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AHDB Cattle and Sheep Weekly

12 May 2014

EBLEX Cattle Weekly - 9 May 2014EBLEX Cattle Weekly - 9 May 2014

Processor caution subdues trade

The deadweight prime cattle trade has continued to generally ease. This comes as retail demand remains slow and the supply of cattle continues to outstrip processor demand. With caution amongst processors, in week ended 19 April, at 355.9p/kg, the all prime average price was back 6p/kg over the past four weeks. At this level, prices are at their lowest point since early November 2012. With cattle benefiting from the improved conditions and better quality forage, the number coming forward should remain relatively strong. As such, the supply/demand balance is likely to remain narrow, thus keeping a lid on the resumption of any upwards pressure on price in the short term.

The cull cow market has fared better than the prime trade since the turn of the year. With demand reportedly remaining just ahead of supply, prices have broadly strengthened. Whilst still trading well below year-earlier levels, at 249.1p/kg in the latest week, the –O4L cow price has recovered 18p/kg since the low point of the year so far in early February. With the current fine weather, spring turn out is on the horizon in some areas. This may keep numbers tight in the coming months as producers look to add condition at grass in order to take advantage of better prices on offer for well-finished cows. However, with prices for poorer quality prime cattle moving closer to those of quality cows some product substitution could take place, which may result in the upwards pressure on cow prices dissipating.

Price spread widens

The price spread between producers and retailers in March has widened over recent months. With farmgate beef prices falling while retail prices have broadly moved up, producers are now receiving a smaller share of the average retail price.

In the immediate aftermath of the horse meat revelations last year, as farmgate prices improved at a faster rate than retail prices, the producer share of the final retail price increased. At the peak in May last year, producers received a near 60% share and this had increased more than four points since the start of 2013. Following some stability in the second half of the year, at 51%, the latest figure for March indicated that the producer share of the final retail price has fallen 3 percentage points since January. It is well below their 58% share in March last year. With prices easing back this year while retail prices have levelled, this bucks the trend of the last three years when the producer’s share of retail price increased in the run up to the Easter period.

Beef and veal production up in March

As of December 2013, there were reportedly an increased number of slaughter age cattle on the ground, as weaker market conditions had given little encouragement for producers to market cattle. These results indicated the potential for a modest increase in supplies of prime cattle for slaughter in the first half of 2014. Consequently, UK prime cattle throughputs in March were up 4% on the year at 154,000 head with all regions of the UK recording higher throughputs compared with a year earlier. Continuing the recent trend, heifer throughputs were up again, being 8% higher year on year. However, in a change to recent developments, and for only the second time since late 2011, steer throughputs were also higher on the year. In contrast, young bull throughputs were back 6%. Adult cattle numbers were also higher than in March 2013, as producers may have taken advantage of better cow prices.

As expected, improved conditions have meant that carcase weights for all types of cattle were once again heavier than in the corresponding month last year. Combined with the increased throughputs, this meant that UK beef and veal production in March was up 8% on the year, at 69,100 tonnes.

Beef and veal production for the quarter was up 3% on the year at 221,100 tonnes.

Contrasting trends in beef and veal trade

According to the latest HMRC data, exports of beef and veal in February were down 21% on year earlier levels at 8,100 tonnes. Continuing to be affected by availability, price and demand on the continent, the fall was largely driven by a decline in shipments to other EU member states. Increased trade to Ireland was more than offset by a fall in shipments to the Netherlands and France. The latest data indicate a less severe drop in trade with non-EU markets. Overall volumes to these markets in the month were back just 7%. Of these, the largest destination remained Hong Kong, to which shipments more than doubled on the year.

Imports were above year earlier levels in February, being up 8% to 17,050 tonnes. Much of this uplift is as a result of increased shipments from Ireland. As expected, export availability in Ireland has been boosted by the continued increase in production. Imports from outside the EU were back 14% on the year as Australia, Namibia, Uruguay and Brazil all recorded lower shipments.

Long term beef and veal supply still expected to be tight

The latest AHDB/EBLEX forecasts for UK beef and veal supplies are now available. They are little changed from previous forecasts and indicate that, despite supplies of beef and veal this year being up on last year’s position, the longer term situation is still likely to be one of lower availability.

The key driver of this comes from lower cattle numbers on the ground. British Cattle Movement Service (BCMS) data show the number of cattle and calves in the UK in December was back almost 1% on the year. While the dairy breeding herd increased, being up 2% at 1.8 million head, the suckler beef herd continued its decline. With numbers falling 3% to be under 1.6 million head for the first time the UK suckler herd has now fallen by nearly 100,000 head in the past three years, reflecting the on-going concerns over confidence and profitability in the beef sector. The data indicated some potential for a fairly small increase in supply in the short term, a trend already evident in the first quarter of this year. This came as the weaker market conditions in the final few months of last year had given little encouragement for producers to market cattle. Those cattle will inevitably come forward in Q2 and Q3 of this year.

However, the BCMS data recorded fewer younger cattle on the ground and, combined with a declining breeding population, this inevitably means a continuing decline in the supply of prime cattle in the longer term. Any turnaround is unlikely before 2016 because of the length of the production cycle. In any case, it would to a large extent depend on whether suckler beef producers’ confidence in the market being able to provide an adequate return improves.

While the current position still suggests no expansion in the suckler breeding herd is likely, the UK adult cattle kill last year was back 5% on 2012. This may indicate that the liquidation of breeding stock from the overall herd has slowed but this is likely to have been largely on the back of greater confidence in the dairy sector. With a smaller, younger, breeding herd and better seasonal conditions, adult slaughterings in 2014 are forecast to be modestly back on 2013 levels.

The second factor for production forecasts is slaughter weights. On the back of better conditions, carcase weights for all categories of cattle are trending higher this year. This is likely to continue for the remainder of 2014 and combined with the uplift in prime cattle numbers beef and veal production is still forecast to increase. In total, beef and veal production is expected to be up over 2% on the year at 869,000 tonnes.

The export trade, mainly for cow beef, will be influenced by price, supplies and competitiveness. Export volumes for the year as a whole are currently forecast to be below year earlier levels. While, to some extent, this is on the back of a significant drop off in trade in the first two months of the year, it is possible that exports could perform better as the year progresses. Firming demand for manufacturing beef has the potential to support export prospects but this may be eroded should the value of sterling strengthen. Imports this year are still expected to be ahead of 2013, with the uplift driven by the increase in production in Ireland. Imports of processed beef are also forecast to increase, as demand continues to recover following the horse meat revelations.

What does this mean?

With an increase in production, lower exports and higher imports, supplies available for domestic consumption in 2014 are still forecast to be higher than last year, in particular in Q2 and Q3. Unless consumer demand picks up markedly, this makes it unlikely that there will be any resumption of upwards pressure on price in the short term. However, with clear implications for availability later this year and into 2015, GB calf registrations in 2013 were around 80,000 head back on the year. As a result of the continued fall in the suckler beef breeding herd, a drop in non-dairy calf registrations drove this decline, which further confirmed that any significant increase in beef and veal production in the medium term is unlikely. With lower production, stable exports and lower imports, supplies available on the UK market in 2015 are forecast to be lower than in 2014, meaning that firmer prices could again be around the corner.

What is the future of premium beef production in the EU?

The EU beef sector is very dependent upon the dairy sector, yet it is the suckler beef herd which is the key supplier of premium beef. However, EU-28 beef cow numbers only amount to 12 million, compared with over 23 million dairy cows. There is intense interest in the EU dairy sector at present as a result of milk quotas ending next spring and the firm milk market; consequently producers are expanding. For the specialist beef sector, the situation is not helped by the fact that profitability of milk production is generally higher, while the beef sector is more fragmented. For some producers there is scope for switching from beef to dairy cows and recent census results indicate reductions in the suckler herds in major countries. Short-term forecasts indicate that this is likely to continue, potentially improving prospects for remaining premium beef producers.

Beef from the suckler herd, both from steers and heifers, enjoys a high demand in the EU; the UK is a key producer. The UK is the largest producer of steer beef (although some comes from dairy crosses); in 2013 it accounted for 52% of EU-28 output. This is followed by Ireland at 30 per cent, which has developed good export markets for premium beef. As well as on the UK market, Irish premium steer beef is also in good demand on markets across the continent. The only other significant producer of steer beef is France, which accounts for 11% of EU output. For the EU as a whole, steer beef only accounts for 20% of male beef production as young bull beef is dominant on the continent. With the main exceptions of France and Spain, young bulls from the dairy herd dominate.

Since the start of the millennium, the suckler cow herd has fallen by 4% in the EU-15. Yet in France, which has the largest suckler herd, accounting for 36% of the EU-15 total, numbers have only fallen by 1%. This is mainly due to France adopting 100% coupling of the suckler cow premium following the 2003 CAP reforms, although from 2010 coupling was reduced to 75%. Similar developments in numbers initially applied to Spain, as they also adopted 100% coupling of the suckler cow premium. However, this was then followed by a sharp decline starting in 2010, given the deteriorating profitability of suckler beef production and not helped by economic problems in Spain and drought.

The 7% decline in suckler cow numbers in the UK and 5% in Ireland can, in both cases, be attributed to the end of the suckler cow premium, with adoption of de-coupling from January 2005, and pressure on profitability. Belgium and Germany have small beef suckler herds, accounting for 10% of the EU-15 total; numbers have also declined steadily since the start of the millennium. Of the other producers of any significance, only in Portugal have beef cow numbers increased - it also retained 100% coupling of the suckler cow premium. The same applies to Austria, where beef cow numbers are only down by 2%. None of the newer member states have significant beef cow herds; in total they only account for 6% of EU-28 cow numbers. Poland has the largest herd, although with only 143,000 head.

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