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QMS (Quality Meat Scotland)


19 June 2013

QMS (Quality Meat Scotland) - June 2013QMS (Quality Meat Scotland) - June 2013


QMS - Quality Meat Scotland

Cattle

Prices and Supplies

Since passing the £4 a kilo deadweight mark in mid-April prime cattle prices have continued to move forwards. In the week ended 25 May, the average Scottish steer traded at 412p/kg dwt; up 7p/kg on the month and by 60p/kg on the year (17%). However, the prime cattle average at Scottish auctions has not increased over the past month. In the week ended 29 May it stood at 226.2p/kg lwt compared with 227.8p/kg in the final week of April. Nevertheless, auction prices still traded 16% above the same week of 2012.

Scottish Deadweight Prices

In contrast to the market for prime stock, cull cow prices have been much closer to 2012 levels so far this year, except for a short period from mid-April to mid-May when 2013 prices showed a 5-6p/kg premium. However, in the week ended 29 May, the Scottish auction average of 135p/kg lwt was nearly 3p/kg lower than in the same week last year. Deadweight prices have been running ahead of 2012 levels; though not by as much as the prime cattle trade. In the week ended May 25 cull cows averaged 302p/kg dwt. This was 15p/kg higher than in the same week last year; an increase of 5%.

Prime Cattle - Average Auction Price

UK slaughter data for April showed that although prime cattle supplies remained tight, they trailed year earlier levels by a smaller proportion than in the first quarter of 2013 (Q1). Slaughterings were 1% lower year-on-year during April at 191,400 head, following a 3.5% decline in Q1. The average carcase weighed almost 8kg lighter at 343.8kg due to the combination of lower growth rates, reduced feed availability and cash flow pressures.

Scottish Auction Prices for Cull Cows

While the steer kill fell nearly 4%, slightly more heifers were slaughtered than in the same month last year and young bull throughput increased 8%. Greater supplies of young bulls reflect increased registrations of male dairy calves in the autumn of 2011 and early 2012. These cattle have been reaching target slaughter weights since the fourth quarter of 2012 (Q4), lifting young bull supplies in recent months. Meanwhile higher slaughterings of heifers may indicate that the challenging weather conditions of the past year have reduced retentions for future breeding.

Scottish abattoirs have been relatively better supplied than the UK as a whole so far this year with prime cattle slaughter numbers down just 0.4% in the first third of the year. April kill numbers, at 40,900 head, were 0.3% below April 2012 levels. Like in the UK as a whole, fewer steers were killed but more heifers and young bulls were slaughtered.

Clean Cattle - Scottish Slaughterings 3 Week Rolling Average

During April, slaughterings of cows and mature bulls at UK abattoirs exceeded year earlier levels for a tenth consecutive month. Throughput increased by 7% on the year. This story would fit with the significant decline in calf registrations reported in Q1 as a higher barren cow rate and/or greater calf losses may well have led to the prompt culling of cows.

Meanwhile, in Scotland, slaughterings of mature stock rose by 10% over April 2012. When coupled with higher heifer slaughterings, this implies a decline in potential breeding numbers.

UK Household purchasing data from market research firm Kantar Worldpanel showed a 4% year-on-year increase in the quantity of beef purchases for the 12 week period ended April 14. However, higher prices at the retail level meant that purchased volumes increased at a slower pace than cash spending which strengthened 7%. The data continued to indicate a shift in consumer purchasing in the wake of the horsemeat scandal with sales of fresh and frozen cuts of beef tending to show yearon- year growth while processed product, such as ready meals, burgers and pies, showed significant declines. Steak volumes rose by 7.5%, top quality roasting joints lifted 7% and mince by nearly 2.5% compared with the same period last year. By contrast, chilled ready meals fell by 18.5% and frozen ready meals by 6.6%.

UK vs EU27 Price (Steers R3)

European cattle prices have shown some weakness over the past month with the average male prime cattle price across Europe falling just over 1%; although prices are around 4% higher than twelve months ago. The main exceptions to this trend are the UK and Ireland which have shown price increases over the month. Other major beef producing countries like France, Spain and Germany have reported price declines over the past month, but equally, prices remain higher than last year.

UK Beef Exports

Though strong overseas demand had pushed UK exports up 10% year-on-year in the first two months of 2013, supply constraints pulled them 20% lower in March. This resulted in total UK beef exports falling 1% year-on-year to 28,850t in Q1. While shipments to non-EU markets fell 12%, deliveries to the EU were only marginally lower and accounted for 95% of the total. Despite higher Irish supplies early in 2013, it imported 6% more UK beef year-on-year, with deliveries totalling 8,900t. Despite buying 6% less beef from the UK, the Netherlands held its position as the UK’s largest export destination with 9,600t. In terms of the smaller markets, sales to Germany and Spain rose by 50% and 86% respectively, while France and Belgium bought around 17% more UK beef. However, sales to Sweden, Denmark and Italy proved more difficult.

UK Beef Imports

In Q1 2013, the UK imported 51,300t of beef; 11% less than a year earlier as higher deliveries during January were more than offset by a sharp declines in February and March. In Q1 2013, imports of fresh product slipped back by 6.5% whereas shipments of frozen beef were down by 21.5%. This may well reflect a shift in consumer and retailer attitudes in the immediate aftermath of the horsemeat scandal, particularly as imports of frozen beef from Ireland fell 45% in February and 36% in March. However, the higher rate of culling in the UK may have reduced the requirement to import beef for manufacturing. Furthermore, deliveries of frozen beef had been strong in the first half of last year, ahead of the Olympics.

News Round Up

Slaughter data for Ireland’s export plants has shown throughput running ahead of year earlier levels for much of the first five months of 2013. Consequently, 9% more prime cattle have been slaughtered in the year-to-date with numbers totalling 429,200 head. In the first four weeks of May the increase was at an even higher rate of 15.5% with more than 75,100 slaughtered, versus 65,100 in the same period of 2012.

Meanwhile the export of live calves from Ireland has boomed in 2013. 77,900 calves were exported in the first 21 weeks of 2013; an increase of 48,250 head over the same period last year. While 19% fewer cattle have been delivered to the UK, there has been a large increase in sales to Belgium, France, Holland and Spain. Non-EU sales have jumped by more than a factor of seven; mainly due to increased deliveries to North African countries, of which two-thirds went to Libya and onequarter to Tunisia.

According to the USDA, global beef production is expected to rise by 0.5% to 57.52m tonnes in 2013. This is despite forecast declines in a number of the largest producing countries, including the USA, down 4% to 11.4m tonnes and the EU27, down 0.4% to 7.74m tonnes. However, offsetting these declines are Australia, Argentina, Brazil, China and India. The USDA predicts Australian production to rise 2.7% to 2.21m tonnes; Argentine production to expand 7% to 2.8m tonnes; Brazilian production up 2% to 9.5m tonnes; Chinese production up 1% to 5.59m tonnes; and Indian production to rise by 10% year-on-year to 3.8m tonnes in 2013.

Higher production in Australia this year has been supported by wet weather in 2010, 2011 and then in the first half of 2012. Better grass growth encouraged producers to rebuild their herds following a decade of dry weather which had resulted in a stable cattle population. As a consequence of herd rebuilding the country’s total cattle population stood at a 35-year high of 29.5m head in June last year. Numbers rose by 3.5% from 2011 and were up from 27.5m head in 2010. MLA has forecast a further increase of 1% in 2013 before stability in the coming years as the weather is expected to be drier again. The combination of recent dry weather and the higher numbers of cattle on farms resulted in slaughterings increasing by 7% year-on-year in Q1 2013. However, production volumes only increased by 4% as carcase weights were lower. MLA expects slaughterings to have remained high in quarter 2, indicating that numbers may have to tighten in the second half of the year.

Similar to Australia, the Argentine cattle population has recently been through a phase of expansion. A recovery in pasture conditions has encouraged producers to re-stock in the past couple of years after a major drought in 2009 led to significant herd liquidations. Indeed, at the beginning of this year the USDA estimated the Argentine cattle population to be 51.2m head; up 3.2% from a year earlier. However, Argentina has only regained half of the cattle lost in 2009 and 2010 with numbers remaining nearly 6% below its 2009 level of 54.3m head. As a result of recent herd rebuilding production should continue to expand in the next couple of years. Last year’s calf crop showed an increase of more than 5%, implying increased beef production when most of these animals reach the market in 2014. With the USDA forecasting a further 3% increase to Argentina’s calf crop this year, production should also grow in 2015.

As attitudes towards meat consumption change in India, there is a growing illegal trade in beef. In the predominantly Hindu nation cattle are seen as sacred and many are free to roam the streets of its major cities. However, despite the slaughter of cattle remaining illegal throughout most of India, more Hindu’s are beginning to eat beef while the minority Muslim population has provided a growing demand. Meanwhile, Asia has proved to be a growing market for exports of buffalo meat from India in recent years. These factors have been viewed as a business opportunity by some, with cattle stolen at night and transported to illegal abattoirs. To get around legislation, some beef is mislabelled as buffalo. With the average wage in India around £1.50 a day, a night’s rustling can earn £600-£700, making it highly tempting. In addition to more people wanting to consume beef, this trade has also been driven by government policy supportive of dairy production, which has led to increased cattle numbers in recent years. The USDA reported the Indian cattle population (including buffalo) at 327.1m head at the beginning of 2013; up 1% from 2012.

Sheep

Prices and Supplies

Deadweight lamb prices have made made a strong start to the 2013/14 season, averaging between 530p/kg and 540p/kg dwt throughout May. For the producer, this compares favourably with an average of 452p/kg in the same period of 2012. At 532.6p/kg in the week ended May 25, prices were 21% higher year-onyear. Scottish auction prices have shown even greater gains on the year. Indeed, in the week ended May 29, prices averaged 27.5% above the final week in May 2012, at 242p/kg lwt. This was also slightly above their level in the final week of May 2011.

GB Deadweight R3L Lamb Price

As a consequence of the increased carryover of hoggs, 370,000 more prime sheep were killed by UK abattoirs than a year earlier in the opening third of 2013; an increase of 10.5%. However, lighter carcase weights resulted in the volume of lamb produced being 7% higher. The rate of growth in slaughter numbers slowed in April with 6% more hoggs slaughtered than a year earlier, producing 3.5% more lamb.

Lamb SQQ Auction Price

In Scotland, abattoir throughput grew more slowly than elsewhere in the UK over the opening third of the year, rising just 3%. However, much lighter carcase weights meant that this produced 2.5% less lamb. During April, slaughter numbers fell 5% short of year earlier levels and produced 11% less lamb. Tighter supplies in Scotland relative to the rest of the UK may help explain why prices at Scottish auctions traded at a more than 10p/kg lwt premium to England and Wales throughout April.

Clean Sheep - Scottish Slaughterings 3 Week Rolling Average

One factor helping to explain why new season lamb has been trading at a significant premium to last year is tighter supplies. Auction and deadweight sample numbers have trailed year earlier levels by a considerable margin during May as lambs have reached the market more slowly in 2013 due to the effects of bad weather on ewe condition, lamb survival and lamb growth. In the first four weeks of the 2013/14 season, auction numbers in GB were down more than a third on the year.

Another potential driver of producer prices could be increased carcase quality relative to last year. Indeed there is some evidence of this as the proportion of lambs in the deadweight price reporting sample achieving at least an R3L grade averaged 77.1% in the first four weeks of the 2013/14 season, compared with 74.2% a year ago.

Kantar household purchasing data for lamb continued to show considerable growth compared with early 2012 level. In the twelve weeks to April 14, lamb sales volumes improved by 34% on the year. With the economic environment remaining weak, lower prices and supermarket discounting have helped encourage consumers to switch back into lamb from other proteins. Heavy discounting on leg roasting joints helped drive sales higher, with volumes rising by 61% year-on-year. Nevertheless, increases were broad-based and lamb chops rose by 14.5% while sales of steaks increased by just over 20%. Higher sales are also a reflection of the greater availability of sheepmeat. Indeed, in Q1 2013 overall UK market supplies exceeded year earlier volumes by 21%.

In recent weeks cull ewe prices at Scottish auctions have been trading at around the £60 a head level. While this is approximately £15 a head more than they had fetched between September and mid-March, it was still a similar amount short of prices at the same time last year.

At the UK level, slaughter data for the first four months of 2013 showed a 15% increase in the number of ewes and rams being culled when compared with the same period of last year. Lighter carcase weights meant that production volumes rose by 10%. It is therefore unsurprising that ewe prices have been trading much cheaper than in 2012.

Heavy Lambs: GB Vs French Price

Following a poor start to the year where prices had traded well below year earlier levels, the average EU lamb price has climbed steadily and now stands some 6% better than 12 months ago. The main exception to this is Spain where, despite some modest improvement over the past quarter, prices are currently well below last year’s level for heavy lambs and similar to last year for light lambs. Similarly, Italy, despite a strong trade around Easter, reports current prices for light lambs which are lower than 12 months ago.

Despite a 2% weaker Sterling, UK sheepmeat sales to the continent cooled in Q1 2013 when compared with a year earlier. However, a seven-fold jump in shipments to Hong Kong helped raise overall exports in Q1 by 4%. The fall in trade with the EU came despite much lower average prices in Sterling terms, and this implies weak demand as currency movements meant there would have been an even larger discount in Euro terms (though it could also reflect a change in the composition of exports towards cheaper cuts). However, strong domestic demand is likely to have limited the volume of product available for export. Indeed, during March, total monthly shipments fell 2.5% below year earlier levels despite 5% higher production and higher imports.

UK Lamb Exports

In terms of destinations, exports outside of the EU increased their share of the total from 10% to 15% over the past year, largely due to the increased trade with Hong Kong. It has been the UK’s second largest export destination since Q4 2012; although this trade is mainly in low value cuts. By contrast, the UK’s largest market, France purchased 3% less sheepmeat in early 2013 while sales to Belgium fell 15% and exports to Ireland halved. However, on a more positive note, shipments to Holland doubled, there was a 30% increase to Germany and Italy bought 43% more UK sheepmeat. There was also some significant growth from a low base into Spain, Portugal and Austria, but exports to the Nordic countries slipped back.

UK Lamb Imports

Deliveries of lamb to the UK were up 39% from a year earlier at 29,950t in the opening quarter. This was driven by a 38.5% rise in shipments from New Zealand to 24,000t, a two-thirds increase in deliveries from Australia to 3,100t and a 55% increase in imports from the Irish Republic to 1,700t. Higher supplies left these countries with a greater surplus of lamb to export at lower prices. Indeed, the average sheepmeat import price in March 2013 of £3,590/t was 30% lower than the average of £5,130/t in March 2012 despite a weaker Sterling.

News Round up

In the first five months of 2013, Irish plants processed 763,800 lambs; an increase of 109,800 head (17%) year-on-year. However, in seven of the eight weeks since the beginning of April, slaughter numbers have trailed year earlier levels; perhaps unsurprising given that Q1 slaughter numbers were up by much more than the increase of 57,000 hoggs reported in Ireland’s December 2012 Livestock Survey. In the first four weeks of May Irish plants killed 131,100 lambs; a decline of 14.5% on the year. This indicates that, like in GB, new season lambs have been slow to come forward.

Slaughter data from Statistics New Zealand show that the country killed 2.46m lambs in April. This was 3.5% above year earlier levels but only a fraction higher than the April 2011 total. In the first third of 2013, 11.24m lambs were slaughtered. This was 17.5% more than the 9.57m killed in the same period last year. The more recent slowing of growth reflects weather patterns in the early part of the year. The country was affected by a drought in the first quarter, leading farmers to market their lambs early. Inevitably the rate of growth in kill numbers had to slow at some point, and more normal levels of rainfall in April encouraged it.

In Q1 2013 New Zealand sold 46,500t of sheepmeat to China for NZ$204m (£110m); an average unit price of NZ$4,400/t (£2,360/t). With significant economic headwinds in Europe leading to reduced demand for New Zealand lamb, meat exporters have been pursuing opportunities in China to support overall sales. As a consequence of this growing market it is estimated that lamb prices have been underpinned by around NZ$30/head (£16). With total sheepmeat exports of 131,000t in Q1, China accounted for 35.5% of trade by volume. However, more recently an error at New Zealand’s Primary Industries Ministry caused exports of frozen lamb to be held up at Chinese ports for up to 17 days. Meat inspectors had used an incorrect format on export certificates, leading Chinese customs to block the product. The situation has now been resolved as new certificates have been issued and trade resumed in the final week of May.

In the opening third of 2013 Australia delivered 4,700t of sheepmeat to the EU. This was a 13% year-on-year increase. A weak economic climate has shifted the types of product delivered, however, with shank accounting for 17% of the total versus its 5- year average of 11% and leg accounting for 54% compared with a 5-year average of 67%. Furthermore, deliveries of manufacturing product jumped by three-quarters to nearly 500t.

In Uruguay, sheep slaughterings expanded by 71% in Q1 2013 relative to a year earlier. Abattoir throughput totalled 300,200 head compared with 175,400 head in Q1 2012. As a consequence, Uruguay has had a greater availability of sheepmeat to export and volumes rose 38% to 3,700t in Q1. Assuming the average carcase weighs around 20kg then this implies that exports accounted for 62% of production in Q1 2013, down from 76% in the same period of 2012. Uruguay has no preferential entry terms for the EU and its main customers are Brazil, China and Russia.

Pigs

Prices and Supplies

In recent weeks farmgate pig prices have been following their historic seasonal upturn. Prices have increased each week since the beginning of March, rising by 9p/kg over this period to stand at 164.4p/kg dwt in the week ended May 25. Prices have been setting new record highs throughout May and are trading 10% higher year-on-year.

Pigs DWt Adjusted Euro Spec Average - GB

Defra slaughter data for April continued to show UK pig slaughterings running ahead of last year’s levels. Abattoir throughput increased by nearly 1.5% on the year to 945,800 head and heavier carcases meant this produced 3% more meat. In the opening third of the year, 3.45m prime pigs were slaughtered in UK abattoirs; a year-on-year increase of 1%. Total pigmeat production rose by 1.5% to 286,800t.

30kg Weaner Pigs - GB

Prime pig slaughterings in Scotland averaged 6,100 per week in the January to April period; approximately half of last year’s levels. Industry restructuring has also seen the average prime pig killed at a lighter weight than in the past and lighter than in the UK as a whole; averaging 77.4kg in 2013 so far and 76.7kg in March and April. The UK average for the first third of 2013 was 79.4kg.

Clean Pigs - Scottish Slaughterings 3 Week Rolling Average

After a very slow start to the year, Kantar data indicated that pork consumption volumes surpassed year earlier levels in the four weeks to April 14. However, sales in the twelve week period showed a 1.5% shortfall compared with the same period last year. This was the consequence of a 5% average price increase as cash spending could not keep up, rising by a slower 3.5%. However, there is more to it than simply higher pricing rationing demand as the highest priced category, loin roasting joints, saw purchases rise 40% on the year despite an average charge that was 13% higher, while purchases of leg roasts fell 22% despite being 7% cheaper.

Weaner prices have been rising steadily since February. In the week ended May 25 they edged over the £50 a head mark for the first time since July 2010 and were up by £6 a head on the year (14%). This may reflect rising producer confidence due to an anticipation of further growth in prices for finished pigs as well as falling feed costs, the combination of which implies improved margins.

In contrast to prices for prime pigs and weaners, following their seasonal trend has seen cull sows become cheaper over the past month. In the week ended May 25 they traded at around 98p/kg dwt; 5p/kg lower on the month. Compared with the same week last year they were down by 16%. With the UK sow market highly sensitive to trade developments, a lower price than last year despite a more favourable exchange rate implies weak demand from the continent for UK sow meat’ likely due to increased supplies on the continent as farmers adjust to sow stall legislation.

Prime pig prices across Europe have fallen about 3% over the past month with all the major pigmeat producing countries showing declines. At current prices, EU pig producers are getting market returns very similar to those of twelve months ago while UK producers are getting 10% more. This makes imported pigmeat more competitive on the UK market but there is little evidence yet of this affecting UK producer prices.

UK vs EU Price (Grade E Pigs)

In Q1 2013, the combination of higher home production; convergence between the UK and EU average producer price; and favourable exchange rate movements supported UK exports. The export health certificate for China granted last summer will also have given a boost to exports relative to early 2012. UK pork exports jumped by 22% yearon- year in Q1 and this more than offset a 60% decline in shipments of bacon and ham, leaving overall UK pigmeat exports up by 7% on the year at 46,300t.

UK Pork Exports

Higher home production, lower consumption and tighter supplies on the continent help to explain a decline in imports of pigmeat to the UK during Q1 2013. The UK bought 1% less fresh and frozen pork and 8% less bacon and ham, leaving overall pigmeat imports down 4% on the year at 140,700t. The rebalancing of Sterling may also help explain lower imports as it made UK product more competitive in the home market than a year earlier. There was also a sharp fall in the premium of UK pig prices over the EU average at the beginning of the year, giving further support to the competitiveness of home produced product, while tighter supplies of prime pigs will have restricted the ability of other EU countries to export.

UK Pork Imports

News Round Up

Feed wheat prices have continued to fall back in recent weeks. In the second half of May, feed wheat traded at less than £200/t at the farmgate for the first time in almost eleven months. Improved prospects for global supplies in the 2013/14 crop year have alleviated some of the pressure caused by tight domestic supplies and the UK’s increased import requirement. This is reflected in the discount for new crop futures. However, soyameal prices have drifted higher as US exports have exceeded expectations, leading to tight stocks of old crop soyameal while Brazilian product continues to leave the country slowly and a strike by port workers has restricted Argentinean exports.

The USDA has upwardly revised its forecast for global pigmeat production in 2013 by 2.7m tonnes to 107.4m tonnes. This would be an expansion of nearly 2% over pigmeat production in 2012. The USDA, which had previously expected global production to fall back this year, has changed its position as feed costs have declined significantly since last autumn. The world’s largest pigmeat producing nation, China is now expected to see an increase of almost 3% as a consequence of better animal health practices which led to fewer deaths over the winter plus an extension of the period during which headage payments are paid to farmers. China is forecast to produce 53.8m tonnes of pigmeat this year; half of the global total. The USA, which accounts for around 10% of world production, is now also likely to see growth this year as producers managed their way through last year’s drought and spike in input costs better than had been expected. Production is forecast to edge forwards to 10.67m tonnes from 10.55m tonnes in 2012. By contrast, estimates for EU production have been lowered by 75,000t to 22.55m tonnes (21% of the global total) as the introduction of sow stall regulations in January resulted in a smaller pig crop than had initially been anticipated. The USDA now predicts a 0.4% decline in EU production this year.

One of the main contributors to lower production at the EU level in early 2013 has been Spain. Data from the Spanish government shows that the country produced nearly 4% less pigmeat year-on-year in Q1 2013. Production was 36,000t lower at 931,000t. The principal driver of the decline was lower slaughterings, down 3% at 11.28m head.

Chinese pigmeat processor Shuanghui International has agreed to purchase major US firm Smithfield Foods for $4.7bn (£3.1bn), a 31% premium to its market value prior to the deal. The deal is expected to go through by the end of the year, but it requires ratification from shareholders and the US Committee on Foreign Investment. Smithfield Foods owns pig farming and processing operations around the globe and employs around 46,000 staff. In March, Smithfield reported quarterly sales of $3.6bn (£2.4bn) and a net profit of $81.5m (£53.8m), giving it a net margin of 2.3%. Losses in the production unit were offset by increased sales of fresh and processed pigmeat in both the US and overseas. The purchase should facilitate increased deliveries of pigmeat from the US to China, while knowledge transfer in the production side of the business should help improve productivity in Shuanghui’s domestic farming interests. Going forwards, both higher imports and domestic production will be required to keep up with demand which continues to grow as a result of increased incomes in China. The USDA expects Chinese consumption to grow by a further 3% this year to 54.23m tonnes; but imports of 700,000t will only cover 13% of the market.

June 2013

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