LMC: Stable Beef & Lamb Market In 2012

NORTHERN IRELAND, UK - At last weeks Gira Meat Club in France, Gira made a prediction that the beef and lamb market will be stable in 2012.
calendar icon 15 December 2011
clock icon 6 minute read

The conference was attended by delegates from most of the major beef producing regions of the world who were there to hear Gira’s analysis of the likely trends in the beef and lamb trade in 2012 and beyond.

Gira is a well respected international food and drink consultancy. Forecasting anything in this environment is a hazardous business and Gira’s work is valuable since they put their head above the parapet to make an informed estimate of future performance. The Gira Meat Club has been running for 20 years. It attracts market analysts and senior figures from the meat industry who provide ongoing input throughout the presentations and sessions.

The conference was held this year against the backdrop of very strong beef and lamb prices around the world and in the EU in particular. Beef and lamb supplies are tight on a global basis, but on the demand side, the prospect of recession or depression in the EU is looming large in 2012.

Demand and supply under pressure

Gira are predicting that EU beef production will decline by 2.8 per cent in the EU in 2012. This broadly corresponds with a recent report from the European Commission which also forecasted reduced production in 2012. This is explained by the depleted cow herd and a sense that cattle slaughterings have been pulled forward due to strong prices in 2011.

The forecasts suggest that in 2012, EU beef consumption will decline by 1.6 per cent compared to 2011 levels, and this decline is as much associated with the constraints of supply as with the impact of the ongoing financial crisis on demand. Per capita consumption throughout the EU is expected to fall, with UK consumption expected to decline slightly to 17.5kg per capita.

UK is our largest market and overall UK consumption is expected to decline next year, and while on the surface this appears to negative it is expected to be driven by increased export pull from mainland Europe and a shortfall in domestic UK production.

In 2012, it is expected that beef cow herds will contract in Europe with a decline of just under one per cent forecast for next year. This follows a similar decline last year and it is worth noting that 65 per cent of the EU cow herd is now estimated to be dairy cows.

Reduced third country imports in 2011

In 2011, there has been a reduction in EU beef imports from third countries. Imports have been under pressure since 2006 when over 700,000 tonnes of beef (cwe / carcase weight equivalent) were imported from outside the EU.

The tighter controls on Brazilian imports, coupled with a sharp reduction in availability in Argentina put significant pressure on availability of these imports from 2007 onwards. The gradual fall in South American imports continued in 2011 as the industry there concentrated on opportunities at home and elsewhere.

Total extra EU imports is estimated to be around 400,000 tonnes (cwe) in 2011. Some increased import activity is forecasted in 2012, however, imports are expected to remain at just over 400,000 tonnes (cwe) in 2012.

EU a net exporter of beef in 2012

In 2011, the EU was a net exporter of beef. This was a scenario which was not envisaged earlier in the year and came as a consequence of sharp increases in beef exports to the Middle East and North Africa throughout 2011. This demand is driven to a large degree by higher Brazilian prices, reduced global supply and strong live trade opportunities to the Middle East.

In 2011 there were sharp increases in the volumes of slaughter cattle sent live to Turkey and Lebanon. In 2012, it is expected that this export trade will continue but will be constrained by supply. For this reason a slight decline in exports is forecast by Gira for 2012.

Sharp price increases in the last year

2011 was a year of rising prices, with a steady increase in prime and cull cow prices in evidence right across the EU. Gira have stated that the rise in steer prices in particular have been driven largely by the shortfall in production in Ireland where availability has tightened significantly in 2011.

Male R3 prices have increased by 15 per cent in Ireland in 2011, while in the UK prices are up by nine per cent in euro terms. Elsewhere, France (+12 per cent), Holland (+ nine per cent) and Germany (+12 per cent) have similar price increases in 2011, with Polish prices rising to an even greater extent in 2011 (+19 per cent).

With this in mind, some producers are naturally nervous that the industry is now vulnerable to a price correction. The indications from Gira are the prices will remain firm in 2012.

Price forecast to be firm in 2012

Male R3 cattle prices increased by 11 per cent across the EU in 2011. In 2012, an increase of 0.5 per cent is forecast for the EU-27 with Gira expecting price increases in Ireland (+4.4 per cent) and the UK (+3.4 per cent).

This will provide some reassurance to local finishers who have invested in more expensive store cattle in 2011 and who may have been fearful of a price correction. Of course, these are simply forecasts which are based on a set of assumptions which are subject to change, particularly in a volatile economic environment.

Stable cow price forecast

Cow prices have also been up sharply in 2011 with Irish O3 cow prices up by 19 per cent on the year and UK cow prices up by 21 per cent. French prices rose by 12 per cent, while Dutch (+11.5 per cent), German (+20 per cent) and Polish (+23 per cent) prices were also up sharply. Cow prices are expected to rise by just under one per cent in the EU next year, having increased by 14 per cent this year across the region as a whole. O3 cow prices are expected to be stable in the UK, while in Ireland a further increase of 2.4 per cent in cow prices is forecast.

Potential for improved margins

While producers will be reassured that Gira are forecasting prices to be firm in 2012, margins are a key concern for producers, particularly given the way in which feed, fuel and fertiliser costs increased steadily in 2011. Input costs in the beef industry are driven to a large extent by the oil price.

A recession in 2012, would have the impact of putting pressure on the oil price and the knock on impact of this would be reduced input costs which would benefit producers. It is also worth noting that high feed prices in 2011, were exacerbated by the uncertainty over the 2011 harvest and these concerns have now eased and feed prices have relaxed for now.

Gira’s forecast is that 2012 should see lower feed prices and this ought to ease pressure on margins.

Further Reading

- You can view the full report by clicking here.

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