Market Report July 2010
Last Updated on Friday, 23 July 2010 14:56 Written by Administrator Friday, 23 July 2010 00:00
Cattle
Prices and Supplies
After falling steeply for nearly six months prime cattle prices have seen a seasonal bounce since the third week of June, and recovered towards their early May level. The average deadweight price for a steer is 5.5% below the start of the year and 5% down on a year ago.
Cull cow prices in contrast are little changed from the start of the year but have slipped in the past month. Beef sired cull prices remain some 8% below year earlier levels, but dairy cull cows are marginally more expensive than in the same week of 2009.
Lower cattle prices in 2010 than 2009 may be explained by UK and Irish slaughter statistics. In the first five months of 2010 UK abattoirs slaughtered 5% more prime cattle than last year and 10% more cull cattle. In contrast the Scottish prime cattle kill fell 0.6% in the first half of 2010 while the cull kill was up by more than 6%. Irish cattle slaughterings in the first third of the 2010 were more than 15% higher than last year. Higher slaughterings have meant that more product is available on the market and, combined with weak consumer confidence, this has held back prices.
The recent strengthening of sterling, from €1 = 90p in March to €1 = 83p in early July, is placing downward pressure on market prices by making Irish product more competitive at home and Scottish product less competitive in the European market.
Irish prime cattle producer prices are now similar to last year after trailing year earlier levels by around 2% until June, although cows are still making marginally more than a year ago. Average prices across Europe are also very similar to last year but have been fluctuating in recent weeks.
HMRC trade data shows exports to be far higher in the first five months of this year than in the same period of 2009. Exports increased by more than 14%, helped by upwardly revised April figures which had provisionally been lower on the year. More fresh beef carcases are being shipped to Ireland to be processed before returning as imported cuts of fresh boneless beef due to the weakness of Sterling.
In the January to May period imports of beef were around 2% higher year-on-year at 92,000 tonnes. However, a large increase in deliveries of fresh beef (up 11.2%), were almost cancelled out by a 15.5% decline in frozen product on the year. The 15% increase in fresh beef imports from Ireland may in part be explained by their abundant supply of cattle.
News Round Up
Well documented problems in the Argentinean beef sector have led to falls in production and exports by 23% and 48% year-on-year respectively for the first five months of 2010. Lower production and inflated prices have culminated in a 15% reduction in domestic per capita beef consumption so far this year, although 2009 consumption was at a record high level.
Provisional figures show a 7% rise in Brazilian beef exports to nearly 490,000t in the first half of 2010 compared with the same period in 2009. In value terms the data is even more impressive as revenues jumped by 35% on the year. However, turnover has not yet recovered to its levels of 2008. Russia remains its largest beef export market, though deliveries have declined, while Iran became the second largest market for Brazilian beef. This is likely to be a consequence of a new political relationship between the two countries.
Meanwhile the country’s agriculture ministry is working on resuming processed exports to the USA. They are attempting to set up tests on exports which will meet US requirements and expect a resolution in the near future. However, exports from the JBS plants where the sanitary concerns arose will remain under the ban. In addition, Brazil has sent its agriculture minister to meetings in Brussels in attempt at getting the EU to ease its restrictions on Brazilian exports. Brazil would like more farms to be export certified and have its agriculture ministry rather than the EU carry out the monitoring. They are also looking for changes to be made to the Hilton Quota as restrictions mean that only 10% of the quota is being filled.
The Irish government has awarded an €800,000 grant to the Irish Cattle Breeding Federation to fund improvements in breeding in both the beef and dairy sectors as part of the country’s National Development Plan. The grant will allow scientific knowledge and modern techniques to be applied to cattle breeding and aims to drive greater efficiency and profitability within the industry.
Chinese imports of beef rose by 30% on the year for the January to May period to 5,700t as demand increased. Uruguay benefited, tripling its shipments of beef to China, and improved its share of the market to 49% from 26%. New Zealand also increased shipments while Australia and Brazil exported around 30% less beef to China.
Restrictions on Canadian beef exports to China will be phased out after the Chinese President signed an agreement prior to the recent Toronto G-20 summit. The ban was formally lifted at the start of July. Initially it will only allow entry of boneless beef from cattle under 30 months of age and beef tallow. In monetary terms boneless beef is expected to be worth around £10m each year while tallow is expected to earn Canada £30m a year. Canada is the first nation with history of BSE to be allowed entry to the Chinese market, and eventually it could provide the Canadian beef sector an extra £70m in revenues once full access is granted.
Sheep
Prices and Supplies
After opening the new season strongly lamb prices have fallen back in recent weeks as supplies have begun to pick up. However, supplies have remained tighter than last year as the poor weather has had a lasting detrimental impact on lamb growth and numbers. Consequently, prices are currently trading around 10% higher than in July 2009, though this may also be explained by an improvement in carcase quality.
Provisional data suggests that the British sheep kill during May was 10% lower than last year and down by 15% year-on-year for the January to May period, with similar figures in Scotland. Supplies are also tight in Ireland where May throughputs show a decline of one quarter on the same period last year.
Cull ewe availability was also much reduced during May but prices have dropped back from the highs of earlier in the year. Nevertheless, in mid-July cull ewe prices remain 12-13% better than a year ago.
The average lamb price across Europe is approximately 4% ahead of last year. However, French and Spanish producer prices are lower by around 3% and 6% respectively. Of the major producers only the UK and Ireland report prices at or above last years levels.
The French market remains subdued and the expectation among French producers is that they will see no improvement in prices during 2010. As a consequence movements in sterling exchange rates will remain a key factor in UK export prospects.
Export data shows volumes exported during the first five months of 2010 to have been almost 9% behind last year, and reflects reduced UK production. However, given that UK slaughterings have fallen more steeply than exports this year, the share of exports in total production will have risen.
HMRC data also shows that imports are lagging behind their 2009 level by some 12% for the January to May period. Imports from New Zealand have fallen year-on-year as their production has declined, although deliveries in March exceeded their year earlier total due to strong Easter demand in the UK. Nevertheless, lower volumes of imports from New Zealand have been offset in value terms as a shift towards the more expensive higher quality cuts has taken place
Recent improvements in milk prices in New Zealand and some bullish comments from major milk processors may rekindle interest in dairy farming once again leading to some switch from sheep to milk. Dairy production is predicted to increase by 14% in the year ending 31 May 2011, while sheep numbers are at their lowest in more than 60 years.
For the year to the end of May Australian lamb exports were lower by a mere 120 tonnes compared to the year ending May 2009 at 143 000t. Respective declines in deliveries to the US and Japan of 4% and 30% were offset by gains in sales to Southeast Asia and the Middle East. Mutton exports fell by 23% year-on-year for the same period with less meat being shipped to all its major export regions. This is hardly surprising given that the average mutton price for the period was 64% higher than in the year ending May 2009.
Spanish sheep production is experiencing major problems with lower prices and higher costs of production combining to tighten producer margins. More frozen sheepmeat has been imported from South America than in the past and since it is cheaper, producer prices have had to fall in order to compete. The Spanish government’s financial aid scheme for sheep farmers is failing to alleviate these problems as many farmers have not met the qualifying requirements of past investment. With little incentive to continue production farmers are being forced to either leave the sector or move towards milk production.
Pigs
Prices and Supplies
It looks as though the rising trend in producer prices has ended. The deadweight average has fallen in three out of the last four weeks and may have reached its peak for the year at the end of June. It appears to have peaked three weeks earlier than in 2009. After stabilising in May and June the price differential with last year has now widened to 5.4%. Producer prices are now expected to fall slowly to the end of the year.
After edging downwards through May and into early June the weaner price has since fallen sharply. As a result the gap with its year earlier level has become quite pronounced in recent weeks. Downward pressure on prices in the last two months may be attributed to increased weaner availability.
Cull sow prices fell again in June and are trading in a range between 92p/kg dwt and 96p/kg dwt. The Euro’s weakness against the pound since early May has reduced demand from mainland Europe, placing further downward pressure on the price.
European pig prices saw a second successive month of strong growth in June. The EU reference price opened the month at just over €1.43/kg dwt, before rising 5.1% to stand at over €1.50/kg dwt in the first week of July. Despite two months of growth the price still lags its year earlier level by more than 4% as prices rose at a quicker rate in June 2009. The gap between producer prices in the UK and on the continent remained at just over 15% as both reference prices expanded at an almost identical rate. Prices appear to be on a similar trend to the last few years, suggesting that they should continue to rise in July towards an August peak.
In the final two weeks of May, Scottish slaughterings of clean pigs exceeded their year earlier levels after trailing 2009 throughputs in every week since the start of 2010. The average weekly kill in May was 10,500 head, approximately 150 head higher than in May 2009. In June throughputs fell back below 2009 levels by 12%, and for the first half of the year slaughterings were 8.2% behind H1 2009.
In the January-to-May period UK clean pig slaughterings rose 6.8% on the year to 3.8m head. This was assisted by May’s kill which was 11% higher than last year at 695,000 head.
UK sow slaughterings have also been higher than last year. In the first five months of 2010 throughputs were up on the same period of 2009 by 4.7%, though in April they were lower on the year.
Compared to the first five months of 2009, a greater number of slaughterings combined with 1.5% growth in average carcase weights helped boost overall UK production volumes by 8.4% year-on-year to 299 000t.
May 2010 pigmeat exports exceeded those of the same month the previous year by 42% and were higher than in the same month of any year since at least 2002. For the first five months of 2010 export figures continued to look extremely positive, at 29.5% more than the January to May period of 2009. They also exceeded exports for this period dating back to at least 2002. With the pound on average 2.5% stronger over the period and consequently weakening the UK’s competitive position compared to last year, the substantial increase in exports is positive news for the industry.
In May, pigmeat imports continued to be lower than in the same month of 2009. May imports were down more than 18% year-on-year. For the first five months of the year volumes show a 12.7% decline compared to the same period in 2009. This is despite the relative strength of the Sterling exchange rate making imports from Europe cheaper in Sterling terms this year.
News Round up
In the USA the Food and Drug Administration (FDA) has announced new guidelines in attempt at reducing the amount of antibiotic use in animal feed. With around 80% of US pig producers using antibiotics to improve growth rates the industry is unhappy that the regulator wants to ensure drugs are used only for assuring animal health. The FDA claims to have scientific evidence on its side showing the use of antimicrobial medicines in the diets of food producing animals can lead to resistant pathogens building up in the human body after the meat is consumed which can then cause disease.
A number of major investments in the Russian pig industry have been recently announced. The projects are set to total $200m and should facilitate a huge expansion in production capacity in the south west of the country when the projects reach completion in around five years time.
After China recently reopened its markets to imports of Irish pigmeat, Korea has now allowed the resumption of live exports of breeding pigs, giving an added boost to the Irish pig industry. These live exports will be low in volume but high in value, and are therefore likely to prove highly lucrative for farmers that produce the specific genetic category of pigs required.
Meanwhile the Irish government has launched a new animal welfare fund to help Irish producers meet the costs of conforming to the EU directive on sow housing which comes into force at the end of 2012. 40% of the required investment will be covered by government grants as part of the Irish Government’s revised Rural Development Plan for 2007-13.
Brazilian pig producers are enjoying an improvement in fortunes as profit margins are now increasing after a difficult 2009. Tight supplies have supported prices while maize and soymeal feed costs have fallen substantially. Domestic consumption is expected to rise by around 100,000 tonnes as purchasing power rises with economic growth. It also appears that export barriers based on sanitary concerns could be relaxed as major pigmeat importers visit the country’s FMD-free Santa Catarina state for inspections.
Prepared by Stuart Ashworth and Iain Macdonald.
