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QMS (Quality Meat Scotland)

31 January 2012

QMS Market Report - January 2012QMS Market Report - January 2012

Having bucked their historical trend by rising during the final quarter of 2011, pig prices gave back these gains, and more, in the first three weeks of 2012.
QMS - Quality Meat Scotland

Cattle Prices and Supplies

With the festive period over, processor and retail demand has decreased and prices have subsequently fallen. Nonetheless, at 342p/kg steers and heifers remain 16% more expensive than one year ago. January has also seen auction prices slip back.

By contrast, prices for cull cattle have recovered in January having drifted lower towards the year-end. They now stand at a four-month high.

It is clear that one of the contributing factors to the steady appreciation in cattle prices as 2011 progressed was the tightening of supplies. Whereas in the first half of the year (H1) 5% more prime cattle were handled by UK abattoirs, H2 volumes trailed year earlier levels by 6%. Though more heifers and marginally more steers were killed in 2011 than in 2010, the young bull kill contracted to such an extent that overall prime cattle supplies declined 1% on the year. The picture in Scotland was very similar.

In contrast to a lower prime kill, cull cow slaughter numbers for the UK rose by 14% over 2010 levels. However, as the year-end approached there was a slowdown in the culling of mature animals, with November volumes trailing year earlier levels and weekly throughputs in December only slightly higher than a year ago. This, coupled with fewer retentions of heifers on both sides of the border, indicates a future contraction of the UK cattle herd.

Supplies of beef in Irish abattoirs were even tighter throughout 2011 with only April and October showing higher monthly kill figures than in 2010. Consequently, Irish slaughterings during 2011 fell 4.5% year-on-year.

Cattle prices have continued to increase across the EU. Prices have been driven higher by tightening supplies across the EU into the early weeks of 2012 having risen markedly in the final quarter of last year. However, prices have stabilised when quoted in Sterling terms due to exchange rate movements.

Though tighter European supplies have generated opportunities for UK exporters, provisional November trade data indicates that monthly exports fell slightly behind year earlier volumes for the first time since January 2010. Nevertheless, UK exports are still up 35% year-on-year for the January-to-November period.

Shipments to Belgium, France and the Irish Republic continue to surpass 2010 levels. However, trade with the Netherlands eased back while deliveries to Germany and Italy trailed year earlier levels once again. Despite well documented economic turmoil in Europe one country which has been sheltered from a slowdown is Sweden. Though it remains a very small market for UK beef exports, it is particularly positive news that strong growth of shipments has been sustained throughout 2011.

Beef imports were little different in November from the same month one year before and total deliveries in the year-to-date remained 1.5% lower year-on-year. During November, monthly imports of frozen beef were higher than a year earlier for only the second time in 2011. This extra frozen beef came from Ireland.

Pig Prices and Supplies

Nevertheless, ex-farm prices are still nearly 5% above year-earlier levels.

Prices have held a year-on-year premium in recent months despite an expansion of domestic production. On the back on a 6% increase in November throughputs, average weekly kill figures for December show that UK abattoirs slaughtered 5% more prime pigs than in the same month of the previous year. With the June census showing just a 2% gain in the breeding herd, therefore, by implication, greater production has been fuelled by productivity gains.

A sign of renewed confidence in the pig sector has been borne out in the market for weaners. The combination of lower input costs and better prices for finished pigs has resulted in a turnaround in prospects. Consequently, weaner prices have increased steadily since October and are now 12% ahead of their 2011 low.

As a result of the weakening Euro, cull sow prices have stabilised recently since their meat is principally for export. Nevertheless, strong demand on the continent and competition between buyers has acted as a buffer, and prices are still 32% higher than one year ago.

Though input costs are well below year earlier levels, grain prices have drifted higher in recent weeks while oil prices have remained stubbornly high as the weakening of Sterling against the US Dollar has pushed commodity prices higher in Sterling terms.

Currency movements against the Euro have also impacted negatively on producers with a weaker Euro leading to an increased availability of cheap pigmeat imports to compete against. With EU prices falling by 10% since the beginning of December, the gap between the UK and EU averages for grade E pigs has widened to 17p/kg (13.5%), a 50-week high.

In November, UK pork exports failed to beat year earlier volumes for the first time since January 2011. However, over the January-to-November period shipments were up 10.5% on the same period of 2010.

Imported pigmeat volumes were slightly higher than year-earlier levels for the first time in three months in November. Imports in the eleven months to November were 3% higher than in the same period the year before.

Sheep Prices and Supplies

Similar to recent movement in cattle markets, lamb prices have fallen back since January commenced. In mid-January, auction prices dipped below £2 a kilo for the first time in two months while deadweight values dropped to a six-week low.

The most recent slaughter data shows that average weekly throughputs at UK abattoirs during December ran 4,000 head higher than a year earlier. This is a change from November when supplies had been particularly tight with 6% fewer lambs killed than in November 2010. From June through to the year-end, approximately 230,000 more lambs were killed in the UK as a whole than 12 months beforehand. Nevertheless, despite this increase more than 60% of the increased lamb crop reported in the June census has yet to be marketed.

Throughputs at Scottish abattoirs again trailed 2010 levels in December. This has been the case for the past five months in succession.

Cull ewe prices have added a further £5 a head since December to now trade at around £75/head. This time last year ewes were valued around the £60/head mark and prices have moved forward by an even greater margin from their 2011 low in October.

This marked improvement in producer prices for ewes has come despite a tightening in supplies of less than 1% during H2 2011 compared with the same period of 2010.

Heavy lamb prices across the EU have eased back into January after making strong gains through the final quarter of 2011. The slide has been steeper in Sterling terms than when quoted in Euro, due to the weakening in the Euro by around 4% over the past couple of months.

This currency movement has added to the deterioration in UK export competitiveness which had previously been driven by relative movements in prices in France, Ireland and the UK. Sterling has traded around its highest level in sixteen months in January and this has pushed UK prices even higher in Euro terms.

The first signs of reduced competitiveness appear to have shown up in November trade figures with volumes up 7% on the year compared with 11.5% growth over the eleven-month period. However, November’s reduced lamb kill may have had more of a bearing on trade volumes. After struggling to maintain exports to France for a significant part of the year, substantial growth in sales during the September to November period has now pushed year-to-date deliveries 4% ahead of 2010 levels. While strong inroads continued to be made into markets in Germany and Ireland, trade with Belgium once again disappointed.

The improvement in New Zealand’s 2011/12 lamb crop led to a greater availability of lamb for import in both October and November than in the same months of 2010. Nonetheless, shipments remained considerably lower than 2009 levels.

January 2012

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