Cattle
Prices and Supply
Prime cattle prices edged backwards during May to close the month at 352p/kg dwt, having posted a record high of 355p/kg dwt at the end of April. Though deadweight prices are now trading approximately 12.5% higher year-on-year, they are only slightly higher than six months ago. Prices have shown a similar trend in the auction ring. The recent weakening in prices indicates that abattoirs have been been able to source sufficient volumes of cattle to meet their requirements. Cull stock values have also come off their recent highs with beef cows trading at 143p/kg lwt at the end of May, down from 148p/kg lwt at the end of March. Nevertheless, beef cows are still up 11% on the level at which they opened 2012.
DEFRA data for slaughterings at UK abattoirs shows that throughputs continued to slide in April compared with last year as 5% fewer prime cattle were slaughtered. In the first third of the year slaughterings were down 8% on the year. Throughputs fell during April to a lesser extent than in previous months as the number of steers killed fell by 2%, compared with a 6% shortfall in the January to March period. So far this year 8% fewer heifers have been slaughtered, implying that producers have increased retentions for breeding. Young bull volumes fell 17% year-on-year over the four-month period.
In Scotland, the supply of prime cattle to abattoirs has been even tighter, down 10% year-on-year over the first four months. Similar to the situation in the rest of the UK, the decline in heifer slaughterings has been greater than that for steers, while the young bull kill has fallen sharply; high feed costs have reduced the profitability of young bull systems. However, the culling of mature stock at UK abattoirs picked up during April. After running 9% behind year-earlier levels in the first quarter (Q1), monthly volumes moved 3% ahead of last year in April. North of the border, a 5% increase in the culling of mature stock during April was enough to move volumes 1% above year earlier levels for the first third of 2012. At the UK level, they remain 6% lower. Irish abattoirs continued to kill fewer cattle than last year during May. Weekly data for the first four months of the year indicate that slaughterings have been approximately 20% lower. However, supplies should begin to ease late in the year as the Irish December census revealed a significant increase in the number of cattle under one year old on Irish farms. A major contributing factor has been a collapse in live calf exports. So with prices falling in the UK despite tight supplies, this points to a fall in demand at the retail level. Indeed the latest data available from market research firm, Kantar, indicates that beef consumption declined by 5.5% year-on-year in the period between mid-January and mid-April. However, consumers actually spent more money on beef, meaning that it was the higher prices that reduced purchased volumes. This is unsurprising given the current squeeze on living standards, in which prices across the economy have been rising faster than wages.
Average prices paid for cattle across the EU have been relatively stable during May. While young bulls and heifers have eased slightly, steers and cows have become a fraction more expensive. Irish prices rose 1% during the month and are up by around 12% on the year, slightly above average for the EU. Exchange rate movements have resulted in UK cattle prices being 20% higher than last May when quoted in Euros (well above the 12.5% gain in Sterling terms).
Lower domestic production volumes have had a knock-on impact on beef exports. In the first quarter of 2012 they totalled 28,600t, 17% down on the same period last year. Deliveries to all major UK customers declined, except for Ireland, the second largest export market. Ireland purchased 15% more beef to cover its tightly supplied market.
The reduction in UK production also led to increased beef imports. Shipments rose 6.5% on the year to 57,400t. There was also a shift in the composition of imports with frozen beef taking an increased share. This can be explained by the 10% reduction in slaughterings of mature animals during Q1 leading to an increased requirement for manufacturing beef, of which Ireland is the principal supplier.
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The EU’s autonomous High Quality Beef import quota (not the Hilton quota) has been changed to a first-come-first-served basis, having previously been allocated through import licences. The previous system worked by allocating each country with a proportion of the quota, and then the exporting country would determine which firms could export, usually based on past trade flows. However, this process had the unintended consequence of leading to an oversubscription of licences as firms with no intention of exporting high quality beef could profit by taking a license and then selling it on to an exporting firm. Nevertheless, the new system has generated a new issue of uncertainty. Once the beef reaches Europe it will count towards the quota, but if the quota has already been filled when the shipment arrives in the EU, then either the full tariff will have to be paid, or the beef will have to be returned to its country of origin. The problem lies in the fact that the exporter cannot know if the quota has been filled when the beef is sent, or if the quota will be filled by the time the beef arrives in the EU. This could pose more of a problem for Australia and New Zealand since their shipping times will be considerably longer than those of the American nations. However, the quota requires full cattle traceability and this gives the Australians an advantage over the US as they already have a form of EID whereas the US does not. Therefore, firms in the US wishing to export will have to invest in a new production unit with full traceability that will not deliver a return for eighteen months, and even when it does, there will be some uncertainty due to the first-come-first-served nature of the quota.
The EU has changed the amount of subsidy paid to EU beef exporters for product shipped to third countries. Export refunds have been cut to €163/t (approximately £130/t) from €224/t for beef carcases. The reasons given have been that prices have risen significantly and also that a tightly supplied EU beef market requires more product to remain in the EU.
In Brazil a structural change in beef production towards feedlots is expected to continue this year. The number of cattle on feedlots is forecast at 3.87m head, up 15% year-on-year. The rise in feedlot production has offset a historical fluctuation in production volumes which tend to slow from May to September as dry weather reduces the weight gains of grass-fed cattle. The shift towards feedlots now means that Brazilian abattoirs have a more stable source of supply throughout the year and as a consequence prices now show less seasonal trend. As meat processors benefit from the increased certainty offered by stable supplies, they have encouraged growth in feedlot production by setting up their own operations and agreeing partnerships with producers. However, the combination of lower farmgate prices and rising feed costs are set to tighten feedlot margins in 2012.
Tight cattle supplies and government policy continued to restrict Argentina’s beef exports in the opening third of 2012. Exports of the high-end Hilton cuts fell by 25% year-on-year while total fresh and frozen beef shipments were down 15%. Exporters were shielded to some extent, however, as market conditions pushed up the average value of the Hilton cuts by 8.5% to £9,900/t and fresh and frozen beef by 2.5% to £4,400/t. Germany continued to take more than half of the Hilton cuts while Israel, Russia and Chile maintained their positions as Argentina’s largest customers for fresh and frozen beef. Chile jumped from third to first as its imports from Argentina increased by 45%. Israel bought 20% less, meaning it fell to third place from first, but despite purchasing 7.5% less Russia remained the second largest buyer.
By contrast, Uruguay managed to increase its beef exports over the same period. It shipped 83,100t to other countries between January and April, compared with 75,900t a year earlier. This was an increase of 9.5%. Higher exports have come despite a 5% decline in cattle slaughterings, thereby suggesting significantly lower domestic demand. Meanwhile, Uruguay’s national football team will promote the country’s offering of beef for the next eighteen months, after agreeing a deal with Uruguay’s meat promotion agency. Uruguay will compete at the London Olympics and is currently ranked third in the world.
Another country that has seen its beef exports expand in 2012 has been Australia. Shipments rose by 1% to 368,000t in the first five months of the year. Growth has been aided by strong demand from the US, particularly for manufacturing beef, and deliveries are up nearly 60% at just over 100,000t. A recent weakening of the Australian Dollar against the US Dollar has increased the competitiveness of Australian beef and suggests that this growth could be sustained going forward. Of the smaller markets, Russia, Taiwan and Singapore also bought more than in the same period of 2011. However, this was partially offset by a decline in beef exports to Australia’s largest market, Japan. Exports fell 11% to 120,500t. Another significant buyer, Korea, purchased 41,000t, one-third less in the five month period than a year ago. Lower exports to Korea have been attributed to the recovery in domestic production after the FMD outbreak of eighteen months ago, plus a slowdown in beef
