AHDB European Market Survey
07 May 2012
AHDB European Market Survey - 4 May 2012
In its latest forecasts for the global livestock and poultry markets, USDA estimates a two per cent rise in meat
production during 2012.Further modest uplift in EU male cattle prices
Male cattle prices in major producing countries
have moved up steadily since reaching a low
point last June. Much of this increase can be
attributed to a year on year decline in male cattle
supplies over this period, after having been at
higher levels in the first five months of 2011. The
wholesale market for male forequarters in the EU
has been especially strong in the last year,
reflecting consumers trading down to cheaper
cuts, product shortages and steady demand from
non-EU markets.
The R3 steer price in the EU increased by 16 per
cent in the second half of 2011 and rose
by a further two per cent in the early
months of 2012. By the week ended 22
April it was 18 per cent higher than a
year earlier. The UK and Ireland account
for 80 per cent of steer beef production,
with France the other major producer,
and price developments have been
similar in all countries. Prices have been
especially firm in the UK and Ireland and
by late April were up 22 per cent and 18
per cent year on year respectively. This
is mainly the result of supply shortages
but also steady demand, especially in the
case of Irish exports. For the year to date,
provisional slaughterings data for steers
indicate a year on year decline of 28 per
cent in Ireland and six per cent in Great
Britain. In late April, the steer price in France was up 10 per cent year on year while steer slaughterings in
the first quarter of 2012 were down 13 per cent.

Lower young bull supplies so far in 2012 contributed to a small rise in EU prices through to mid March but
then a seasonal easing in demand led to an easing back of prices through to late April. The R3 young bull
beef price for the EU in the week ended 22 April was down one per cent compared with the beginning of
this year, although up 11 per cent on April 2011. Of the major producing countries, prices have largely
held up in Germany and Italy and compared with late April 2011 were up 13 per cent and seven per cent
respectively. These two countries are the largest producers of young bull beef, accounting for 42 per cent of
the EU total in 2011.
However, in France which is the third largest young bull beef producer, the young
bull price has weakened seasonally since mid March and by late April was down
six per cent compared with the beginning of the year although still up 10 per cent year on year. In Germany, provisional
figures so far for 2012 show a reduction of
only one per cent in young bull
slaughtering through to late April while
French slaughterings in January to March
were down 16 per cent compared with
the first quarter of 2011. Prices for young
bulls in Poland increased sharply in early
2012, helped by major shortages and the
appreciation of the zloty, with male beef
production in January and February 2012
down 25 per cent year on year. Prices
have since fallen back though and the R3
price in late April was only up five per
cent year on year.

Male cattle supplies in the EU are likely to remain tight during the reminder of 2012, suggesting that prices will remain firm even if there is some easing back in both demand within the EU and trade with non-EU markets.
Global meat production forecast to grow during 2012
In its latest forecasts for the global livestock and poultry markets, USDA estimates a two per cent rise in meat
production during 2012. This is led by a three per cent growth in production of pig meat, with poultry meat
forecast to be up by two per cent. Beef and veal production is also forecast to increase, albeit only
marginally.
USDA forecasts that global pig meat production in 2012 will total 104 million tonnes, 2.6 million tonnes
higher than in 2011. This is largely due to a recovery of production in China and South Korea. In China,
production is forecast to rise by four per cent to 51.6 million tonnes as milder weather conditions mean that
there have been fewer disease outbreaks and better profitability has encouraged expansion. In Korea,
production is projected to grow by 17 per cent as the industry recovers from the FMD outbreak which began
in late 2010. However, this is still 12 per cent below its 2010 level. Elsewhere, production in Russia is
expected to increase by five per cent due to expansion of modern, large-scale operations aided by
government support. Most other major producing countries are expected to record little change in
production between 2011 and 2012.
Global production of beef and veal is forecast to total 57 million tonnes in 2012. This represents a marginal
increase compared with estimated production during 2011. Brazil, is expected to increase production by
around two per cent to 9.2 million tonnes. Otherwise, the only major producer expected to increase
production significantly is India, forecast to rise by 11 per cent to 3.5 million tonnes. This is all made up of
buffalo meat since slaughter of cattle is not permitted in India. The increase is the result of an expanding
dairy herd, increased slaughter and price competitiveness in the global market, with nearly half of production
destined for export. As a result, India is projected to become the world’s largest exporter of beef in 2012.
Balancing this increase, production in the US, the largest beef producer, is forecast to fall by four per cent to
11.5 million tonnes, largely as a result of lower cattle numbers due to drought conditions during 2011.
Poultry meat production is forecast to rise by two per cent to 87 million tonnes. Broiler meat makes up 94
per cent of this and most major producing countries are expected to increase production during 2012. The
main exception is the US where high feed costs are limiting any expansion plans and high meat prices are set
to reduce domestic consumption. Again, India is among the fastest growing producers, forecast to rise by 10
per cent as greater vertical integration and increasing demand from an expanding middle class support
increased production.
Larger NZ lamb crop yet to materialise
Despite expectations that there was going to be a larger lamb crop and increased slaughter for the 2011/12
season, current figures indicate that New Zealand lamb production is below year earlier levels.
New Zealand lamb production (graded for export) in the first six months of the 2011/12 season, October
2011 to March 2012, was three per cent lower than the corresponding period a year earlier at 199,000
tonnes. This was, in turn, approximately 14 per cent below the corresponding period in the 2009/10 season.
This fall in production was driven by a five per cent year on year decline in the number of lambs slaughtered.
At 11.07 million head, this is well behind the seasonal norm with approximately 14 million lambs
slaughtered by this point in the 2008/09 and 2009/10 seasons.
A desire to offset the lower kill numbers and the breaking of drought conditions, with subsequent better grass
growth, have contributed to higher carcase weights. In the six month period, carcase weights were two per
cent higher than year earlier levels at 17.97kg, which partly mitigated the reduced slaughter numbers.
The Beef + Lamb New Zealand Mid-season Update forecasts a 19.7 million lamb slaughter for the season,
which would have represented an increase of almost three per cent on the previous season. With strong
grass growth and comparatively low sheep numbers, it is possible that producers are continuing to hold on to
lambs to add weight and clean up the excess grass. This may result in the expected increase in numbers
coming later in the season and achieving even heavier weights. This could result in the expected production
increase materialising.

With processors looking to avoid a
repeat of the previous season, when
supplies were inadequate for the
Easter trade, production in January
and February bucked the overall
downwards trend. Along with
December these two months
represented the key processing
period, with the earlier Easter
meaning supplies needed to be
shipped by early March. However,
these increases have failed to offset
lower numbers across the season.
The March kill was particularly low,
as the Easter trade ended and lower
prices resulted in some holding over
of lambs. Lamb throughputs in March were down a quarter on the year almost completely offsetting the
increased numbers recorded in January and February.
With increased supplies available in the December-February period, lamb shipments in the first quarter of
2012 were over four per cent above 2011 levels at 79,000 tonnes. However difficult trading conditions on
the European market and competition from Ireland and the UK resulted in a decline of nine per cent in
shipments to EU Member States. This was offset by increased shipments to China/Hong Kong and the
Middle East.
The loss of trading opportunities with the EU has likely hit processors hard as this market commands by far
the highest unit values for exports, while other markets, particularly China, take cheaper product. The
continued strength of the NZ dollar will also have impacted on returns and overall the average unit value of
exports for the first quarter of the year was down six per cent at NZ$9,140 per tonne. Some of this decline
might be attributable to considerably lower prices since the peak in November. However while prices have
fallen, some product will still have
been contracted at much higher
prices in order to secure product for
the key processing months. This may
have been unsustainable for many
companies and combined with the
much more difficult trading
conditions so far in 2012 will have
added further pressure to the industry.

New Zealand exporters are
competing with cheaper Australian
products in many markets. This is not
helped by the heavier carcase weights
which mean that the traditional
advantage of NZ product, that it is
smaller and therefore cheaper per cut,
is being eroded. Australian farmgate prices have been significantly cheaper which is making Australian lamb much more competitive against New
Zealand product.
With the high value EU market not taking the normal volume of product, some increased supplies and the
need to compete with cheaper Australian product, New Zealand lamb values have declined consistently
since November.
Growth in China and Hong Kong pork imports
Chinese pork imports more than doubled in the first three months of 2012, compared with the same period of 2011, to reach 147,000 tonnes. Trade with the largest supplying nation, the US, was up by 150 per cent on the year. In addition, there was strong growth in shipments from Spain and Germany up 215 per cent and 580 per cent respectively. The average price of imports was up 56 per cent in US dollar terms partly due to a greater proportion of imports consisting of more expensive hams and shoulders and a firmer domestic market than a year earlier.


Chinese pork production was forecast by the USDA in
late February to increase by four per cent in 2012.
Fewer disease outbreaks in late 2011 combined with
Chinese policies to encourage domestic suppliers to
increase their inventories (see EMS 12/06). Therefore,
despite the growth recorded in the first quarter,
imports were forecast to fall for the year as a whole.
In 2011, China made larger than normal purchases as
disease problems constrained domestic supplies,
leading to the government making large purchases
from foreign sources to mitigate price rises.
Offal imports were also up on the previous year in the
first quarter of 2012 but by only four per cent.
Shipments from the largest supplying nation, the US,
were down one per cent. In contrast, imports from
the EU were up 29 per cent as some exporting
countries exploited the increased potential for offal on
the Chinese market. The average unit price of offal
imports increased 31 per cent on the year in US dollar
terms.
Hong Kong’s pork imports were up 27 per cent in the
first quarter of 2012 compared with the previous year.
The average unit price of pork imports was up 21 per
cent in US dollars. Shipments from Brazil, Germany
and the US were up 79, 50 and 73 per cent
respectively. Brazil has identified Hong Kong as a
market for growth to reduce its dependence on
Russia. In contrast, there were 29 per cent less
imports from China. There was also strong growth in
shipments from the smaller supplying nations of
Denmark, Spain and the UK.
Shipments of offal into Hong Kong fell by 15 per cent on the year. Despite the overall fall in volumes,
imports from Germany and Brazil were up 17 and nine per cent. The unit price of offal imports rose 32 per
cent on the year in US dollar terms.
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