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QMS (Quality Meat Scotland)


23 August 2012

QMS Market Report - August 2012QMS Market Report - August 2012

After falling at the end of June, lamb prices rose steadily for four weeks.
QMS - Quality Meat Scotland

Cattle Prices and Supplies

In contrast to 2011, throughout July and into August prime cattle prices have exhibited their historical seasonal trend: falling through July before picking up again in August. Having opened July at their record high of 358.3p/kg dwt, Scottish steer prices then slipped back to 353.6p/kg at the end of July before rising to 356.3p/kg dwt in the week ending 11 August. By contrast, auction prices have shown more stability. The average price paid to acquire prime cattle at Scottish auctions has fluctuated in a narrow band around the 200p/kg mark since the beginning of June.

Cull cow prices slowed significantly at Scottish auctions through July and cooled further as August began. In July, they averaged 5% lower than in June, and, at 125.5p/kg lwt in the week to 8 August, they were 11% lower than their peak at 141p/kg two months before. However, they then rebounded to 131.8p/kg in the week to August 15. Deadweight prices for cows have shown similar movements; falling significantly before recovering in the week ended August 11. Nevertheless, at 280p/kg, they were still 4.5% lower than at the end of June. Compared to the same week last year deadweight prices are nearly 7% higher, while liveweight prices are up 5%.

According to the latest UK slaughter statistics, throughputs of prime cattle tightened further in June. Numbers were down 11.5% year-on-year, an even greater contraction than in the first half of the year (H1), during which volumes were 8.5% lower than a year earlier. However, within the figures the divergence between the volumes of steers and heifers being slaughtered remained. While the June steer kill fell 7% on the year, the heifer kill was down by 15%. This may be an indication that producers are retaining more heifers for future breeding with the likely explanation being that strong steady prices have encouraged producers to expand their operation.

In Scotland, the supply of prime cattle to abattoirs was down by 10% in June, matching the cumulative deficit for the whole of H1. Like in the UK as a whole, the data for Scotland also suggests that a herd rebuilding phase is underway. While 3% fewer steers were killed in June 2012 than a year earlier, the supply of heifers to Scottish abattoirs was down 15.5%, following a 13% decrease in the previous month.

UK level data for mature stock supports the implication that the herd is stabilising or even that farmers are beginning to expand their breeding herds. In June, the cow kill was down by 13% year-on-year, and over H1, numbers were down by 7%. In Scotland, the first signs of a similar process became apparent in June as monthly volumes of mature cows and bulls slaughtered were down 3% on the year, having run ahead in prior months. This, coupled with the reduced heifer kill, suggests that producers are replacing cows, and hence, the Scottish breeding herd may also begin to show some signs of stability.

Though supplies of prime cattle to Irish export abattoirs continued to remain tight through July, slaughterings were down 11% year-on-year compared with 17% lower in the year-to-date. It may well be that the increased numbers of cattle under one year of age at the time of the December census are now starting to arrive on the market.

The latest data available from market research firm, Kantar, indicates that beef consumption declined by 3% year-on-year in the 12 weeks to July 8. However, it took a 7% greater outlay in cash terms for consumers to acquire this smaller volume. A long period of poor weather pushed burger sales down 13.5% on the year.

Average cattle prices in the EU for heifers, young bulls and cows rose around 1% during July and then strengthened slightly into August. In contrast, steers fell during July by 1% as they are more heavily weighted towards the Irish price, which fell by 5% in Euro terms. Irish prices have stabilised at the beginning of August and this allowed the EU average for steers to rise marginally. Currency effects mean that while UK cattle prices are up 9% on the year in Sterling terms, they are 20% higher when quoted in Euro. On average, EU prices are approximately 15% higher on the year, with French producers achieving closer to 20% growth, but Irish producers seeing more modest growth of 11%.

Lower domestic production continued to place downwards pressure on the volume of product available for export into May. Provisional figures showed a 31% decline in monthly volumes compared with May 2011. Shipments in the opening five months of the year were 21% below year earlier levels at 45,400t. Ireland and Belgium were the only major customers to import more UK beef year-on-year in the January to May period; purchasing 14.5% and 0.5% more, respectively. Looking further afield, shipments to Ghana were nearly three-and-a-half times higher than in the same period of 2011 with strong economic growth driving beef demand.

The combination of lower UK production and exchange rate movements presented trading partners with an increased opportunity for market access. Consequently, imports increased 6.5% on the year to 95,850t between January and May. 1.5% more fresh beef has been sourced from overseas than a year ago, while imports of frozen beef are up one-fifth.

The composition of imports has subsequently shifted towards frozen beef in 2012. Compared with the first five months of 2011, frozen product has increased its share of total imports by 3.5 percentage points to 30%. It is likely that the lower UK cow kill has forced food manufacturers to look abroad, particularly given the increased requirement for burgers over the period of the Olympic Games. With Ireland being the UK’s principal source of manufacturing beef, its exports to the UK have risen nearly 30%, while imports of frozen beef from the Netherlands and Germany have increased by more than 40%.













Sheep Prices and Supplies

After falling at the end of June, lamb prices rose steadily for four weeks. They then slipped back into August, and traded at their lowest in nine months, before picking up once again. Auction and deadweight prices have been trading at a slight year-on-year premium since mid-July.

One factor that has been placing some downwards pressure on prices, namely quality, has now become less of a factor. Since the start of the 2012/13 season 70% of lambs have achieved at least an R3L grade compared with 74% in the same period last year. However, over the past six weeks this deficit has halved to an average of two percentage points.

After surpassing year earlier levels by 5% during May, lamb throughputs at UK abattoirs in June were down 7% year-on-year. However, when heavier carcase weights are taken into consideration, UK lamb production volumes were nearly 3% higher in the first two months of the 2012/13 season than in the corresponding period of the 2011/12 season, and up by 0.6% in H1.

In Scotland, abattoir throughputs were up 16% year-on-year for a second month in June. Though throughputs were slightly behind 2011 levels during H1, heavier carcase weights and the considerable recent expansion in production pushed the volume of lamb produced by Scottish abattoirs up 2% year-on-year.

The most recent Kantar data indicates that the downwards trend that had been present in lamb sales for around eighteen months has now reversed. Purchased volumes jumped by 27% in the four weeks to July 8 when compared with the same period last year. With expenditure on lamb rising to a lesser extent (14%), there is the strong implication that falling retail prices and discounting have driven consumption. Of the individual cuts, the greatest gains in consumption were made by roasting joints, while mince was the only category to show a decline.

Despite the Islamic festival of Ramadan, cull ewe prices continued to come under pressure through July and then dipped further in the first half of August. At the start of August, prices have averaged £59 a head; their cheapest since October, and 18% lower than a year ago.

June saw one of the smallest monthly ewe kills in UK abattoirs on record; up only slightly on the previous month during which slaughterings had been at their lowest since March 2004. Furthermore, during H1 2012, volumes trailed year earlier levels by nearly 11%. Since the decline is greater than that of the contraction in the ewe flock it suggests that producers may have begun to rebuild their flocks.

In July, the average price of a heavy lamb in the EU increased by nearly 1% to 511.4c/kg dwt. This meant that at the end of the month prices were 9% higher than a year earlier. This average figure, however, masked a wide range of price movements. While Sweden has experienced the largest gains of more than 23%, increases were closer to the EU average in the Netherlands, Germany and Belgium. By contrast, lambs in Spain were just 1% more expensive, while producer prices in France, Ireland, Romania and Austria were approximately 1% lower on the year. In Sterling terms, average prices are down by 1.5% year-on-year.

The Euro fell to a three-and-a-half-year low against Sterling in July and has been trading at between 78-79p in recent weeks. This is around 10% weaker than twelve months ago. As a result, British ex-farm lamb prices have increased significantly when quoted in Euro terms. Since more than a third of UK production is exported, this will have inevitably placed considerable pressure on prices paid to the producer.

Although the trade data runs at a lag, the strengthening of Sterling earlier in the year does not appear to have dampened the lamb trade. Up to the end of May, UK exports grew by 2% year-on-year to reach 35,300t, and during May, deliveries exceeded year earlier volumes by 5%. 34% of domestic production was shipped overseas in the first five months of 2012, up from 33% a year ago.

Of the major EU customers, Belgium, Germany and Ireland have purchased significantly more lamb from the UK thus far in 2012; increasing by a respective 28.5%, 22% and 18%. These gains were able to offset reduced trade with France and Italy. France sourced 5% less UK lamb than last year, purchasing 19,300t over the five-month period, while Italy bought 800t, down from 1,000t a year earlier. Strong growth into some non-EU markets also helped push total exports higher. Deliveries to Norway rose by a factor of 19 to more than 550t, while shipments to Ghana have increased by a factor of 10 to reach close to 250t. Strong growth into South East Asia continued with exports up to 2,800t from just over 1,000t in the January to May period of 2011.

The import market changed course in May. Though total monthly imports remained below year earlier levels, they were only marginally down, and the UK’s largest supplier, New Zealand, delivered more lamb than a year earlier for the first time since November. The likely contributor is falling lamb prices at the global level which have begun to offer consumers the perception of better value for money. For example, May Retail Prices Index data showed that the average cost of imported leg of lamb had fallen 1.5% year-on-year.











Pig Prices and Supplies

Farmgate pig prices edged forward for most of July and peaked at 150.6p/kg in the week to 21 July. They then eased back for two weeks, in line with their seasonal trend, before rising marginally in the second week of August. Compared to last year, the DAPP is now slightly higher; though it traded at a discount between 26 May and 4 August.

UK prime pig slaughterings growth slowed substantially during June as just 0.2% more prime pigs were killed than a year earlier. However, heavier carcase weights and an increased sow kill helped raise overall pigmeat production by nearly 2%. During the first half of the year, throughputs rose 3% and total production volumes were up by 3.5% when compared with H1 2011. This may help explain why market prices have struggled to reach last year’s levels.

In Scotland, June throughputs were 7.5% higher than a year before and H1 figures were up by 7%. The addition of a processing plant last September has made a significant contribution to this increase.

Kantar data shows that consumption of pork in the UK declined by 2% in the three months to July 8. Similar to beef, consumption volumes have decreased primarily due to higher retail prices (+4%) as spending on pork in cash terms has risen. Volume figures in the four weeks to July 8 were even weaker with consumption down 7%. Sausage sales were 2% lower as the negative effect of bad weather on barbecue products offset their strong appeal amid difficult economic conditions.

Weaner values have now fallen each week for four months. In the week ended 11 August they traded at £39 a head, compared with £46 a head in mid-April. It is likely that falling prices are reflecting the decreased confidence that has come as a result of the combination of sharply higher feeding costs and expectations that prices for finished pigs will ease seasonally.

Prices for feed grains and soybeans have stabilised in August having spiked in the first half of July. The spike was induced by an extreme drought in the US which has led to large downwards crop revisions, adding to the supply side pressures previously factored into forecasts from the Black Sea region and South America. Any concerns over the prospects for demand, given the weakness in global economic activity, have clearly been outweighed by supply-side worries. As feeding costs were falling sharply at this time last year, prices have moved further ahead of year earlier levels, and, when coupled with similar prices at the farm gate, margins have continued to narrow.

A sow price sensitive to the export trade has struggled since late spring. In addition to exchange rate movements, which have seen Sterling strengthen 10% over the past year, and by 5% since the end of March, prices have faced headwinds from weaker demand in the EU due to unseasonably wet weather and increased supplies as some producers on the continent liquidate their herds ahead of the sow stall ban. In the opening two weeks of August, sow pr ices slipped below 106p/kg dwt, to trade at an eleven-month low.

Average producer price for grade E pigs in the EU increased by 4.5% between mid-July and mid-August; rising from €1.68/kg to €1.755/kg. UK price competitiveness improved considerably over this period as British prices rose only a fraction in Euro terms. A stable exchange rate subsequently helped improve the competitive position of domestic pigmeat on the home market.

In the first five months of 2012 pork export volumes have been 4.5% higher than in the same period of 2011. However, during May, monthly volumes were at their lowest of the year so far at 11,000t, falling 4% short of year earlier levels.

Pork imports remained well below last year’s levels into May with monthly volumes down 14% year-on-year. In the January-to-May period they were down by 11%. Imports have fallen due to the combination of increased domestic production and a slowdown in demand.












August 2012

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