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AHDB European Market Survey


30 March 2012

AHDB European Market Survey - 30 March 2012AHDB European Market Survey - 30 March 2012

Total red meat production in France in 2011 was 3.64 million tonnes, one per cent higher than in 2010. In comparison, Italy experienced a of five per cent year-on-year reduction in production to 2.6 million tonnes.

AHDB

World grain and protein meal update

At this time of year, grain markets are driven by a combination of old and new crop drivers. The old crop season has been characterised by very tight supplies of maize around the world. This has been the main factor supporting prices. Wheat, on the other hand, has seen a large surplus but has had to follow the maize market to avoid demand overload.

In 2012, one of the main price drivers has been growing conditions for South American maize crops which have generally been too dry. This has further increased global maize supply tensions. In addition, rumours of additional Chinese maize buying have added further support.

For wheat, much of the current marketing season has been dominated by the return of supplies from Russia and the wider Black Sea region, typically the world’s cheapest wheat. However, a combination of harsh winter weather and logistical issues has stemmed the flow of wheat from the region, reducing export competition and allowing prices to rise. With the arrival of spring, Black Sea exports are expected to pick up.

Within Europe, the availability of old crop wheat is coming into focus, especially due to slower than expected imports of Black Sea grain. This is replicated in the UK, where the surplus of wheat that can be either exported or held as free stock is estimated at 2.6 million tonnes. In the 30 weeks to the end of January, HMRC data show that 1.8 million tonnes of wheat was exported.

For the new crop, early indications suggest that maize supplies could rise considerably, depending on weather conditions. The US, the world’s largest producer and exporter, has experienced the warmest March on record. This, as well as early delivery premiums, has encouraged farmers to plant maize weeks earlier than usual – although frost risk exists until mid-April. Due to strong forward prices, it is widely expected that the US maize area will expand in 2012 to the highest level since the 1940’s.

However, concerns are rising for a number of growing wheat crops, although it is too early to gauge accurately the final harvest outcomes. Winter kill of Ukrainian wheat crops has been widely reported, but is likely to be re-planted with maize this spring. In Parts of Germany, France, and Poland, winter kill is also a concern, but the full extent has not been quantified. The growing concern for EU crops is the ongoing dry period, especially on the Iberian Peninsula but also further north.

Looking at protein meals, a key driver of recent prices has been a severe dry spell for developing soyabeans in South America at the turn of the year. The dry weather and hot temperatures have reduced yield potential for the soyabean crops. The latest global soyabean production figure from analysts Oil World stands 22.7 million tonnes lower than the previous season at 242.9 million tonnes.

Chicago soyabean prices have risen by 12.5 per cent from the start of the year due to the supply concerns. Soyameal values in the UK have followed suit. Latest Hi-Pro soyameal (ex-mill Liverpool) prices for April delivery stood at £351 per tonne, having gained £53 (17%) since the start of January.

Differing trends in French and Italian red meat production

Total red meat production in France in 2011 was 3.64 million tonnes, one per cent higher than in 2010. In comparison, Italy experienced a of five per cent year-on-year reduction in production to 2.6 million tonnes.

In France, there were contrasting trends for the two main species. Beef production rose significantly despite a fall in cattle numbers, while pig meat production fell. The growth in beef production was due to higher slaughterings of adult cattle, which increased by three per cent to 3.6 million head. Increased culling, especially of beef cows, due to a lack of feed and lower profitability of beef production, resulted in an eight per cent rise in cow slaughterings. In contrast, there was a three per cent decline in male cattle slaughtering and a marginal fall in slaughterings of calves, which totalled 1.4 million head. The latter was partly due to a decreased demand for veal. Lower domestic demand and the increased supply of beef contributed to a nine per cent increase in French beef and veal exports in 2011.

The long-term decline in the French pig herd contributed to the reduced level of pig meat production in 2011, despite a 24 per cent reduction in pigs being exported for slaughter. Along with increased sow productivity, this meant that slaughterings were down by less than one per cent at 24.8 million head in 2011. There was little change in average carcase weights. In contrast, sheep meat production increased three per cent year on year with an increase in both lamb and ewe slaughterings.

Unlike the situation in France, production of beef and veal in Italy fell significantly, while its pig meat production also reduced. Adult cattle slaughterings declined by six per cent to 2.7 million head, with reduced throughputs for all the major categories of bovines. For male cattle, slaughterings were down nine per cent as profitability of young bull beef finishing has been reduced by high feed costs. The smallest decline in slaughterings was for cows, down two per cent, while calves and heifers experienced falls of seven and four per cent respectively. With slightly higher carcase weights, production was down six per cent, given a decline of seven per cent in male beef production which accounts for 56 per cent of total beef and veal output.

Italian pig slaughterings fell by four per cent to 12.3 million head in 2011 mainly as a result of the declining sow herd. This was partly offset by a small increase in average carcase weights, but this was not sufficient to prevent a four per cent fall in production. The marked decline in sheep meat production that occurred in 2010 continued into 2011, in response to ongoing problems in the milk sector and resultant fall in numbers of dairy ewes put to the ram.

Most Member States unlikely to fully comply with EU sow stall ban

There are now only nine months before new EU pig welfare regulations, including the partial ban on the use of sow stalls, come into force. At a meeting in Brussels on 19 March, the EU Commission revealed that only 12 Member States have confirmed that they expect their producers to be fully compliant with the new regulations by the end of the year. Only three, the UK, Sweden and Luxembourg, already meet the requirements. A further seven Member States stated that over 90 per cent of their pig holdings will be compliant. In five others the proportion will be between 70 and 89 per cent. Three countries were unable to give a figure but said that currently at most 60 per cent of their holdings were compliant.

The new regulations were one of the reasons behind sharp falls in the size of the EU pig breeding herd recorded in recent censuses, although the difficult financial situation was also a factor. With most Member States having reported, the number of breeding sows has fallen by around 450,000 head or over three per cent (see EMS 12/08).

In assessing the likely impact of the new rules, lessons may be drawn from the ban on the use of battery cages for laying hens, which came into force on 1 January 2012. Fourteen Member States failed to fully comply with the rules by the deadline, although some have since done so. One immediate impact has been a sharp rise in the EU average price for eggs. Prices normally rise during the final quarter of the year, but typically by less than ten per cent. Last year, they rose by 22 per cent, finishing the year 34 per cent higher than at the end of 2010. Particularly sharp rises were recorded in some non-compliant countries, such as Belgium, France, the Netherlands and Spain. In early 2012, prices continued to rise rapidly and by mid March were around 75 per cent higher than a year earlier. Prices for liquid egg have also risen sharply.

Next month, BPEX will publish a report looking at the likely market impact of the new pig welfare regulations. As well as reviewing progress towards implementation and approaches to enforcement of the new rules, the report will also set out three scenarios for the future development of the EU pig meat market. The first, and most likely, scenario is based on a further reduction of between five and ten per cent in the EU breeding herd with some non-compliance, at least in the short term. The second scenario envisages swift and rigorous enforcement of the regulations, leading to a more rapid decline in the breeding herd. The third scenario considers the possibility of a realignment of production, with piglet production increasingly concentrated in Member States with more efficient breeding herds and finishing in countries with lower costs of labour and less restrictive environmental regulations.

DOWNLOAD REPORT:- Download this report here

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