Prices and Supplies
In contrast to 2011, throughout July and into August prime cattle prices have exhibited their historical seasonal trend: falling through July before picking up again in August.
Having opened July at their record high of 358.3p/kg dwt, Scottish steer prices then slipped back to 353.6p/kg at the end of July before rising to 356.3p/kg dwt in the week ending 11 August.
By contrast, auction prices have shown more stability.
The average price paid to acquire prime cattle at Scottish auctions has fluctuated in a narrow band around the 200p/kg mark since the beginning of June.
Cull cow prices slowed significantly at Scottish auctions through July and cooled further as August began.
In July, they averaged 5% lower than in June, and, at 125.5p/kg lwt in the week to 8 August, they were 11% lower than their peak at 141p/kg two months before.
However, they then rebounded to 131.8p/kg in the week to August 15.
Deadweight prices for cows have shown similar movements; falling significantly before recovering in the week ended August 11.
Nevertheless, at 280p/kg, they were still 4.5% lower than at the end of June.
Compared to the same week last year deadweight prices are nearly 7% higher, while liveweight prices are up 5%.
According to the latest UK slaughter statistics, throughputs of prime cattle tightened further in June.
Numbers were down 11.5% year-on-year, an even greater contraction than in the first half of the year (H1), during which volumes were 8.5% lower than a year earlier.
However, within the figures the divergence between the volumes of steers and heifers being slaughtered remained.
While the June steer kill fell 7% on the year, the heifer kill was down by 15%.
This may be an indication that producers are retaining more heifers for future breeding with the likely explanation being that strong steady prices have encouraged producers to expand their operation.
In Scotland, the supply of prime cattle to abattoirs was down by 10% in June, matching the cumulative deficit for the whole of H1.
Like in the UK as a whole, the data for Scotland also suggests that a herd rebuilding phase is underway.
While 3% fewer steers were killed in June 2012 than a year earlier, the supply of heifers to Scottish abattoirs was down 15.5%, following a 13% decrease in the previous month.
UK level data for mature stock supports the implication that the herd is stabilising or even that farmers are beginning to expand their breeding herds.
In June, the cow kill was down by 13% year-on-year, and over H1, numbers were down by 7%.
In Scotland, the first signs of a similar process became apparent in June as monthly volumes of mature cows and bulls slaughtered were down 3% on the year, having run ahead in prior months.
This, coupled with the reduced heifer kill, suggests that producers are replacing cows, and hence, the Scottish breeding herd may also begin to show some signs of stability.
Though supplies of prime cattle to Irish export abattoirs continued to remain tight through July, slaughterings were down 11% year-on-year compared with 17% lower in the year-to-date.
It may well be that the increased numbers of cattle under one year of age at the time of the December census are now starting to arrive on the market.
The latest data available from market research firm, Kantar, indicates that beef consumption declined by 3% year-on-year in the 12 weeks to July 8.
However, it took a 7% greater outlay in cash terms for consumers to acquire this smaller volume.
A long period of poor weather pushed burger sales down 13.5% on the year.
Average cattle prices in the EU for heifers, young bulls and cows rose around 1% during July and then strengthened slightly into August.
In contrast, steers fell during July by 1% as they are more heavily weighted towards the Irish price, which fell by 5% in Euro terms.
Irish prices have stabilised at the beginning of August and this allowed the EU average for steers to rise marginally.
Currency effects mean that while UK cattle prices are up 9% on the year in Sterling terms, they are 20% higher when quoted in Euro.
On average, EU prices are approximately 15% higher on the year, with French producers achieving closer to 20% growth, but Irish producers seeing more modest growth of 11%.
Lower domestic production continued to place downwards pressure on the volume of product available for export into May.
Provisional figures showed a 31% decline in monthly volumes compared with May 2011.
Shipments in the opening five months of the year were 21% below year earlier levels at 45,400t.
Ireland and Belgium were the only major customers to import more UK beef year-on-year in the January to May period; purchasing 14.5% and 0.5% more, respectively.
Looking further afield, shipments to Ghana were nearly three-and-a-half times higher than in the same period of 2011 with strong economic growth driving beef demand.
The combination of lower UK production and exchange rate movements presented trading partners with an increased opportunity for market access.
Consequently, imports increased 6.5% on the year to 95,850t between January and May.
1.5% more fresh beef has been sourced from overseas than a year ago, while imports of frozen beef are up one-fifth.
The composition of imports has subsequently shifted towards frozen beef in 2012.
Compared with the first five months of 2011, frozen product has increased its share of total imports by 3.5 percentage points to 30%.
It is likely that the lower UK cow kill has forced food manufacturers to look abroad, particularly given the increased requirement for burgers over the period of the Olympic Games.
With Ireland being the UK’s principal source of manufacturing beef, its exports to the UK have risen nearly 30%, while imports of frozen beef from the Netherlands and Germany have increased by more than 40%.
News Round Up
Imports of beef to the EU under the Hilton quota for high quality beef totalled 38,800t in the year to June 30.
This was just over 58% of the 66,625t quota. New Zealand and Uruguay completely filled their allocations and Australia delivered 99% of their quota.
However, Argentina was the only other nation to deliver more than half; sending 18,675t, or 64% of their allocation.
Though North America and Brazil delivered approximately one-quarter of their allocated volumes, this was much greater than in the previous year in which both had filled just 4.5%.
On the other hand, Paraguay, which had completely filled its quota in the previous year, delivered 36% in 2011/12 as an FMD outbreak led to trade restrictions.
Germany’s beef trade contracted significantly in the opening third of 2012. Exports fell 17% to 110,100t and imports were down 16% at 84,900t.
On the export side, deliveries to third countries declined to 10,000t from 26,600t in the same period of 2011.
This was driven by increased tariffs in Turkey and import restrictions in Russia. Since the exports to other EU Member States fell to a lesser extent their share of the total rose from 80% to 91%.
Though deliveries to Holland fell 27.5% to 21,900t, exports rose to a number of EU markets, including Spain, Italy and Denmark.
On the import side, most of the reduction was in beef from other EU nations.
The Netherlands has traditionally been the largest supplier to Germany, but trade volumes in the first third of 2012 dropped to 22,800t from 30,600t a year earlier.
France, Austria, Poland and Denmark also supplied the German market with less beef than a year earlier.
One of the principal factors behind the fall in imports has been rising domestic production at the same time as overseas demand has cooled.
In mid-July it was estimated that nearly three-quarters of the land used for beef production in the US had been affected by drought.
The USDA is predicting that this will lead to 4-5% increases in the country’s beef prices at the retail level in 2013.
However, in the short term, beef price inflation is expected to be lower than previously forecast as farmers react to the conditions by culling cows and placing cattle on feedlots at a younger age.
This is likely to raise supplies above previous expectations for the remainder of this year, before they tighten again at the beginning of 2013 as the liquidation cycle slows.
Despite the expected effects of this year’s drought induced stock sales, cattle slaughter in 2012 is forecast to fall to a seven-year low, with steer and heifer throughputs predicted to drop to their lowest levels since 1980.
With the US beef herd already at its lowest level since the early 1970s, a second consecutive year of drought is expected to lead to even further consolidation within the beef herd.
Consequently, the USDA now expects production volumes to continue to tighten until at least 2015.
US beef exports have fallen in volume but risen in value during the first half of 2012. Though total shipments are down 11% to 392,600t, revenues have risen 4% to $2.32bn.
In volume terms, deliveries to each of its four largest customers are down; Canada by 8%, Japan by 3%, Mexico down 18% and Korea 25% lower.
As a result, Japan has leapfrogged Mexico and Korea to become the USA’s second largest export destination.
While many other countries have also imported less beef from the US this year there are some notable exceptions.
In particular, Russia and Vietnam bought a respective 27,500t and 23,300t in the first half of 2012; up by 38% and 26% on the year.
Egypt also increased imports significantly; rising 20% to 13,250t.
However, since a case of BSE was discovered in California in April, US exports have slowed further.
In both May and June, monthly shipments fell 15% on the year. Exports to Russia, Mexico, Taiwan, China, Saudi Arabia and Germany have all fallen sharply since the announcement.
In New Zealand, the beef breeding herd remained unchanged at 1.05m head during the 2011/12 year.
A 3% increase in beef cows on the North Island to 690,000 head was offset by a decline in the smaller South Island herd.
The overall beef cattle population grew by 1% on the year to 3.88m head.
Growth in numbers by 3.5% on the North Island to 2.84m head was sufficient to offset a 5.5% decline on the South Island.
Australia has achieved slight export growth in South East Asian markets thus far in 2012. Shipments to the region rose 2% in the first seven months to 76,400t.
However, during July, strong growth into Taiwan, the Philippines, Singapore, Malaysia and China was offset by a sharp fall in shipments to Indonesia, and this pulled monthly volumes 2% lower year-on-year.
38% of the beef Australia sent to South East Asia in July was for manufacturing.
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Source: Argentine Beef Packers S.A.
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