Dairy Herd Restocking Brings More Meat18 July 2014
EU meat production is seen recovering after two years of tight supplies for beef and pig meat, according to the European Commission’s Short Term Outlook for agricultural products for 2014 and 2015.
Milk prices, driven by a strong world demand, remain firm despite the record milk collection in the EU.
In recent years, total cow numbers declined at a slower pace than in the past, and it even increased in 2013. This resulted in lower meat production in 2012 and 2013 as fewer females were slaughtered.
In parallel, the number of born calves increased leading gradually to a higher number of animals fattened, and thus in additional meat to come in the market in 2014 and 2015.
Changes in the total cow herd are driven by a decline in suckler cow herd by nearly 300,000 heads since 2011 and a parallel increase of the number of dairy cows by more than 400,000 heads over the same period, leading the total number of cows to 35.4 million heads in December 2013.
The continuous decline in the number of beef cows, combined with the restocking of dairy cows due to high milk prices and the milk quota expiry in 2015, led to an 8.3 per cent decline in total EU beef production between 2011 and 2013.
In the first four months of 2014, total EU slaughterings were still slightly lower (-0.2 per cent) than the previous year but this average EU result masks significant differences among Member States.
The higher slaughterings can be observed in several countries, with higher beef slaughterings in Ireland (+13 per cent), Poland (+12 per cent), the United Kingdom (+3 per cent) and Germany (+4 per cent) (see graph).
Change in males and cows slaughtering in the first four months of the year compared to 2013
Yet over the same period, decreases were recorded in other Member States (e.g. -21 per cent Italy , -2 per cent France, -9 per cent Hungary), either because the restocking process is not yet over (e.g. in France) or because of the ongoing decline in the number of suckler cows in other Member States.
Nevertheless, yearly beef production is expected to recover by 1.4 per cent in 2014 compared to 2013 and at a stronger pace in 2015 (+2.3 per cent) since the effect of the dairy cow herd restocking is expected to spread to more countries.
In the first four months of 2014, beef imports showed a decline of 3.7 per cent compared to the same period of 2013.
Volumes of Brazilian origin remained stable, but imports from Argentina and Uruguay declined significantly (-19 per cent) because of increased domestic consumption and the orientation of some of their shipments towards Asian markets (mainly to China) and to Russia.
Nevertheless, as the EU market remains attractive for South American beef producers, eventually total 2014 imports are expected to recover in the remainder of the year.
After two years of sharp decline, the recovery in EU production could lead 2014 meat exports to increase by close to 5 per cent, driven by sustained demand from Russia, Switzerland and Bosnia Herzegovina.
On 26 June, Russia introduced a ban on EU beef trimmings and offal.
The extent to which it could affect the EU export performance is yet uncertain given that not all beef products are concerned.
Prices, though still high, have been steadily declining for over a year to €366/100 kg in May 2014, 4.3 per cent below their 2012-13 average.
This will contribute to the expected recovery in domestic consumption to 10.5 kg/capita in 2014 and 10.7 kg/capita in 2015 (in retail weight).
Pig Meat Production Starts Picking up after Two Years of Tight Supplies
Following the compulsory introduction of the welfare rules for breeding sows by December 2013, the 2013 number of breeding sows was still 1.6 per cent below 2012 at 15.2 million heads. Declines in Germany (-3 per cent), France (-3.1 per cent), Poland (-5.6 per cent) and Italy (-5 per cent) were partly offset by increases in the Netherlands (+1.3 per cent) and Denmark (+2.4 per cent). The implementation of group housing for sows and the low profits of last years translated in a shortfall in the number of piglets going into production, with high prices for piglets recorded at the beginning of the year, peaking at €54/head in April (9 per cent above the 2012-13 average).
The Russian ban on EU pig meat introduced after the discovery of a few cases of African swine fever in wild boars close to the border with Belarus added uncertainty on the market.
Against this background, pig meat production in 2014 is anticipated to increase only marginally by 0.2 per cent, with higher supplies in Denmark and the Netherlands expected to compensate for potential drops in France, Germany and Spain. Provided that market conditions will improve next year, production could recover at a slightly stronger pace in 2015 (+0.8 per cent).
In the first four months of the year, shipments to Russia decreased by 80 per cent compared to last year; however the strong Asian demand limited the decrease of total EU exports to 16 per cent.
The reduction in the US supply in 2014 following the Porcine Epidemic Diarrhoea Virus outbreak has contributed to the increase in the demand for EU pig meat coming from the Asian markets (China, Japan, South Korea, Hong Kong, Singapore or Philippines).
Nevertheless, given that Russian volumes account for one third in total EU exports, the strong Asian demand is not expected to fully compensate for the sharp drop of exports towards Russia and over the whole year the EU exports are expected to fall for the first time in several years (-7 per cent compared to 2013).
Given the uncertainty related to trade developments with Russia, EU exports of pig meat are currently estimated to recover only marginally in 2015.
Without agreement of Russia on the regionalisation system implemented by the EU, EU pig meat exports might be further affected.
There is currently a relatively good demand for pig meat throughout the EU with prices 5 per cent below the 2012-13 average at €164/100 kg; thus 2014 consumption is likely to slightly recover from the 2013 low (31 kg/capita) to finally reach 31.4 kg/capita in 2015 (in retail weight).
Increase in Sheep Production Driven by Profitability Gains
The sheep production gives signs of stabilisation since 2011 due to increased profitability in the sector.
Revised data for 2013 production show a slight recovery after the strong drop in the previous year.
More slaughterings in the EU-N13 (in Romania and Bulgaria) filled in the gap left by slightly lower volumes being produced in the EU-15.
Heavy lamb prices, at 572 EUR/100 kg in May, are 15 per cent above the 2012-13 average.
Light lamb prices are 2 per cent below the 2012-13 average but still at the high level of €582/100 kg in May.
These price levels, combined with good forage conditions in the north of the EU and lower cereal prices, implied lower production costs and stimulated a moderate production expansion in 2013 which is expected to continue in both 2014 and 2015. In addition, the possibility of a certain degree of coupled support announced by some Member States in the framework of the 2013 reform of the Common Agriculture Policy is likely to contribute to the sector profitability.
However, the drought affecting the pasture, particularly in Spain (see map 3) might limit production growth in 2014.
Shortages in lambs in New Zealand, and consequently an expected lower 2014 production, are expected to drive the EU sheep imports 2.5 per cent down; additionally, New Zealand is diverting more and more volumes to closer destinations as China and Saudi Arabia (shipments to these two destinations in the first quarter of the year were 30 per cent and 13 per cent higher compared to 2013). More imports from Australia will not fill the gap.
Historically High EU Milk Collection
Favourable weather conditions, good forage quality (and quantity) and high milk prices led to a 6 per cent increase in EU milk deliveries in the first four months of the year compared to 2013.
The magnitude of this increase is particularly large because at the beginning of 2013 poor weather had put downward pressure on milk production.
Contrary to expectations, production in some Member States did not diminish despite the risk of significantly overshooting milk quotas.
This behaviour was expected in the Member States with rather high milk prices, like Germany, Denmark, the Netherlands and Austria.
In contrast, Irish milk production slowed down considerably and equalled the low 2012 level, before surging again in April (+22 per cent compared to April 2013).
However, the 7.3 per cent surge in Polish production was not expected given that the Polish milk price is among the lowest in the EU. In some Member States that are underutilising their quota, milk deliveries also increased significantly during the first four months of the year.
This was particularly evident in the United Kingdom, France, Estonia and Romania. In contrast, milk production in Greece and the Czech Republic remains on a downward trend.
Milk Prices Still 15 per cent Higher Than Year Ago
This abundant supply was easily absorbed by the markets and EU farm gate milk prices remained firm during the first four months of the year, 15.5 per cent above
In April, the EU weighted average decreased by 3 per cent compared to March but the price level, at €38.35/100 kg, was still very high.
Further modest downward adjustments can be expected because prices of dairy products have experienced a reduction.
In addition, during the peak periods of milk collection, milk spot prices declined, notably because processing capacities were fully utilised.
Nevertheless, in the second half of the year, EU farm gate milk prices are expected to remain at reasonably high levels given that demand is strong, especially for exports, and because the period of maximum supply is already over and commodity and spot prices have started to increase again.
EU prices performed well despite the fact that milk production was also higher in the other main exporting areas: the USDA estimates that the production of New Zealand, Australia, the US and the EU increased by 4.6 per cent compared to the first quarter of 2013.
This expansion is particularly significant in New Zealand where last year production had been affected by drought. In the US, the increase is more moderate.
2.8 per cent Increase in 2014 EU Milk Deliveries
For the remainder of the year, it is expected that growth in EU milk production will slow down compared to the high deliveries experienced during the second half of 2013.
Milk prices have already started to decrease from the current record levels and there is no extra quota available for the last year before the quota system expires; in addition some farmers may face difficulties in paying significant penalties for producing above quota two years in a row.
A reduction in milk collection could already be observed in May in France, Germany and the United Kingdom.
Therefore, in 2014, EU milk deliveries are expected to increase by 4 million tonnes to 145.3 million tonnes.
In 2015, the expiry of the quota system could lead to an increase in production in the few Member States that are currently restrained by quotas.
However, milk and dairy product price developments and weather conditions will remain the main drivers of milk production. In addition, environmental constraints, competition for land with other sectors and investments strategies of the dairy industry will play a major role.
As a consequence, a moderate increase of EU milk deliveries is foreseen in 2015, at +2.3 per cent.
More Powders Produced to Answer Increasing Export Demand
Between January and April 2014, higher milk supplies allowed EU dairy processors to increase the production of skimmed milk powder (SMP) and whole milk powder (WMP), by 17 per cent and 10 per cent respectively compared to 2013.
Because of this surge in production, EU prices started to decrease in March but the decline stopped in June, driven by strong world demand.
At the end of June, EU SMP and WMP prices are around 7 per cent lower than a last year at €289/t and €334/t respectively.
During the first four months of the year, world demand for powders (SMP and WMP) increased, driven by Algerian and Chinese demand: Chinese imports at 530 000 tonnes increased by close to 80 per cent compared to last year.
The EU benefited significantly from this market expansion.
Between January and April, SMP exports increased by 66 per cent compared to the depressed 2013 levels.
Shipments to Algeria doubled and those to China quadrupled, at 55 000 and 27 000 tonnes respectively. Exports to Nigeria, Middle East and South East Asia expanded too.
Over the same period, WMP EU exports rose by 30 per cent. Most of the increase is due to Algeria, which imported more the first four months of this year than during the whole of 2013.
Shipments to Angola and China also increased significantly, while exports to traditional EU destinations (Oman, and in particular Nigeria) remained lower than in 2013.
For the remainder of the year, growth is expected to ease as powder production and exports have recovered in the second half of 2013 after the poor performance of the first six months.
Therefore, in 2014, production and exports of SMP are expected to increase by 10 per cent and 27 per cent respectively compared to 2013.
Lower prices might lead countries from the Middle East and Africa to further increase their imports after a slowdown in 2013 due to the prohibitive price level. In addition, Chinese demand is expected to remain strong even though some stocks might have been accumulated.
In 2014, WMP production could increase for the second year in a row, driven by world demand and an ongoing increase in domestic use, particularly for chocolate production.
Cheese Exports Still Strong in Spite of Decline of Russian Market
In 2013, Russia accounted for 33 per cent of EU cheese exports. During the first four months of the year, EU shipments to Russia decreased by 8 per cent, with German exports particularly affected.
Over that period, total Russian cheese imports decreased by 5 per cent: imports from Ukraine and Germany halved while those from Argentina quadrupled and those from Poland increased by 25 per cent.
Nevertheless, in the same period, total EU exports decreased by only 1 per cent on the previous year, because shipments to new destinations, such as to Saudi Arabia, Egypt, Libya and the United Arab Emirates, expanded significantly.
In spite of the gradual economic recovery in many European countries, consumption expansion is constrained by higher consumer prices which reflected to a certain extent the increase in milk prices.
In the first four months of the year, cheese production increased by 2.6 per cent in line with the increase in milk supply.
The development of domestic consumption is difficult to measure on a monthly basis.
Throughout 2014, cheese production is expected to increase by 1.6 per cent compared to 2013 while exports could grow by 2.5 per cent if the Russian imports come back to normal.
Per capita consumption is expected to reach 17.3 kg or 1.3 per cent above the 2013 level. Most of the increase will take place in the EU-N13 where cheese consumption is still significantly lower than in the EU-15 (12.3 per cent and 18.4 per cent respectively in 2013).
Favourable Demand for Dairy Fat
In 2014, butter production is expected to increase by 2.5 per cent driven by strong export demand (up by 9 per cent) and higher domestic use (close to 3 per cent).
Despite the price decrease which started in January, the EU butter price has remained firm at €354/100 kg at the end of June (12 per cent below last year).
Contrary to last year’s expectations, there is a significant demand for dairy fat. The campaign against the use of palm oil may have played an important role in the increased demand of butter for industrial use.
Figures show that imports still remain quite low, however per capita consumption is slightly increasing since 2012, and it is expected to continue in the next two years.
As in 2013, imports of butter and especially butter oil for inward processing will continue to increase significantly. Exports have increased by 22 per cent in the first four months of 2014, driven by higher Russian demand.
Yogurt Consumption Declining
The production of fresh dairy products is expected to remain stable in 2014 and 2015, while a small decrease in per capita consumption could be compensated by higher exports.
Drinking milk shipments, especially to China, are expected to continue growing by more than 10 per cent (they were 16 per cent above last year for the first four months of the year).
Fresh dairy products show less positive developments than the other dairy products because the export potential is more limited, except for UHT milk shipments to China.
Yogurt consumption in particular is declining, possibly affected by a change in perception regarding the health benefits, leading to a decline in production, forecasted at 0.5 per cent for 2014 and measured at 2.7 per cent for the first four months of the year.
By contrast, the production of cream for direct consumption is expected to increase by 2 per cent in 2014 and 2015 driven by a rise in domestic use.