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AHDB European Market Survey

21 May 2012

AHDB European Market Survey - 18 May 2012AHDB European Market Survey - 18 May 2012

According to the FAO’s Food Outlook for May 2012, global meat output is set to expand by nearly two per cent in 2012 to 302 million tonnes, driven by increased poultry and pig meat production.


EU pig prices stable after recovering from New Year drop

European finished pig prices were broadly stable during March and April 2012. Prices dropped by over seven per cent during December and January but they recovered equally quickly. The average price passed the €160 mark at the end of February and peaked at €163.73 in week ended 22 April, the highest level recorded since October 2008.

Across the EU, pig slaughterings in January 2012 were three per cent higher than in January 2011, which contributed to the fall in prices alongside weak consumer demand, which is normal for the time of year. However, in February, slaughterings were up only marginally overall and were lower in some of the key Member States. Few countries have reported official figures for March but the available figures and provisional data from elsewhere suggest that the tightening of supplies has continued.

As the largest producer and consumer of pig meat, prices in Germany have a major influence on the EU reference price. German prices fell particularly sharply around the Christmas holiday period to a low point of €149 per 100kg in week ended 15 January. However, they quickly rebounded to €162 by week ended 5 February. Following a period of stability, prices rose again around the Easter holiday, reaching €171 in mid April before falling at the beginning of May when the price was only one per cent more than a year earlier. German slaughterings in January were 10 per cent higher than in January 2011, when throughputs were subdued during the dioxin crisis. However, February slaughterings were four per cent below last year’s level and provisional figures covering the first four months of the year showed a similar fall. As usual, prices in neighbouring countries, such as the Netherlands and Poland, followed a similar trend to Germany.

Spanish prices declined during the second half of 2011, in contrast to most other Member States, and this accelerated around Christmas, reaching a low point of €144 per 100kg in the second half of January. Since then, they have recovered lost ground and stabilised at around €168 per 100kg since early March, only one per cent higher than a year earlier. In part, this is because slaughterings in the first two months of the year were nine per cent higher than a year earlier. This comes despite little change in the Spanish pig herd according to the December census, suggesting that some producers may be liquidating herds in the face of ongoing high feed costs. With increased supplies, Spanish pork exports in the first two months of the year were up by nearly a third, mainly due to shipments to other Member States where supplies were tighter.

French prices have been even more volatile than elsewhere. Prices began to decline from mid November and by mid-January, they had fallen to €139 per 100kg before rebounding to €167 by early March. At this point, prices were among the highest in Europe which meant that French pig meat was uncompetitive prompting a rapid correction in the price, which fell to a more sustainable €150 per 100kg by the end of March.

The Danish reference price has followed a broadly similar trend to other Member States. However, the recovery has been slower, so that by the end of April the price was still around four euros per 100kg below its level in mid December. Nevertheless, this was still seven per cent higher than a year earlier, reflecting the tighter supplies this year. In the first two months of 2012, Danish slaughterings were down five per cent on a year earlier.

Male cattle kill boosts Australian beef production

Australian beef production in the first quarter of the year was almost two per cent above 2011 levels and totalled 505,000 tonnes. Overall cattle slaughterings, at 1.75 million head, were one per cent higher than 2011 levels. This was solely driven by increased numbers of male cattle, up two per cent at 975,000 head. The upturn in male cattle reflects the growth in the breeding herd and increased productivity stemming from its younger age profile. Throughputs of female cattle remain low, with numbers down marginally on 2011 levels at 770,000 head, given the rebuilding intentions currently prevalent in the sector following the breaking of the drought.

There was considerable variation in throughputs for individual months, with the number of cattle killed in January 17 per cent higher year on year. The main reason for this was that in January 2011 severe flooding disrupted cattle supplies. Numbers in February 2012 were down four per cent as flooding affected trade and restocking intentions combined with lower prices to discourage cattle marketings. Rain continued to disrupt the trade, with numbers in March down two per cent on the year.

The increased production in the first quarter of the year has also been helped by further increases in carcase weights, up two kilogrammes year on year, as seasonal conditions have remained excellent due to high rainfall. There was also an increased proportion of heavier male cattle in the kill and higher availability of feed grains.

The higher throughput is expected to continue throughout the rest of 2012 taking the total cattle kill for the year to 7.55 million head, an increase of three per cent on 2011, based on the latest forecasts from Meat and Livestock Australia. However, this should be seen in the context that the 2011 cattle kill was the lowest since the mid 1990s and slaughterings in 2012 are only expected to return to 2010 levels.

While much of the expected two per cent increase in beef and veal production for 2012 is attributed to the larger breeding herd, better conditions and ample feed availability, the other factor in play is the live trade. Expectations are that the cattle that could not be exported live in 2011 due to the Indonesian ban will start to enter the market later in 2012, which could increase the kill by as much as three per cent. Expectations are that these cattle will be in very good condition and may be highly sought after as processors look to increase throughputs.

Higher Australian production is resulting in increased export availability, as the domestic market only accounts for one third of production. This increase may help to overcome the tight global supply situation which seems likely to continue due to events in other countries. With global supplies finely balanced, demand will be closely tied to the global economic situation. Further economic growth, especially in emerging markets, should benefit Australian producers as they ride the better conditions, post drought, and increase production. On the other hand a check to the industry is likely to be the continued strength of the Australian dollar which has been limiting returns.

Contrasting trends in US pork and beef exports

In the first three months of 2012, US fresh and frozen beef exports were down 12 per cent on the same period of 2011. This reflects an easing back in demand on some markets and a small fall in domestic production. This follows an increase in export volumes of 22 per cent for 2011 as a whole. Unit prices for fresh and frozen beef exports were up 17 per cent in US dollar terms compared with the first quarter last year.

The decline in beef exports was largely the result of a fall in shipments to Mexico and South Korea, down 11 per cent and 38 per cent respectively; trade was affected by higher domestic beef production in both countries. There were also smaller falls in shipments to the other major markets of Japan and Canada. In Japan, the Food Safety Commission is continuing to monitor BSE related age and product restrictions on US beef. Despite the overall fall in US beef exports there were significant increases in trade with Vietnam and Russia. An expanded tariff rate quota in Russia, up to 60,000 tonnes from 41,700 tonnes last year, has created an additional opportunity for US beef in 2012.

In contrast, US fresh and frozen pork exports continued to increase, up 20 per cent on the same quarter last year as global demand remained strong. This continued the growth of 2011 when shipments were up by a quarter on 2010. Shipments to Japan, the primary destination for US pork were little changed in the first quarter 2012 but exports to Mexico and China were up 58 and 109 per cent respectively. There were also small increases in exports to Canada and Australia. Canada’s strong dollar is increasing demand for relatively cheap US pork. Shipments to South Korea which had grown strongly in 2011 due to outbreaks of FMD and product shortages in that country, declined by 17 per cent. Prices for fresh and frozen pork exports were up three per cent in US dollar terms.

The USDA is forecasting that in 2012 US beef production will fall by around four per cent. Largely as a result of this, exports will decline by around one per cent as the beef market is expected to tighten in the second half of the year. They forecast that pork production will be up two per cent in 2012 but any increase in exports will be small, reflecting some easing back in export demand as the year progresses.

Danish sow numbers still in decline

The results of the Danish pig survey for 1 April 2012 show an ongoing decline in total sow numbers but stability in the total herd.

Total breeding female numbers were down two per cent compared with both April 2011 and December 2011. This is not surprising given that gilt numbers in December 2011 were lower than in December 2010. Numbers in April 2012 were at their lowest level for this time of year since 2000. While in-pig sow numbers were unchanged in April 2012, replacement gilt numbers were again down with reductions in both in-pig gilts and, especially, maiden gilts. This would suggest that the breeding herd will decline further during the coming months.

For sows, slaughtering in the first three months of 2012 were down 19 per cent compared with a year earlier while live exports were down by one third suggesting that producers are retaining their existing sows rather than replacing them. This might be because some producers plan to cease production at the end of the year rather than investing in loose housing with the forthcoming partial stall and tether ban. As in other Member States, profitability also remains under pressure and feed costs this spring were no longer below last year’s high levels.

The relative year on year stability in the slaughter pig categories in April 2012, coupled with increased weaner exports, is a reflection of ongoing improvements in sow productivity. Weaner exports in January-March 2012 were up 11 per cent on a year earlier at 2.2 million according to the Danish Agriculture and Food Council. The April survey results also imply that clean pig slaughterings will become stabilise or even edge up year on year during. Provisional data from the two main Danish cooperatives indicate that slaughterings from March onwards were close to year earlier levels.

FAO Food Outlook forecasts expanding global meat production

According to the FAO’s Food Outlook for May 2012, global meat output is set to expand by nearly two per cent in 2012 to 302 million tonnes, driven by increased poultry and pig meat production. As production in developed countries continues to be affected by high input costs, limited growth in domestic meat consumption and increased competition from developing countries, most of the increase in meat output is likely to originate from developing countries. Competition for export markets is expected to increase in 2012 as key importing countries raise their own domestic production.

Global beef production is expected to remain unchanged from the previous two years at 67.5 million tonnes, as growth in developing countries is offset by falling production in developed countries, particularly the US and EU. However, despite this, global beef trade is anticipated to increase by four per cent to 8.1 million tonnes, driven by higher import requirements in the US and EU in response to short domestic supplies. Shipments to Russia are also expected to increase as falling domestic production is combined with an increase in Russia’s import quota of reduced-tariff beef due to its accession to the WTO.

After last year’s fall, global pig meat production in 2012 is forecast to rebound by three per cent to 111.7 million tonnes, underpinned by falling incidence of disease in Asia. Growing investment and favourable market returns in the region, particularly in China, are expected to result in a four per cent expansion in the region’s output to 62.8 million tonnes. In contrast, the anticipation of new EU welfare regulations, that will take effect from the start of 2013, may result in fewer pigs and lower production in the EU in 2012. FAO forecasts suggest a marginal fall in EU pig meat production to 23.0 million tonnes, down from 23.2 million tonnes in 2011.

Sheep meat supplies are expected to increase slightly, up one per cent to 13.6 million tonnes, with the higher output expected to relieve some of the tightness in global supplies and ease upward pressure on prices. Most of the increase is expected to originate from non-meat trading countries in Africa and Asia. Favourable conditions in Australia and New Zealand are expected to increase production in the region by three per cent to 997,000 tonnes. Sheepmeat production in the EU is expected to fall slightly to 968,000 tonnes.

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