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QMS (Quality Meat Scotland)

19 August 2013

QMS Monthly Market Report - August 2013QMS Monthly Market Report - August 2013

QMS - Quality Meat Scotland

Prices and Supplies

As July ended and August began prime cattle prices fell sharply. In the week ended August 3rd, deadweight steers declined by 5p/kg to 413p/kg while heifer prices cooled by 3p/kg to 411p/kg. This offset gains to producer prices during July. Nevertheless, prices were still 17% ahead of their level at the same point last year. Prior to the decline, Scottish prices had held firm while they had eased back seasonally in England and Wales.

After a strong start to the month, auction prices similarly fell back sharply in the final week of July. At 226.5p/kg lwt, the prime cattle average fell 11p/kg on the week and was at a 2-month low. Prices then moved forward by 2.5p/kg in the opening week of August, leaving them 14% higher year-on-year. The premium over prices south of the border narrowed for a second week, but at nearly 29p/kg it remained close to double its average for the first half of the year (H1).

Auction prices for cull cows fell sharply in the final week of July before steadying at the beginning of August at 126p/kg lwt. Similar to the market for prime stock, this apparent ‘correction’ took place after the historic seasonal downwards trend had failed to materialise earlier in July. Deadweight cow prices declined for four consecutive weeks following a sharp increase at the beginning of July. Despite this seasonal move lower, cows were valued 3.5% higher year-on-year in the week ended 3 August.

According to slaughter statistics from Defra for June, UK abattoirs killed more prime cattle than a year earlier for the first time since September 2011. Throughput was 5% higher at 150,900 head. However, carcase weights remained much lighter than a year ago and so production volumes increased by a slower rate of 2.5% year-onyear. In the first half of the year (H1), prime cattle slaughterings fell 2% with the volume of meat produced down 4%.

The number of steers killed showed the smallest annual increase of 1%. This was much lower than the 8% rise in young bull numbers and an 11% rise in the number of heifers slaughtered. The sharp rise in the heifer kill suggests that strong prices coupled with a challenging twelve months led to fewer heifers being retained for future breeding.

At Scottish abattoirs, the year-onyear increase in prime cattle slaughterings was slower than in the UK as a whole, rising by 3% to 32,500 head. Heifers continued to prove relatively better supplied than steers, with numbers up by 6% compared with just 0.1% for steers. It was also the fifth successive month during which more heifers were slaughtered than a year earlier. Having edged lower in the previous month, the number of young bulls killed returned to growth, rising 4% over June 2012 levels. During H1, prime cattle throughput at Scottish abattoirs totalled 213,000 head and produced 75,400t of beef. The combination of lower slaughter numbers (by 0.4%) and lighter carcase weights meant beef production fell 2% year-on-year.

For the second successive month, UK abattoirs slaughtered fewer mature cows and bulls than a year earlier. Throughput decreased 3% below June 2012 levels following a 5% decline in May. This suggests that an improvement in weather conditions has slowed the culling of breeding stock.

North of the border, slaughterings of mature stock also contracted relative to last year for a second month. Numbers were down 11% on the year. The slowdown in culling of cows is in contrast to the increased supplies of heifers and is the reverse of what happened last year. Perhaps the average age of the breeding herd has now become younger and more productive, releasing more heifers for slaughter.

Nice weather throughout June and early July appears to have driven a significant change in consumer beef buying habits. Indeed, the total volume of beef retailed in GB declined by more than 8% year-on-year in volume during the four weeks to July 7th. Furthermore, within the figures there was a sharp contrast between sales of burgers and sales of fresh beef. While the volume of burgers purchased rose 17%, sales of roasting joints and stewing beef fell by around 15%, steaks fell 9%, and mince sales were 4% lower.

Prime cattle prices generally edged lower on the continent during July. Young bulls declined 1c/kg dwt to €3.73/kg dwt (£3.24/kg). However, the EU average for steers and heifers fell by larger margins, of 20c/kg (4.5%) and 8c/kg (2%) respectively, but these were pushed much lower by higher weightings of UK and Irish prices in the sample. France and Poland were the main exceptions with prices tending to rise on the month, while in Spain and Belgium prices were flat.

Cow prices showed 3-5% declines across most of the EU. Again France and Poland were the main exceptions, as prices picked up slightly on the month.

As supply constraints showed signs of easing in May, the UK’s beef exports were just 100t lower than in the same month of last year, having been a combined 2,300t lower in March and April. Monthly shipments summed to 8,800t. Nevertheless, increased requirements from multiple retailers for home produced beef are likely to have continued to bear down on export opportunities.

During May, deliveries to France, Belgium and Germany continued to run well ahead of 2012 levels. There was also a return to growth in shipments to Holland and Italy. However, sales to the largest UK customer, Ireland, declined sharply as its domestic production continued to show significant year-on-year expansion. There were also declines in deliveries to Sweden, Denmark, Spain and Poland. Exports outside of the EU continued to perform worse than last year and accounted for just 3% of total exports.

For a fourth consecutive month, UK beef imports trailed 2012 levels in May. Shipments of 18,300t were 8% lower than a year earlier. Fresh beef imports were flat, following three months of contraction but imports of frozen beef continued to decline sharply. Lower imports of frozen beef are likely to in part reflect a shift in consumer purchasing away from processed product and ready meals since the horsemeat scandal. However, the year-on-year decrease can also be linked to high levels of imports of frozen manufacturing beef in the lead-up to London 2012.

Shipments from the UK’s number one overseas supplier, Ireland, were 4% lower than in May 2012 as a sharp decline in imported frozen beef more than offset a slight rise in fresh beef. Meanwhile, imports from Holland, Germany and France all fell sharply on the year. In terms of non-EU suppliers, Brazil delivered less beef than a year earlier for the first time in 18 months, but there were increased imports from Oceania, while trade with Botswana continued to lift following its renewal of market access in April, after a 26-month FMD-related suspension.

News Round Up

Slaughter data for Ireland’s export plants continued to show increased supplies compared with 2012 into the third week of July. In the three weeks to July 22, 58,800 prime cattle were killed compared with 50,250 in the same period last year, an increase of 17%. This is well above the 10% rate of increase in the opening 28 weeks of the year. At the same time as the rate of growth in slaughter numbers has picked up there has been a notable decline in Irish cattle prices. Having peaked at €4.43/kg dwt (£3.77/kg) in the week ended June 16th, the average R4 steer traded at €4.10/kg dwt (£3.53/kg) in late July. Meanwhile R4 heifers have fallen 45c/kg since reaching €4.67/kg (£3.98/kg) in June. In addition to an upturn in the rate of growth of domestic supplies, lower prices may well have resulted from reduced import demand from GB where prime cattle supplies have also improved recently.

USDA data puts the average retail value of fresh beef in the US at $10.70/kg (£7/kg) in the second quarter of 2013. This was an increase of 4.5% on the year. However, since the net farm value per kilo of beef retailed increased at a slightly quicker pace of 5%, the producer share of the final retail price edged up to nearly 55% from 54.5% a year earlier. This was below the producer share in the UK which averaged approximately 59.5% in Q2 2013. Live prices paid for US steers averaged around 280c/kg lwt (182p/kg lwt) during Q2, compared with 213p/kg lwt in GB.

Meanwhile, the average wholesale value per kilo of ‘choice’ beef (middle of the three categories of US retail beef quality) increased by 4.5% year-on-year in Q2 2013 to approximately $6.70/kg (£4.40/kg). However, this was less than the 6% rise in the average choice beef retail price to $11.60/kg (£7.50/kg), indicating that retailers captured a greater share of the revenues generated from sales of choice beef.

The weakening of the Australian Dollar by 13% against the US Dollar over the past 3 months has helped increase overseas demand for Australian beef. The combination of a weaker currency and increased domestic supplies led to July export volumes being the highest on record, beating the previous high of just over 103,000t set in May 2013 by around 3,000t. Exports to Australia’s principal markets in Asia (Japan, Korea and China) all showed growth while deliveries to the Middle East reached a new peak. Growth into East Asia may also have been assisted by tight supplies in Australia’s main competitor in these markets, the USA. Indeed, USDA figures showed that US beef production was down 2% year-on-year in the week ended August 3rd and by 1% in the year-to-date. Furthermore, tight supplies of cow beef in the US (-8% year-on-year in the year to the end of June) have helped Australian exporters gain a foothold into both the US and Canadian markets for manufacturing beef.

Australia’s live cattle trade has also been on the up this year. Monthly figures for May showed a near-50% increase over the same month of the previous year with 82,800 cattle shipped overseas. Half of this total went to Indonesia and the 84% growth rate in deliveries to its largest customer underpinned much of the overall increase. However, this significant growth rate is mainly down to a rebound in shipments after a sharp fall in 2012. This decline came after a documentary in the summer of 2011 revealed poor animal welfare standards in Indonesian slaughter plants and this led to government restrictions on the live trade. In May 2011, prior to these restrictions, live shipments to Indonesia had totalled 81,900 head. Other large buyers of Australian cattle during May 2013 were Russia (16,500 head), Israel (11,500 head) and the Philippines (7,700 head).

In June, Argentina exported 7,700t of fresh beef. This was a 45% increase over the same month last year. Chile was the largest customer, buying 1,730t, closely followed by Russia with 1,660t and Israel with 1,300t. Other significant buyers included China (700t) and Morocco (625t). Germany was the most significant EU customer, taking delivery of 370t in June. During the first six months of the year, total exports of 48,600t beat shipments in the same period of 2012 by 8%. Chile accounted for 29% of these sales, while Russia and Israel took respective shares of 19% and 20%. Meanwhile, shipments of the higher quality Hilton cuts have been slightly higher than last year over the first six months at 11,900t. 95% of this beef was delivered to just three countries: Germany (6,600t), Holland (3,200t) and Italy (1,600t). Whereas German purchases were 11% lower year-on-year, Italy and Holland bought 10% and 29% more Hilton beef, respectively.

Uruguayan beef exporters have also been able to increase their sales so far this year with shipments rising 3% to 208,700t in the opening 28 weeks of 2013. Since March export prices have been cheaper than in both 2011 and 2012 and this is likely to have assisted trade. Interestingly, the distribution of exports has altered much more significantly than the overall volume. China has increased its imports of beef from Uruguay by a factor of 5 to become the largest customer with 48,400t, converting a 4% share last year into a 23% share thus far in 2013. The USA also increased its share; to 15% from 12% last year, buying 30,800t during the 28 weeks, up 28%. However, these increases were nearly offset by a more than halving of deliveries to Russia to 27,300t from 60,900t in the same period last year. This reduced Russia’s share of exports from 30% down to 13%. In addition, the EU, Israel, Chile and Venezuela all saw their shares decline by between 1 and 2 percentage points.

August 2013

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