive EU prices compared with both North and South American exporting countries. Not only were there increased exports of fresh and frozen pork but also lower valued cuts, especially offals.

EU exports of fresh and frozen pork to third countries increased by 26 per cent in 2011 compared with a year earlier, a similar level of growth to that recorded in 2010. Around 90 per cent of product was in frozen form. The overall average export price in 2011 was up five per cent. Most Member States increased their exports to non-EU markets with Denmark and Germany remaining the largest contributors, accounting for 24 per cent and 22 per cent of the total. The EU’s two main export markets, Russia and Japan, both experienced an increase in trade. Exports to Russia increased by 16 per cent to 355,000 tonnes, as African swine fever continues to be problematic in the country, while consumer demand was strong. Shipments to the premium Japanese market were up by four per cent. The largest growth was seen in EU exports to the Far East. South Korea overtook Hong Kong as the third largest export market, with shipments up 91 per cent year on year to over 193,000 tonnes, due to lower domestic supply on the back of the FMD outbreak there. There were also sharp rises in shipments to China and Hong Kong.

Pig offal exports to third countries increased by 24 per cent in 2011 compared with 2010 to over one million tonnes, of which Hong Kong, China and Russia were the main markets. EU shipments of pig fat increased marginally year on year with the main destination being Russia, which accounted for 71 per cent of EU trade.

Although much smaller in terms of volume traded, EU exports of processed pig meat, including bacon and sausages, also increased year on year. Russia and the US continue to be key destinations for processed pig meat. EU sausage exports were up 19 per cent compared with 2010, with the largest growth being in increased shipments to Angola. Exports of processed hams and shoulders were up 24 per cent and bacon was up 11 per cent.

In contrast, while remaining substantial exports of live pigs from the EU declined by three per cent in 2011 to 1.6 million head. More than 80 per cent of this trade was with Russia and Croatia.

New Zealand and Australian lamb prices under pressure

New Zealand lamb prices have fallen dramatically in recent months and are currently a quarter lower than prices recorded last November. Prices have been tracking below year earlier levels for the last two weeks, the first time this has been the case in two years. In the week beginning 5 March the scheduled price was NZ$5.70 per kg dw for Y grade lambs.

The pressure on prices paid by processors has been relieved by the marketing of increased numbers of new season lambs since November, as is the normal seasonal trend. The number slaughtered during January 2011 was 18 per cent higher year on year at 2.23 million head and prices are also being suppressed by a number of other factors. Despite the tight global supply situation, lamb traders are hesitant in the face of low consumer demand, especially in the EU. With Easter less than a month away the key period for shipping chilled lamb from New Zealand has passed and prices are being further eroded. In addition, the strength of the NZ dollar relative to key currencies, such as the euro and sterling, combined with the relative cheapness of other proteins when compared with lamb is putting further pressure on price. Outside the EU market, the price competitiveness of Australian product is also causing difficulties for New Zealand lamb.

The record price levels experienced in 2011 were driven by the very tight domestic supply situation. With increased availability of lamb expected for the rest of the current season it is likely that prices will continue to be lower year on year. However, despite the expected lower prices, returns to producers remain better than compared with recent years.

Australian prices also lower

Australian lamb prices have started 2012 well below the high levels recorded in 2011, for much the same reasons that the New Zealand price has fallen in recent months. The strength of the Australian dollar combined with weakened consumer demand has done much to stifle export demand. At the same time supplies of lamb to the market have generally increased. The January lamb kill was 10 per cent higher year on year at 1.45 million head.

At approximately AU$ 5.00 per kg, in the first week of March, the Eastern States Trade Lamb Indicator was almost a quarter lower than a year earlier. With 2011 prices reaching unprecedented highs this is not surprising and in comparison with recent years prices are much more on a par. Despite some fluctuations prices remain at about the same level they were at the turn of the year.

Expectations are that Australian prices will remain well below last year’s levels as production in Australia increases as a result of the larger flock. Increased production is also now taking place in New Zealand further relieving the tight global supply situation experienced in 2011. This in turn may erode demand for Australian lamb to some degree, however, it is still price competitive with the Greater China and South East Asian markets expected to continue to perform well. The US market is also expected to be good as further declines in their domestic flock will limit production and further increase reliance on imports.

Contrasting trends in Russian beef and pork imports

In Russia steady consumer demand and domestic production constraints have contributed to ongoing high demand for imported red meat. However, because of problems for some supplying countries, notably Brazil, and Russian quotas pork imports in 2011 showed only a two per cent growth while beef and veal imports were down four per cent.

For beef and veal, strong global demand coupled with supply shortages contributed to the fall in imports while the average import price in 2011 was up 16 per cent year on year in US dollars. For EU suppliers the average import price was up 22 per cent, which contributed to the stability in its trade, with a fall for Germany offset by growth for Lithuania and Ireland. Brazilian product was also less competitive and shipments were down 21 per cent given domestic shortages, although it remained the largest supplier to Russia with a 37 per cent market share. In contrast, there was a marked growth for Australia and the US while Mexico also emerged as a significant supplier in 2011 shipping 22.500 tonnes. However, Argentina lost further ground.

The small rise in fresh and frozen pork imports in 2011 reflected better global supply availability and a somewhat smaller price rise compared to beef of seven per cent in US dollar. Also supplies of Russian pig meat were higher in 2011 as production was up an estimated five per cent.

For imported product, the volume increase occurred despite the disruption in supplies from Brazil with its shipments down 41 per cent even though the price rise only averaged two per cent. Brazil remained the largest individual country supplier with a 20 per cent market share. However, from September onwards shipments only averaged 3,000 tonnes per month as the ban on supplies from processing plants in three states took hold. Canada, in particular has emerged as a major supplier to the Russian market with shipments up by two thirds. Imports from the EU showed a less marked rise of 17 per cent and while shipments from Germany were marginally lower this was more than offset by a large rise for Spain. There was also modest growth for Denmark and the smaller suppliers of Ireland and the Netherlands.

Russian fresh and frozen pork imports in 2012 will be constrained by the reduction in the tariff quota (TRQ) to 400,000 tonnes compared with 472,100 tonnes in 2011. For fresh and frozen beef it is unchanged at 560,000 tonne. Russia is due to ratify its WTO membership (see EMS11/50) by mid-2012 but it is not clear as to what TRQs will apply.

Spanish sheep and cattle numbers in decline

There has been a further marked decline in the Spanish sheep flock with breeding ewes and ewe lamb numbers in November 2011 down nine per cent on a year earlier. Total sheep numbers are down eight per cent. This is having an impact on overall EU sheep numbers as Spain has the second largest sheep flock in the EU after the UK. Cattle numbers in Spain in November 2011 were also lower.

Since reaching a peak in 2003 the sheep breeding flock has now declined by almost 30 per cent. In 2011 producers in Spain were affected by higher production costs associated with increased prices of cereals and decoupling of the ewe premium from 2010. There has also been reduced domestic demand for lamb because of the economic problems in Spain, although this only had a limited impact on the light lamb price which was up seven per cent in 2011 compared with 2010. The run down of the breeding flock is reflected in increased adult sheep slaughterings which in the year 2011 were up 32 per cent on year earlier. Fewer lambs were retained for breeding as lamb slaughterings were unchanged at 11.1 million head in 2011, despite the lower breeding flock in November 2010.

The cattle herd in Spain is less important in the EU context and total numbers were down three per cent. The beef sector benefitted from good export demand with the R3 young bull beef price in 2011 up eight per cent on 2010 but it continued to suffer from high production costs especially in relation to feed. Some of the figures for the different categories should be treated with caution as the November 2011 census is still provisional. Both beef and dairy cow numbers were well down as producers culled their herds with cow slaughterings in 2011, up nine per cent compared with 2010. Total cattle and calf slaughterings were unchanged. Heifers for breeding in November 2011 were down by as much as 22 per cent suggesting a further decline in cow numbers can be expected. For cattle under one year, numbers were reduced by the lower domestic calf crop as imports of calves for finishing in the year 2011 were slightly higher.

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