Report Highlights

EU cattle markets are finding a new balance after implementation of the 2003 CAP Reform. Increasing beef production in the southern half of the EU, isn't expected to compensate for further decreases in EU dairy herds, which are concentrating in northern Europe. In 2006, the slaughter of half a million cattle in the UK after the end of the OTMS, will relieve short supplies in the EU and strained beef imports from Brazil, resulting from the ban for FMD. As a result of tight EU supplies, EU beef exports are expected to further decrease.

With a new pig production cycle, increasing pork production is expected to satisfy increasing demand from domestic consumers and export markets. Exports of pigs and pork to Eastern and Central European markets are increasing significantly and expectations are that demand will be enhanced by the Russian ban on pork imports from Brazil and possibly Avian Flu scares.

Executive Summary

On January 1, 2006 the remaining EU member states implemented the 2003 CAP Reform. As a result, EU meat markets are evolving to a new market balance. Specialized beef production is concentrating and increasing in the southern part of Europe, where member states have kept suckler cow and slaughter premia maximally coupled. The northern part of Europe is partly reducing its beef production and concentrating more on dairy production. However, with the dairy production quota fixed and increasing milk production efficiency, dairy herds are decreasing. Increases in beef cow herds don’t compensate for the decreases in dairy herds.

Cattle slaughter numbers and beef production are however forecast to increase in 2006, because of the end of the Over Thirty Month Scheme in the United Kingdom, which is expected to make about half a million extra cattle born after August 1, 1996 available for slaughter for human consumption. This is forecast to mainly displace UK beef imports from Ireland, which in turn will displace beef imports to the EU continent mainly from Brazil. The EU ban on beef from parts of Brazil, in response to the outbreak of Foot and Mouth Disease (FMD), is expected to facilitate this transition, and keep EU cattle and beef markets firm. EU cattle prices have reached record prices towards the end of 2005 as a result of the tight market situation. This has led to a slight decrease in beef consumption in 2005, but beef consumption is forecast to increase again in 2006. Beef exports are expected to further decrease, because of tight supplies in the EU and despite good market opportunities, mainly to Russia, as a result of the Russian import ban on Brazilian beef.

With the start of a new pig production cycle in late 2005, pig production and slaughter is forecast to revert to an increase again in 2006. This comes in due time, with favorable export conditions in the Balkans and Romania, mainly for piglet exports, and for slaughter pig exports to neighboring former Soviet markets like Ukraine, Moldova and Belarus. Pig exports have almost doubled in 2005 and are forecast to maintain a high level in 2006. EU domestic consumption of pork is also forecast to continue its increase through 2006 and maybe the Avian Influenza scare will lead to larger displacements of poultry meat by pork.

Pork exports in 2006 are also expected to benefit from a favorable market situation, after a decrease in 2005. Exports to Russia and Ukraine will expectedly be enhanced by the Russian ban on pork imports from Brazil, because of FMD. A worsening of the Avian Influenza situation in Russia and central parts of Europe and Asia could also increase demand for exports of pork to replace poultry meat. Exports to Japan and the rest of Asia are forecast to suffer as Asian consumers are expected to partially turn to beef again following the resumption of beef imports from the U.S. and Canada.

Swine: 2004

EU member state reviews of sow inventories led to an increase over the previously reported sow stock. Final EU export numbers were significantly higher than previously anticipated. Especially exports of piglets to Croatia and slaughter pigs to Russia showed a hike towards the end of the year. Final total slaughter data were slightly below previous estimations and swine ending inventories were also reviewed downwards.

2005

While sow beginning numbers have slightly decreased compared to 2004, the overall EU pig crop has marginally increased as a result of higher fertility rates. This marks the start of a new pig production cycle. Exports of live pigs are reportedly expanding much faster than previously anticipated. Exports mainly of pigle ts are rapidly increasing to Croatia and Bosnia -Herzegovina, but also to Romania and Ukraine, where Danish pig farmers are investing to escape domestic expansion restrictions. Exports of slaughter pigs to Russia decreased after the late 2004 hike. Total slaughter decreased compared to 2004, as the pig production cycle ended.

The largest decreases in slaughter are recorded in Denmark, France, Italy, the Czech Republic, Hungary and Poland. In contrast, slaughter increased in Germany. This is the result of the increasing import of piglets for fattening in Germany from Denmark, and of slaughter pigs from the Netherlands and Denmark. French exports of slaughter pigs to the Netherlands almost doubled in 2005 due to the attractive prices proposed by Dutch slaughterers and processors to French pig exporters. Italy also remains a large importer of slaughter pigs, mainly from the Benelux, which remains a large exporter. Ending inventories are reportedly increasing from their lowest point in 2004.

2006

Pig pro duction is forecast to increase compared to 2005, albeit at a slower pace than previously estimated. Swine exports are expected to remain at a high level, just somewhat below the 2005 level, as production capacity in export destinations like Romania is in creasing and as a result of strong domestic demand. Especially, Hungarian pig exports to Romania are forecast to decrease from their high 2005 level.

EU pig slaughter is forecast to increase by about one percent in 2006, with the main increases expected in Germany, Poland, Portugal and Spain. Slaughter decreases are mainly forecast in France, Italy, the Czech Republic and Hungary, although Czech pig production is expected to resurge by the end of 2006 and perhaps also in Hungary. Hungarian producers are creating a new cooperation to build a slaughterhouse with a capacity of 1.5 million heads. With large supplies of cheap feed grains, these countries have a certain competitive advantage on feed costs. Pig ending inventories are forecast to increase by about one percent.

Pork: 2004

A review of pork production revealed a higher pork production than previously reported, mainly as a result of higher carcass weight. Final pork export figures were slightly increased. The revision of pork production data led to an increase in domestic consumption.

2005

Pork production in 2005 has reportedly stabilized at the 2004 level, despite a lower slaughter rate but because of another increase in carcass weight. EU imports of pork, for which the U.S. is the largest exporter before Chile, are slightly decreasing. Pork exports are decreasing as a result of strong competition from the U.S. and Canada for Danish and Benelux exporters in the Asian markets, principally Japan. EU exports to the U.S., mainly of processed products, are also decreasing because of high EU prices. EU exports to Russia are hampered by a Russian ban on imports from Poland. Overall EU domestic consumption is slowly increasing.

2006

EU pork production is forecast to increase about one percent in 2006. The largest increases are expected in Germany and Poland. Pork imports are forecast to further decrease as a result of the higher EU production. EU pork exports are forecast to increase, with the EC estimating an increase of around three percent. European exports to Russia are expected to substitute for the decrease in Russian imports from Brazil, because of the FMD situation.

These exports to Russia could even turn out to be higher than projected if the Avian Influenza situation in Central Asia and Ukraine would lead to larger displacements of poultry meat in the Russian market. European pork exports to Asia are expected to further decrease as a result of the resumption of beef imports from the U.S. into Asia. However, in the beginning of 2006, French pork exporters have launched several promotional activities in Japan with the aim of increasing French pork exports to 25,000 MT annually.

Domestic consumption is forecast to increase in line with population growth. Some displacement of poultry meat is occurring in Greece, Italy and France as the result of consumer concerns about Avian Influenza. This displacement could become much more widespread than projected if Avian Influenza outbreaks were to be discovered in the EU-25 during the spring of 2006.

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