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AHDB European Market Survey


23 April 2012

AHDB European Market Survey - 20 April 2012AHDB European Market Survey - 20 April 2012

EU annual food price inflation in February 2012, at 3.0 per cent, was slightly down on last year (3.2 per cent) but has been higher than the overall inflation rate since November 2011.

AHDB

Easter trade pushes European lamb prices higher

Demand for the Easter market across Europe has helped to keep lamb prices buoyant in recent weeks. From the beginning of March, the EU-25 heavy lamb reference price increased by six per cent to average €5.67 per kg in week ended 8 April.

This increase has been mainly driven by price rises in the two main exporting member states, the UK and the Irish Republic. In the last month Irish prices increased six per cent to average €5.10 per kg in week ended 8 April. Irish lamb supplies are currently estimated to be nine per cent higher than in 2011. These increased supplies were in demand with increased domestic demand in the run up to Easter giving an extra stimulus to the already strong export demand.

Tight supplies in the UK have helped to keep prices firm in the first quarter of the year. This, combined with the increased Easter demand in both export and home markets, has resulted in prices increasing by eight per cent since the start of March. At €5.62 per kg prices have increased by more than 40 cents over this period. Some currency movement also increased UK prices with the euro weakening from £0.844 at the end of February to £0.824 immediately prior to the Easter weekend.

In contrast to these two markets, the French reference price has recorded little change over the period as the increased availability of product within Europe has kept prices relatively stable. At €6.30 per kg the French reference price has increased by less than one per cent since the start of March.

With weakened consumer demand earlier in the year, the Spanish reference price has suffered a considerable decline since the turn of the year, falling by a fifth to a low of €4.82 by early March. With consumption reportedly faring better in the run up to Easter, prices staged some recovery and increased by four per cent to average €5.02 per kg.

This uplift in prices as a result of the Easter market is an expected seasonal trend for the EU reference price. However the fact that Easter has fallen earlier this year than it did in 2011 resulted in the seasonal price rise occurring earlier in the year. This has helped to keep prices higher than at the same time in 2011. However, with increased availability of lamb from the southern Hemisphere (principally Australia and New Zealand) prices are not expected to reach the unprecedented levels that were recorded later in 2011.

Brazilian pork exports increase

In the first quarter of 2012, Brazilian exports of fresh and frozen pork were up three per cent on the same period 2011. This followed a fall of six per cent in pork exports for the whole of 2011 compared with the previous year. That decline resulted from Russia imposing a trade ban on imports from three major Brazilian pig producing states (See EMS 12/03). Although partially lifted, the ban continued to affect shipments into the first quarter of 2012, with shipments down 64 per cent.

The increase in Brazilian pork exports in early 2012 was largely due to a 340 per cent rise in exports to the Ukraine. The Ukraine typically imports lower valued cuts which are cheaper than those produced on its domestic market. Shipments to Hong Kong were also up by over 70 per cent on the year.

Many other markets also experienced growth, with shipments to Angola and Singapore up on the year. In contrast, shipments to Argentina fell by 40 per cent to 5,000 tonnes. Brazil gained access to the Chinese market in late 2011 and shipments in the first quarter of 2012 reached 500 tonnes, although the number of plants currently licensed to export to China remains very limited and it will take time for trade to build-up. Brazil also regained access to the US market after the USDA lifted restrictions in January 2012 enabling exports to commence from Santa Catarina state, although no shipments were recorded in the first quarter.

The average unit price of all pork exports in January to March 2012 in Brazilian real was three per cent higher than in the same period 2011. However, the current weakness of the real meant that prices fell by three per cent in US dollar terms.

The USDA forecasts that Brazilian pork production will increase by around three per cent in 2012, reflecting domestic consumption and a recovery in the export market driven by demand from Asia and Africa. However, in the first quarter of 2012 pig prices in Brazil have been falling because of lower domestic demand despite the steady exports, with increased domestic production resulting in a market imbalance.

Food price inflation overtakes overall inflation

EU annual food price inflation in February 2012, at 3.0 per cent, was slightly down on last year (3.2 per cent) but has been higher than the overall inflation rate since November 2011. According to the EU Commission, annual food price inflation in February was 0.1 percentage points higher than the overall inflation rate. Compared with the previous month, the price increase during in February, at 0.8 per cent, was approximately 0.3 percentage points higher than the monthly rate of overall inflation.

The comparatively high inflation rate for food has largely been due to sharp global increases in some key commodity prices and the disruption to supplies as a result of adverse weather conditions.

Within the food category, meat prices in the EU were 4.5 per cent higher year on year, with the largest annual price increases generally recorded in Eastern European states, such as Poland (+11.1 per cent), Hungary (+9.4 per cent) and Estonia (+8.9 per cent). Meat prices have been steadily increasing each month, with February’s prices 0.3 per cent higher than the previous month. Beef prices, in particular, hit record highs for five months in a row, peaking in January at €382 per 100kg carcase weight. Prices eased back slightly in February, falling one percent to €379 per 100kg carcase weight.

Rates of inflation in the UK were higher than the European average. February figures for the UK were not available at the time of publication, but the overall annual inflation rate in January, at 3.6 per cent, was 0.7 percentage points higher than the EU average. Food price inflation was 0.6 points higher in the UK compared with the EU average at 3.4 per cent. Annual meat price inflation in the UK was also well above the European average; at 5.7 per cent, it was 1.2 points higher than the EU average.

The EU’s interim economic forecast for 2012 has indicated that inflation is expected to slow down. For 2012 as a whole, the annual overall inflation rate for the EU is projected at 2.3 per cent. The annual inflation rate in 2011 is estimated to have been 3.1 per cent, driven by persistently high energy prices.

Strong demand drives up Irish beef exports

In 2011, Irish beef exports totalled 339,000 tonnes, an increase of six per cent on the year. This increase in exports came despite Irish beef production falling two per cent, as the tight global supply situation resulted in increased competition for Irish beef. The UK continued to be the dominant market for Irish beef, taking approximately half of all exports, and in 2011 recorded a five per cent increase in shipments on the year. A combination of reduced supplies from other markets, lower prime cattle availability and a large increase in export volumes resulted in the UK market requiring increased supplies.

With the EU remaining a net exporter of beef in 2011, demand for Irish beef on the continental market remained firm, with the majority of markets increasing volumes. There were increased shipments to France, Netherlands, Italy, Sweden, Spain and Germany as well as a number other smaller markets.

The growth of trade with non-EU markets continued, although these shipments still only account for four per cent of the total. The largest of these markets remained Russia with volumes increasing by over a third in 2011 to reach 8,400 tonnes. Other notable markets include Switzerland, South Africa and Ghana.

Tight global beef supplies intensified competition for Irish cattle throughout 2011 resulting in farmgate prices being considerably above 2010 levels. Overall steer prices were on average 18 per cent higher on the year and heifer prices rose by a similar amount. The strong demand for manufacturing beef resulted in cull cow values (O3 grade) being 20 per cent up on the year. This stronger competition for tight domestic supplies resulted in unit values for export rising by 10 per cent, to €4,500 per tonne. Coupled with the increased volume, the total value of Irish beef exports increased 16 per cent on the year to €1,520 million.

Tight supplies of cattle and stronger competition from the domestic market also did much to constrain the export of live cattle from the Irish Republic. However, a number of other factors also contributed, including weakening demand for calves in the Benelux region and less demand from Italian and Spanish feedlots. Bord Bia figures indicate that, at 214,500 head, the total number of live cattle exported fell over a third on year earlier levels.

A further tightening of domestic supplies in Ireland is expected in 2012 with throughputs of cattle in the first quarter currently indicated to be down 13 per cent according to Bord Bia. This combined with some expectations that consumer demand will be slow is likely to result in lower export volumes during 2012.

Upward trend in US pig herd continues

According to the latest figures from the US Department of Agriculture (USDA), the United States pig herd stood at 64.9 million head on 1 March 2012. This was 1.2 million higher than a year earlier, an increase of two per cent. Similar increases were recorded for all weight bands of pigs intended for slaughter, except the heaviest pigs which were up by less than one per cent. US pig numbers typically fall during the winter and this year was no exception, with the March figure down two per cent compared with December 2011.

The number of breeding pigs was one per cent higher than a year earlier at 5.8 million head. This was also slightly higher than in December 2011. This expansion comes as profitability has improved over the last year, with hog prices remaining high mainly because of strong export demand. Nevertheless, continuing high feed prices have dampened producer optimism, limiting the scale of expansion.

The number of sows farrowing during the December to February quarter totalled 2.88 million, marginally higher than in the same period a year earlier. Recent productivity gains were maintained, with the number of pigs weaned per litter up from 9.80 a year earlier to 9.97, a record for this quarter, although slightly lower than the previous two quarters. As a result, the pig crop was four per cent up year on year at 28.7 million head. There remain significant differences in productivity between large and small producers, as those with fewer than 100 sows weaned only 7.3 per litter. Intended farrowings for the March-May and June-August quarters are little changed from the last quarter but slightly lower than a year earlier.

Despite increased supplies, US pig prices remain at a high level, although USDA expects the average price during 2012 to be slightly lower than last year’s record level, mainly due to a fall in the fourth quarter. Average prices in January were still 12 per cent above year earlier levels but in February they were up by just four per cent. Solid domestic demand is being backed by continuing strong export performance to keep prices strong. Domestically, high prices for beef and chicken are encouraging consumers to switch to pork, a trend which USDA expects to continue throughout 2012. At the same time, pork exports during the first two months of the year were 31 per cent higher than in 2011.

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