AHDB European Market Survey

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12 July 2012

AHDB European Market Survey - 6 July 2012

Beef production in the EU continuing to fall

Total EU beef and veal production in the first quarter of 2012 totalled 1.86 million tonnes, five per cent less than in the corresponding three month period in 2011. The tight supply situation throughout most of last year has continued into the early part of 2012. Of the major producers, in the first quarter of the year French production was back over four per cent on the year while the UK and Ireland both recorded declines of over eight per cent. Italian and Spanish beef production was back eight and four per cent respectively. In contrast, German production increased four per cent on the year.

Annual Change in EU Beef Production Jan-Mar 2012

Latest data indicate that in France during January to March there was a significant decline in cattle slaughterings. With fewer male cattle on farm, young bull slaughterings were down 16 per cent in the first three months of the year. Mitigating this to a limited extent was the continued increase in cow slaughterings, which were up over one per cent on the year.

In the UK, with the expected reduction in the availability of young bulls coming into effect, the trend towards lower production has continued, and in the year to May production was back seven per cent.

So far in 2012 there has been a marked decline in cattle slaughtering in Ireland. Slaughterings in the year to May fell 13 per cent to total 585,000 head. This was driven by a significant decline in the number of male cattle killed and was expected as the December 2011 livestock survey indicated that the number of male cattle aged over one year was significantly lower. Further year on year declines in male cattle slaughtering can be expected. There has been a very apparent shift in finishing patterns in Ireland over recent years with the number of steers declining dramatically while the number of young bulls has steadily increased given rising interest in the finishing of dairy male calves. The figures for the first five months of 2012 indicated that steer slaughterings fell by over a quarter on the year, while bull throughputs increased by one per cent (the majority of these being young bulls).

Male cattle supplies in the EU are likely to remain tight during the remainder 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. The current forecast is for production in the EU is a fall of three per cent in 2012, largely due to the lower output in France, the UK and Ireland.

Falling Danish and Dutch pork exports

Danish exports of fresh and frozen pork were six per cent lower in the first quarter of 2012 than a year earlier while the average export price was up seven per cent given the firmer market conditions on both the EU and global market. The fall in export volumes mainly reflects a seven per cent decrease in domestic pork production in the first quarter of 2012. Trade with other EU Member States fell by three per cent; of the major markets Poland and the United Kingdom both fell by six per cent whereas shipments to Germany were four per cent higher. Danish exports to non-EU markets fell by 15 per cent, partly reflecting strong competition from other exporters. Trade with Japan and Russia fell by six per cent and 25 per cent respectively whereas shipments to South Korea fell by as much as 71 per cent to only 2,300 tonnes. Non- EU markets accounted for 26 per cent of Danish pork exports compared with 29 per cent a year earlier.

Dutch exports of fresh and frozen pork showed similar trends and fell by 13 per cent in the first quarter of 2012 while the average price was up nine per cent. A fall of two per cent in domestic production contributed to the volume decline. Trade with other Member States fell by 15 per cent along with a four per cent fall in exports to non-EU markets. Shipments to Italy and Germany fell by seven per cent and eight per cent respectively, partly due to consumers tightening their belts during the economic recession, especially in Italy. Of the non-EU markets, trade with South Korea and Hong Kong both fell but Australia has now emerged as an important market with shipments amounting to 4,000 tonnes. For both Denmark and the Netherlands trade with South Korea has been reduced by the recovery in production, following the 2010 outbreak of foot and mouth disease there, and strong competition from other suppliers, notably Germany.

Danish exports of bacon were down by four per cent in the first quarter of 2012 to 26,000 tonnes, with shipments to the UK, the main market, down by two per cent. Dutch bacon exports on the other hand, dropped by as much as 39 per cent to 20,000 tonnes with shipments down 44 per cent to the UK, although UK import data for the same period only indicated a fall of 21 per cent.

Danish live pig exports rose by two per cent between the first quarter of 2011 and 2012 to 2.3 million as weaner exports, which accounted for almost 95 per cent of the total, increased by three per cent. Shortages in Poland because of the declining breeding herd created strong demand for Danish weaners with trade increasing by 29 per cent. In contrast shipments to Germany, which accounted for 70 per cent of the weaner trade, were virtually unchanged. In contrast, Dutch live pig exports fell to 2.0 million but given issues with the trade data for breeding pigs in the first quarter of 2011 an exact comparison cannot be made. Dutch weaner exports declined by three per cent to 1.3 million and lower demand from German slaughterhouses contributed to the fall of 24 per cent in slaughter pig exports to 630,000 head.

Outlook for New Zealand lamb prices

Having reached a record average of 647 cents per kg during the 2010-11 season, New Zealand average lamb prices are expected to be lower during the 2011-12 season at 628 cents per kg. This is borne out in recent trends with prices falling considerably since the highs of October and November 2011. Some of this decline in prices will be offset by increased weights, resulting in the amount received per head falling at a slower rate. According to beef+lamb New Zealand, in the 2012-13 season prices are likely to fall further and be on average eight per cent below the provisional expectation for the 2011-12 season at 573 cents per kg.

New Zealand Lamb Prices

New Zealand Export Grade Lamb Slaughterings

Expectations for mutton/cull ewe prices are much the same, although much heavier weights in the 2011- 12 season are expected to result in the average price per head increasing despite the cents per kg value falls.

New Zealand lamb prices have now started to pick up as the winter contracts start and the lamb kill begins to slow down. However supplies are still reportedly fairly good for the time of year and the seasonal pattern appears to be undergoing some change. Latest schedule pr ices for week commencing 2 July indicate that prices have been strengthening since mid-June, having been fairly static throughout May. At 541 cents per kg the latest schedule price is well behind the level a year earlier but still ahead of the corresponding point in 2010.

The supply of lambs in May was 18 per cent higher than year earlier levels. Slaughterings in the year to date totalled 11.65 million head, up three per cent on the corresponding period of 2011. This pattern appears to represent a new trend in New Zealand lamb slaughterings. Indications are that this season will finish with a flatter slaughter profile throughout the year, a lower peak and increased numbers towards the end of the season.

This is a result of a number of factors. Firstly, with a lower reliance on the EU market there has been a reduced requirement for lambs to be produced in order to be in Europe prior to Easter. Secondly the breaking of drought conditions has generally allowed producers to retain lambs on farm for longer. Finally with fewer lambs being slaughtered, when compared with pre 2010 levels, there is some requirement for heavier lambs to offset the lower numbers. At the same time producers are looking to achieve increased prices, on a headage basis, to ensure cash flow. Given the current dynamics of the market and the further decline in the EU market for New Zealand product this pattern may continue.

EU sheepmeat quota usage

Latest figures from the EU Commission indicate that in the first six months of the year New Zealand only used 41 per cent of their 228,254 tonne quota allocation. This compares with 51 per cent at the corresponding point of 2011 and 59 per cent in 2010, although the allocations for these two periods were 400 tonnes lower than this year, at 227,854 tonnes.

Much of this decline is down to lower supplies, higher prices and tougher trading conditions which have resulted in the EU not being able to absorb the same volumes of sheepmeat as in recent years. Data for the first quarter of the year indicated that, while volumes of sheepmeat imported from third countries fell considerably, the value of these imports was only slightly lower. This indicates EU consumers are unable or unwilling to purchase extra volumes at a time when consumer budgets are extremely tight. Increased supplies and intra EU trading are also impacting on requirements for New Zealand product.

Australian exporters have also used considerably less of their quota allocation than they did last year. In the first six months of the year they have utilised 29 per cent of their allocation, compared with 41 per cent in 2011 and 39 per cent in 2010. As with New Zealand the Australian quota allocation in 2012 is 400 tonnes higher than in 2010 and 2011 at 19,186 tonnes. While supplies in Australia have been generally ahead of last year, quota usage remains down for the same reasons as for New Zealand.