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AHDB European Market Survey

01 June 2012

AHDB European Market Survey - 1 June 2012AHDB European Market Survey - 1 June 2012

Global lamb prices have come under pressure in recent months as the global financial climate continues to impact on trading conditions.


Global lamb prices under pressure due to economic climate

With consumers under ever increasing pressure and confidence still very low, the high cost of lamb in relation to other proteins is constraining consumption. This has resulted in the exceptional prices of 2011 being unsustainable.

New Zealand prices have continued to fall in 2012 and are well below the record 2011 levels, although they remain above their level in 2010. Latest prices are a third lower than the peak recorded in November 2011. This has come as demand for New Zealand lamb has been severely curtailed as a result of high prices and weakened consumer confidence, a situation not helped by the ongoing high value of the NZ dollar. This situation is especially applicable to the EU market, the main destination for New Zealand lamb, where the economic turmoil is most acute and the outlook remains unpromising. The weaker euro has exacerbated the situation. This has made conditions for New Zealand exporters very difficult with reports indicating demand from the EU is substantially down. Latest New Zealand export figures show that shipments to the EU fell 16 per cent year on year in the first four months of 2012, even though lamb production in the same period was one per cent higher.

However the rate of decline has now slowed and prices now look to be stabilising to some degree. This perhaps indicates that prices for New Zealand lamb have now fallen to a level which makes it more attractive on the world market, especially the EU. While this may allow for increased consumption it is resulting in other global lamb prices having to fall in line.

Equally, Australian lamb prices remain substantially below the levels recorded over the past two years. Although prices have stabilised to some degree in recent weeks, the overall trend remains a downwards one. With Australian exports heavily reliant on the wider global market, due to their relatively low EU quota allocation, the difficulties being experienced by Australia are indicative of the wider malaise in global lamb demand.

The Australian home market for lamb is also reportedly suffering as consumer confidence has taken a considerable hit in the first part of the year.

Meat and Livestock Australia also point out that there has been a significant fall in lambskin values, an important contributory factor in the lower prices of lambs. The two other main factors remain higher production and increased competition from New Zealand lamb that has been diverted to traditional markets for Australian lamb in the absence of EU demand.

In South America, prices for lambs have shown somewhat varying trends but the main countries show signs of depressed prices. In Chile, the average price for April 2012 was 25 per cent lower than in February and 12 per cent lower than the price recorded in April 2011. In Uruguay prices have generally improved as the year has progressed. Despite this, they remain considerably down on 2011 levels, with the April 2012 average 21 per cent lower than April 2011. Lower sheep slaughterings in Uruguay, down 30 per cent in the first four months of 2012, are likely keeping prices firm. Argentinean prices are still reportedly ahead of 2011 levels. However they have fallen in recent months with heavy lamb prices in April down 14 per cent compared with the end of 2011. This decline has been ascribed to the weakened demand on the global market.

Little change in French pork trade

French pork exports for January to March 2012 were down two per cent on the previous year, which followed a one per cent increase in 2011. The average price was up nine per cent in euro terms on the same period 2011.

Exports to the EU in the first quarter of 2012 were unchanged on the year with shipments to Italy, the United Kingdom and Greece down 16 per cent, two per cent and nine per cent respectively. Difficult economic conditions have restricted meat demand in Greece and Italy in particular. In contrast, exports to Belgium and Germany were up 31 per cent and 40 per cent respectively. Pork exports to non-EU countries in January to March 2012 were down nine per cent on the year. Shipments to South Korea and Russia were down one per cent and 23 per cent on the same period last year. Exports to non-EU markets, in particular to Asia, had grown strongly during 2011 to account for a quarter of French trade.

Pork imports in the first three months of 2012 were up two per cent on the year, which followed a one per cent fall overall in 2011. Imports of chilled boneless cuts in the first quarter of 2012 were down seven per cent but this was mainly offset by an 11 per cent increase in chilled bone-in hams and shoulders. The average price of imports was up five per cent on a year earlier given the firmer EU market so far this year. Pork imports from Spain accounted for 75 per cent of the total and were up 10 per cent. Higher production meant that Spanish export availability was higher in the first quarter of 2012 while French production was lower. Of the other significant suppliers only Denmark increased its trade.

Given reduced supplies, live pig exports, which consisted almost entirely of slaughter pigs, were 32 per cent down at 134,000 head with falls in shipments to all major trading partners. For the smaller live import trade shipments in January to March 2012 were down three per cent on the same period last year at 60,000 head, despite an increase in slaughter pig imports from Spain.

Both pig slaughterings and pig meat production in France were down three per cent year on year in the first quarter of 2012. Pork demand though has been resilient in the first quarter 2012 with household purchases up one per cent according to data from Kantar as fresh pork took market share from other meats.

Japanese beef imports stable

Japanese beef imports were largely unchanged in the first quarter 2012, down only one per cent on the year while the average import price in US dollars was up two per cent. Shipments from Australia and New Zealand were both down six per cent. In contrast, imports from the US and Canada were up 16 per cent and 3 per cent respectively.

The overall fall in beef imports was driven by a five per cent fall in chilled/fresh shipments to 46,000 tonnes as frozen shipments were up one per cent to 68,000 tonnes. Demand for frozen beef, and also cheaper fresh cuts, has been supported by the domestic fast food and food service sectors. Fresh shipments from Australia were down 20 per cent, partly attributed to the strong Australian dollar. However, this fall was partly compensated for by a 43 per cent increase in chilled imports from the US. The price competitiveness of US beef compared with Australian product, resulting from a weaker US dollar, has contributed towards this growth in shipments.

Beef imports in 2012 as a whole are forecast to be up around two per cent on 2011 as demand for imported, grain fed beef is expected to continue to increase. In addition, Australia’s frozen, grass-fed cuts which are mainly utilised in the fast food sector and catering to low-price seeking consumers should continue to perform well.

Japanese beef production in the first two months of 2012 was up five per cent on the same period last year. As of the end of February 2012, beef stocks were up six per cent on February 2011. Total beef production is likely to be largely unchanged in 2012 compared with the previous year according to April 2012 forecasts from the USDA. Domestic beef consumption in January to February 2012 was up five per cent on the year. The USDA forecasts that consumption for 2012 as a whole is likely to increase by around one per cent.

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