Cattle and Sheep Market Update

Transcription

1 Cattle and Sheep Market Update September 215, Issue 39 In this issue... How much value can be added to a store lamb? In the year to date more lambs have been sold as stores than in the same period in 214 but prices have so far been below levels seen last year. Read about how much value can be added to store lambs in the various lengths of time they are kept on farm between purchase as stores and sale as finished lambs on page 7. Turkey importing beef again Turkey has started to import beef again from the EU. While it is unclear how this trade will develop in the coming months, from autumn 21 through to the end of 212 EU exports to Turkey provided a significant boost to the EU beef market. Read more about this development on page 4. Lower New Zealand lamb crop forecast New Zealand exports in the 215/16 season are forecast to fall following a decline in the size of the sheep flock, according to the latest new season outlook from Beef and Lamb New Zealand. Read about this development on page 9. Global beef trade starting to lose it s sizzle? The first half of 215 has been challenging for beef exporting countries. Based on data for the three main global exporting countries, Australia, Brazil and the United States, since November last year the weighted average export price has been steadily falling. Read more about this development on page 5. Cattle Sheep Aug % change month Interested in data? Get more detail about these and other areas from % change year NSL SQQ - p/kg dw Cull ewe price - /head UK clean sheep slaughter head UK adult sheep slaughter head UK sheep meat production tonnes (carcase weight) UK frs/frz sheep meat imports tonnes (product weight) - Jul UK frs/frz sheep meat exports tonnes (product weight) - Jul Aug % change month % change year GB prime cattle price p/kg dw GB cull cow price p/kg dw UK prime cattle slaughter head UK adult cattle slaughter head UK beef and veal production tonnes (carcase weight) UK frs/frz beef imports - Jul tonnes (product weight) UK frs/frz beef exports - Jul tonnes (product weight) na na na ,136.1 na na na AHDB Beef & Lamb conference to examine global markets, supply and the opportunities ahead The free, one-day event at Stoneleigh Park, Warwickshire, on November 3 provides an ideal forum for those in the industry to come together and discuss pressing industry issues. Places can be reserved by phoning or beeflamb.conference@ahdb.org.uk Further details can be found in the events section of the AHDB Beef & Lamb website beefandlamb.ahdb.org.uk Cattle and Sheep Market Update/Published September 215/Issue 39 - Page 1

2 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep UK Beef snapshot Cattle trade moves up steadily The prime cattle trade has generally moved up over the month as the balance between supply and demand has just favoured finishers. Reports suggest that large processors have been more active in the market on the back of improving demand as the weather has cooled. They have been looking for more cattle than they have done through much of the summer, ensuring that their pipelines are adequately filled. So much so, finding a home for cattle outside supermarket specification has not been too difficult. Deadweight prime cattle average prices 214/215 p/kg dw Steers Young bulls Heifers easing of prices at the beginning of the month meant that some producers held onto their cattle. Young bull throughputs were level with August 214 levels, the first time there has not been a notable year-on-year decline since January last year. Following on from last month, the number of adult cattle coming forward was again up on the year. Throughputs were up four per cent at 48, head. For the second month in a row all regions of the UK saw higher cow slaughterings year on year but higher throughputs in Scotland and Northern Ireland drove the uplift this month to the greatest extent. Year-on-year change in slaughterings, Aug 215/214 % change Steers Ybulls Heifers Adult cattle Source: AHDB Beef & Lamb In week ended 26 September the GB prime cattle average price was up almost 6p over the past four weeks to top 35p/kg for the first time since the start of August at 35.7p.kg. Steers meeting R4L classification averaged 362.2p/kg, they have now moved up 4p/kg since the end of August. Heifers of the same spec have also firmed over the month, up 6p to average 361.1p/kg while R3 young bulls strengthened 7p over the same period to reach 343.6p/kg. The current balance in the market still suggests that the trade towards the end of the year looks more positive, especially if there is some added competition between processors as the season moves towards its transitional period between grass-fed and yarded cattle. Cull cow prices have also moved up as demand for manufacturing beef continues to be robust, despite the strong pound against the euro continuing to make exports challenging. As with the prime cattle trade, processors are looking for higher numbers. Overall cows moved up 6p over the month so far to average 214.5p/kg in week ended 26 September, regaining some of the ground they lost throughout the summer. Beef and veal production up in August In August, UK prime cattle slaughterings were down by 1,5 head on the year earlier at 139,6 head. Both steers and heifers recorded lower throughputs, compared to the corresponding month in 214, with numbers down by 5 and 1, head respectively. While expectations are for supplies to tighten, it is possible that the moderate Source: DEFRA Carcase weights for all prime cattle were up on the year. Consequently, this offset the fall in prime cattle numbers and production from steers, heifers and young bulls was up one per cent, or 5 tonnes, at 49,5 tonnes. Production from older cattle was up almost three per cent at 14,5 tonnes, as lower weights for cows mitigated the higher numbers to a limited degree. Therefore, overall production was up almost two per cent on the corresponding month last year at 64,6 tonnes. UK beef exports perform better in July Exports of beef and veal in July performed better than in recent months. At 8,2 tonnes, they were still down on the year earlier but at just four per cent lower, this represented a notable improvement on the double digit falls of the previous couple of months. The strength of sterling against the euro has no doubt affected our competitiveness in the first half of the year. However, throughout July the sterling/euro exchange rate steadied somewhat, possibly aiding the improved performance. Shipments to other member states were back four per cent, largely driven by a drop in trade to Ireland and the Netherlands. The commodity nature of the cow beef trade, against the backdrop of the challenging exchange rate scenario in a historic context, still meant that trade to these destinations continued to be affected. In contrast, exports to France and Italy were positive both up around 2 per cent on the year. For both destinations this was on the back of increased shipments of higher priced fresh/ beefandlamb.ahdb.org.uk Cattle and Sheep Market Update/Published September 215/Issue 39 - Page 2-15 England & Wales Scotland Northern Ireland

3 Cattle price (R4L steers): p/kg deadweight Exchange rate: / chilled boneless cuts up 13 per cent and 2 per cent respectively on the year earlier. Trade to Poland, Spain and Sweden also performed very well in July, compared to the same month last year. Outside the EU, where dollar prices make us more competitive, trade was up one per cent on July 214, despite the on-going access issues in Hong Kong. Increased shipments to the Philippines and French Polynesia largely drove the increase. Year-on-year change in UK beef export volumes, tonnes, July 215/14 Boneless, Fresh/Chilled Boneless, Frozen Bone In, Frozen Carcases, Frozen Bone In, Fresh/Chilled Carcases Fresh/Chilled Source: HMRC/GTIS Imports of beef to the UK in July were up a quarter, compared with the same month in 214, to 23,9 tonnes. Again demonstrating the evidence of the effect that the exchange rate is continuing to have, exporters shipments from other member states were up almost 35 per cent year on year. Shipments from outside the EU were back a quarter on July 214, with imports from all the leading non-eu suppliers lower. Debbie Butcher, Senior Analyst, AHDB Beef & Lamb debbie.butcher@ahdb.org.uk Does the exchange rate influence cattle prices? Last month, we looked at the close relationship between GB lamb prices and the exchange rates between the pound and both the euro and New Zealand dollar. But what about cattle prices are they also influenced by exchange rates? Relationship between : exchange rate and GB prime cattle prices R4L steer price (real terms) Euro exchange rate Source: AHDB, European Central Bank The answer is that the relationship is much less clear for cattle, at least in recent years. Up to 28, there appeared to be a fairly strong relationship between the exchange rate and prime cattle prices. Since then, however, the link seems to have largely broken down, with supply factors now appearing to be the dominant driver of prices. The fact that exchange rates are less influential on the cattle market than for sheep is perhaps no great surprise. The UK is both a major exporter and importer of lamb, reflecting the seasonal nature of that industry. This means that it is exposed to both the EU market, priced in euros, and the global market, where the NZ dollar is the most influential currency on the UK market. For beef, in contrast, the UK exports less than 2% of production. Although imports are higher, with around a third of beef consumed in the UK being imported, Ireland is the dominant supplier. With a similar industry structure and affected by the same weather and market conditions, Irish supply trends tend to mirror those in the UK. Therefore, although the exchange rate obviously affects the gap between British and Irish prices, they tend to move in similar directions. Comparison of GB and Irish prime cattle prices (R4L steers) GB Ireland Source: AHDB, EU Commission Nevertheless, as has been well documented, GB and Irish prices have diverged somewhat over the last two years, with the exchange rate contributing to this. The increased retailer preference for British beef since horsegate has helped to limit the impact of this on UK prices. However, it seems certain that some of the downward pressure on prices at times over the last year can be attributed to the lower Irish price and, hence, to the weak euro. For this reason, the relationship between prime cattle prices and exchange rates hasn t broken completely. Of course, prime cattle are not the only segment of the beef market. It might be expected that cow prices would have a closer relationship with the exchange rate, given that a significant proportion of UK exports are made up of cow beef. It is also more of a commodity product, meaning that UK beef is in more direct competition with supplies from elsewhere. GB deadweight cow prices have only been published since late 25, once they began re-entering the food chain following BSE controls. As with prime cattle, at that time beefandlamb.ahdb.org.uk Cattle and Sheep Market Update/Published September 215/Issue 39 - Page 3 p/kg

4 Cow price (-O4L): p/kg deadweight Exchange rate: / cow prices were tracking the exchange rate fairly closely. However, once again the relationship has weakened significantly more recently, although in this case some influence seems to still be apparent at times. Relationship between : exchange rate and GB cow prices O4L cow price (deseasonalised) Euro exchange rate Source: AHDB, European Central Bank Nevertheless, over the last two years, cow prices have been broadly static, once seasonal movements are taken into account, although they did strengthen more than usual around the turn of the year. This means that, as with prime cattle prices, the cow market has largely been able to resist any downward pressure from the exchange rate. While this may appear odd at first glance, the main explanation is relatively simple. EU cow prices have been strong this year as demand for manufacturing beef has been robust. As a result, EU prices have help up even in sterling terms, at least until the last couple of months when the crisis in the dairy industry has led to an increase in cow culling. Therefore, although GB cow prices have been at a premium to EU ones, the gap is not unusually high. Although this analysis shows that the pound-euro exchange rate is currently not exerting much influence on cattle prices, it is worth remembering that this wasn t always the case in the past. Therefore, its importance could rise again, if market conditions were to change. This could happen in a number of ways, for example if UK buyers start sourcing more beef from a wider range of countries, either through necessity or choice, or if UK supplies rise ahead of demand, meaning more export markets need to be developed. Stephen Howarth, MS Manager, AHDB Beef & Lamb stephen.howarth@ahdb.org.uk Turkey importing beef again Turkey has started to import beef again from the EU. While it is unclear how this trade will develop in the coming months, from autumn 21 through to the end of 212 EU exports to Turkey provided a significant boost to the EU beef market In 21, shortages of domestic beef on the Turkish market were contributing to increased food price inflation, which has occurred again this year. Turkey effectively allowed beef imports by reducing the rate of duty in autumn 21, from a prohibitive 225 per cent down to as low as 3 per cent by early 211. The tariff was gradually increased again, returning to 225 per cent by the beginning of 213. The subsequent rise in beef imports was entirely supplied by the EU, with Turkish importers mainly taking chilled young bull beef. Turkish beef imports in 211 were as much as 111, tonnes, with Poland the largest supplier followed by Germany. By early 213 trade had ceased with Poland, the one remaining supplier at the end of 212. By 214 Turkish imports only amounted to 64 tonnes mainly supplied by Bosnia. Turkish beef imports, tonnes Other France Germany Poland Source: UN Comtrade Data published by the OECD indicates a steady increase in Turkish per capita beef consumption over the last 1 years, which now averages 8kg retail weight. The total beef market amounts to almost 9, tonnes cwe. In 211, the sharp rise in imports more than offset the considerable fall in domestic production but output has moved up again, meaning large import volumes are no longer needed. Projections issued by the OECD earlier this year suggested that production would increase considerably in 215. However, it is possible that this has not been the case, given that retail meat price inflation is now reported to be 3 per cent, hence the government action needed to reduce it. In August 215 the Turkish state-run organisation, the Meat and Milk Board (ESK), announced a tender for 1, tonnes of beef carcases to be supplied by the EU at zero customs duty. This was out of the total red meat quota of 19,1 tonnes, according to Turkish sources. The 1, tonnes contract was won by Polish companies. Besides beef, store cattle are also imported for finishing in Turkey, this trade re-commenced somewhat earlier than the product trade, in November 214. France, in particular, benefits from this trade, shipping 42, head, mainly young stores, between November 214 and June 215. The other main supplier is Uruguay but Brazil is also expected to enter this market following agreement on beefandlamb.ahdb.org.uk Cattle and Sheep Market Update/Published September 215/Issue 39 - Page 4

5 sanitary certification. The EU supplied 96, head in the first seven months of 215, whereas there were no shipments in the same months of last year, with France the main supplier, while Hungary is the second largest. In terms of implications for the UK market, the resumption of EU trade with Turkey should at least give some indirect benefits, given the concerns about the increase in availability of Polish beef on the EU market. Data for January to June 215 indicates that Polish beef production increased by 11 per cent on last year, while exports were up by as much as 17 per cent or 25, tonnes. Even exports of store cattle to Turkey could contribute to supporting the EU market. It is unclear as to future developments in Turkish beef imports but it is understood that the zero customs duty applicable to the EU will remain during the rest of this year. One key reason for the contract of 1, tonnes was to help meet the demand for the Muslim festival, Eid al-adha, otherwise known in Turkey as the Feast of Sacrifice, on 23 September. Now this has passed the demand/supply balance should improve helped by an upturn in availability of domestic beef, including from stores imported earlier in the year and finished in Turkey. Nevertheless, given the impact of market opening in 211, it will be worth watching developments in the coming months. Lionel Colby, Consultant Global beef trade starting to lose it s sizzle? The first half of 215 has been quite interesting, if not challenging, for beef exporting countries. Export prices are showing signs of easing and volumes falling compared to last year s levels following a slow start to the year. This is based on data for the three main global exporting countries, Australia, Brazil and the United States. Since November last year the weighted average export price from these countries has been steadily falling and, at approximately $5,5 per tonne in recent months, is down 1 per cent. Volume and price of beef shipments from the top three global exporters Tonnes 4, 35, 3, 25, 2, 15, 1, Brazil USA Australia US$ per tonne Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q US$ per tonne 6,2 6, 5,8 5,6 5,4 5,2 5, Source: GTIS In Brazil s case it appears that the end of the commodity boom and a failure to reinvest windfall revenue generated during this period is starting to have a negative effect on its domestic economy. This has resulted in lacklustre demand amongst domestic consumers. Exports have failed to fill the void, with volumes in the year to July back almost a quarter, or 27, tonnes, on the same period in 214. One of the challenges facing the industry comes from low oil prices, which has had an impact on affordability for countries such as Venezuela and Russia. There are reports that Russia may stop importing meat products completely in 216. Regaining access to the US fresh beef market has been on Brazilian exporters wish list for some time and was about to become a reality in June, only for the US government to step in to delay plans on food safety grounds. Elsewhere, Brazil has sought to grow exports of beef to the Middle East, with shipments to Egypt more than doubling between 29 and 214 to be in excess of 15, tonnes. During the first half of the year, Australian exports were up 11 per cent, driven by demand from the US and the drought induced production increase. However, recently production has started to show some signs of decline according to Meat and Livestock Australia (MLA). Furthermore, despite farmgate prices continuing to surge, export prices are coming under downward pressure due to a weakening in US cattle prices and uncertainty surrounding global stock markets and future economic conditions. Another factor contributing to a weakening in Australian export prices is believed to be related to Australia reaching 85 per cent of its allocated beef quota for the US market. For the rest of the year the remaining quota will be allocated based on exporters records of shipments. Otherwise, Australian beef destined for the US will be subject to a tariff of around 2 per cent. Of greater interest is that, despite rapid growth in trade with the US market, overall exports have not undergone any significant realignment. Volumes to Australia s other main customers, namely Japan, South Korea and China have been holding firm. Looking ahead, Australian production will almost certainly enter a phase of decline due to the level of herd liquidation, which will require herds to be rebuilt if production is to recover to more normal levels in the future. For exporting countries, such as Brazil, this will come as welcome news, both countries have been targeting similar markets. To date Australia s beef industry has had the upper hand with a sizeable beef quota for the US and access to the Chinese market. In addition, Australia has also been making inroads into the Middle Eastern and North African (MENA) market, attractive due to a growing and increasingly affluent beefandlamb.ahdb.org.uk Cattle and Sheep Market Update/Published September 215/Issue 39 - Page 5

6 UK Lamb snapshot population, with a strong reliance on food imports. However, as Australian production scales back, this may generate an opportunity for Brazilian exporters to capture a larger market share in these locations. For the United States, export volumes were down nine per cent on the first half of last year. This reduction in trade is as a result of many of the US s main markets, such as Japan, Canada and Mexico, all seeing a reduction in demand for US product. The exception was South Korea, where shipments increased on first six months of 214. According to the US Meat Export Federation, the US beef trade has experienced a difficult period during the first half of 215. The west coast port impasse hurt exports in the first quarter and other competitors have increased efforts to capture market share. In addition, a resurgent US dollar has made US product appear significantly more expensive, compared to previous years, which may become an even greater issue should the Federal Reserve decide to increase interest rates anytime soon. Domestic prices are starting to come under downward pressure amid uncertainties about the prospects in 216. In addition, an expansion of the US cattle herd is now well under way and has led some economists to call for the industry to focus on prioritising beef demand efforts to cope with a future increase in supply. Beef exports from Argentina have performed strongly in the first half of 215, with shipments up 22 per cent on the same period in 214. This development has been largely driven by China, which has seen a tenfold increase in monthly shipments from Argentina since the beginning of 214 and is now Argentina s largest customer for beef. However, it remains to be seen whether this trade will continue to grow or remain at current levels as the Chinese government struggles to maintain control of its economy. In Europe, exports have remained largely unchanged compared to the first half in 214. In US dollar terms the gap between EU export prices and prices achieved by other countries appears to be widening. Some of this change may be explained by EU prices decreasing due to a stronger US dollar. In conclusion, it appears that uncertainties concerning the global economy for the remainder of the year and 216 is having an impact on sentiment at present. For the US industry, questions of how much extra product herd expansion will deliver in the future are suggesting that current prices cannot be maintained in the absence of a significant increase in domestic consumption, or the development of new markets. Meanwhile, as Brazil and EU countries seek to get access to China and the US, while Australian production declines, there could well be a realignment in trade amongst the main global suppliers. John Tobin, Analyst, AHDB Beef & Lamb john.tobin@ahdb.org.uk Lamb trade finally sees some increases September saw more positivity around the GB lamb trade, with prices at GB auction markets increasing in the month. In the week ended 26 September the SQQ was up by 7p on four weeks previously at 152.8p/kg, despite numbers coming to market being higher. This has led prices this month to go just above the level seen at the same time last year. Much of this increase is likely to be due to higher demand for the Muslim festival of Eid-al-Adha, which took place on 23 September, as prices were higher in the early part of the month. Prices at this time are also thought to have been supported by the slight weakening of the euro following fears about the Chinese economic slowdown. However, despite this overall better performance, in the week since Eid prices have seen some sharp falls. The SQQ on Monday 28 September was 143.5p/kg, down 11p on the week. GB Liveweight SQQ p/kg yr Average 14 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: AHDB/LAA/IASS The deadweight trade eased in week ended 19 September following stronger prices in the two previous weeks. The SQQ fell by 4p on the week to 35.5p/kg, with estimates suggesting that throughputs were 14 per cent up on the week earlier and over 2 per cent up on the year. However, prices were 15p/kg above levels seen at the beginning of the month, following the same drivers as in the liveweight trade. Further increases in Sheep meat production in August In August, the number of lambs slaughtered in the UK continued to be ahead of last year, with numbers up five per cent at 1.1 million head. This is the highest slaughter level for August since 21 and the fourth consecutive month that slaughterings have been up year on year. Much of this was driven by slaughterings in England and Wales, which were up by seven per cent, while numbers in Northern Ireland were up five per cent and Scottish slaughterings were actually down five per cent. This beefandlamb.ahdb.org.uk Cattle and Sheep Market Update/Published September 215/Issue 39 - Page 6

7 leaves throughputs so far this season (May to August) 163,5 head above the same period last year at 4.2 million head, while slaughterings in the year to date are up five per cent at 8.2 million head. Also having an impact on production levels, the average carcase weight of lambs in the UK was up by.5kg in August compared to a year earlier. UK Sheep meat imports, July tonnes New Zealand Australia Ireland Others Source: GTIS, HMRC The number of ewes and rams slaughtered in August continued to be lower on the year, a trend that started in January 214. Numbers were down 12 per cent at 135,4 head. Carcase weights were also down by.3kg, further reducing the volume of sheep meat produced from adult animals. More lamb slaughterings prompted UK sheep meat production in August to increase five per cent on the year to 25,9 tonnes. Production in the year to August is now up three per cent on the year at 193, tonnes. Imports remain lower in July In July, the volume of sheep meat imported to the UK was down by two per cent on the year, although shipments from New Zealand increased. This fall in overall volumes follows high levels of production in the UK and falling prices for domestic product. Despite this, shipments from New Zealand were actually up by 14 per cent on the year, largely on the back of higher levels of production in May and June. In addition, shipments from New Zealand to China continued to fall. This led the share of total imports coming from New Zealand to increase to 8 per cent. Imports from Ireland also bucked the overall trend seen in July and increased by 14 per cent. Much of the overall decline in volumes was driven by lower shipments from Australia, which were down by a third, compared to 214. Imports from Australia have declined following falling production, meaning less is available for export. Volumes from other locations also fell sharply, with the largest falls coming from Spain, Germany and Chile. This leaves imports in the first seven months of 215 down four per cent on the year at 64, tonnes. UK sheep meat production tonnes Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: DEFRA According to HMRC there was a fall in overall exports from the UK in July. However, the accuracy of this data continues to be questioned. Reported volumes were down by almost a quarter. While the quality of the trade data impedes a hard analysis of exports, the strength of the pound does still continue to have a bearing on the competitiveness of UK product. Mark Kozlowski, Senior Analyst, AHDB Beef & Lamb mark.kozlowski@ahdb.org.uk How much value can be added to a store lamb? In the year to date, five per cent more lambs have been sold as stores than the same period in 214 but prices have so far been below levels seen last year. This follows a trend of increasing numbers of stores being sold since 212, with numbers in 214 almost a third higher than those from 212. With higher numbers of lambs being sold as stores, this article looks into how much value can be added to store lambs for various lengths of time they are kept on farm between purchase as stores and sale as finished lambs. The store lamb trade is an important tool for the UK lamb industry, making good use of the land resource and feed availability on different farms and also allowing greater specialisation in animal husbandry. Farmers can trade partly-finished store animals both directly with each other and also through the extensive network of livestock markets that operate in the UK. In 214, over 1.7 million lambs were sold as stores through GB auction markets. This accounts for over 1 per cent of the total UK lamb crop from 214, a figure which does not include the lambs sold privately between breeders and finishers. Over 7 per cent of the store trade occurs in the four months between August and November, with 1.25 million lambs being sold as stores in these months of beefandlamb.ahdb.org.uk Cattle and Sheep Market Update/Published September 215/Issue 39 - Page 7

8 214, three-quarters of the total. It is these months that we will focus on in this article. Monthly average store lamb price /head year average 44 Jun Jul Aug Sep Oct Nov Dec Source: AHDB/LAA/IASS Store lambs can be broadly categorised into three groups by the amount of weight that needs to be gained before they can be marketed, according to the Growing and Finishing Lambs publication from the AHDB Beef & Lamb Better Returns Program. One group is those lambs that will be kept on farms for less than 6 weeks, another is those that need to be kept for a medium term, from six to twelve weeks, and then there are those that need to be kept for a longer term, twelve weeks plus. It is perhaps unsurprising that there is a strong positive correlation between the store lamb price and the liveweight lamb price. However, the correlation between the two prices becomes weaker if you compare store prices with liveweight prices one, two or three months later. This offset represents the time when the store lambs would be sold once they had been finished. This means if you pay a low price for store lambs, the price received when they are finished will not necessarily be low. However, the opposite can be true if you pay a high price for stores. If the GB liveweight market price is adjusted to produce a price per head, we can then use these prices to give an indication of an average price gain from keeping stores for one, two and three months. According to the five year average of these figures, the largest average gain came from using a three month offset, while August was the only month when a one month offset gave a larger average gain than two months. However, looking at the price gained per kilo added, based on typical weights for store lambs in each category, the trend is reversed, with short term stores giving the largest gain per kilo. However, it is likely that smaller store lambs, that will have to be kept for longer, will be cheaper to buy than those that only need a shorter time finishing, which will reduce some of these differences. These figures do not take account of any fixed or variable costs such as feed, rent, labour or medicine associated with taking lambs to a heavier weight. 5 year average price gain per kilo from store lambs by month of sale and finishing period Aug Sep Oct Nov Source: AHDB This analysis highlights how tight margins are for the finishing of store lambs. Therefore, producers need to be especially aware of all input costs associated. These, as well as any other issues, such as disease that can slow growth rates or potentially lead to loss of livestock, will determine whether or not a profit can be gained from the finishing of store lambs. So far this year we only have complete data for August of the months we are looking at, when store prices were at 49.52/head, down by over 3 on 214. This is the lowest August store price since 29 and follows numbers of stores being sold being well up on the year and prices for finished lambs being at low levels. Though the gap compared to last year has narrowed so far in September, store prices remain below levels from 214, while prices received per kg for finished lambs have recently gone above the level seen in 214. This suggests margins for store lambs could be higher this year, although this will depend on how liveweight prices develop from now onwards. Using only the data for August to September so far, the gain from a one month offset could potentially be at its highest level in over eight years. As the amount of price gain that can be obtained from store lambs is not certain and the margins are normally very tight, it can be difficult to produce a profit from stores. To some extent it will depend on how well finishers are able to anticipate the direction of the finished lamb price. The difficulty of doing so, as well as controlling costs, can be seen from the 214 annual Stocktake report produced by AHDB Beef & Lamb, which shows a net negative margin for finishing store lambs on average. However, if it is done correctly, money can be made, again shown by the Stocktake report, with the top third of lamb finishers showing a net positive margin. The 215 Stocktake report is due to be published at the AHDB Beef & Lamb conference on 3 November. Mark Kozlowski, Senior Analyst, AHDB Beef & Lamb mark.kozlowski@ahdb.org.uk beefandlamb.ahdb.org.uk Cattle and Sheep Market Update/Published September 215/Issue 39 - Page 8 /kg month 2 months 3 months

9 Steady German import demand for sheep meat Germany is one of the most important markets when it comes to the global meat industry. Sheep meat has always struggled to compete with other meats, although there is a steady import demand for it, given falling levels of production within Germany and a large Muslim population in the country. So, market opportunities for exporters do exist, which have been historically exploited by New Zealand, by far the largest supplier. About half the German population does not consume sheep meat at all and so overall per capita consumption is consistently below one kilogram per year. However, within Germany there is a large Turkish community. In the 211 census there were almost three million people having at least one parent of Turkish decent, equivalent to almost four per cent of the total German population. They consume much more sheep meat. Despite this large number of potential consumers, German domestic production has been trending downwards for a number of years, for many reasons. These include the decoupling of CAP support payments from 25 and so the end of the ewe premium. German sheep farms have also suffered from a lack of profitability, compared with other agricultural enterprises, not helped by a poor production and processing structure, and some producers have switched out of sheep. This has also meant that retiring sheep farmers have not been replaced. All this has led to a steady decline in the size of the breeding flock since 24 and, inevitably, a fall in indigenous production which, in 214, was down nine per cent on 213 at 31,2 tonnes. In addition, a large number of live lambs are not recorded in official slaughter statistics. The destination of these lambs is mainly Halal customers. German sheep meat supplies tonnes cwe Production Imports (f) Source: EU Commission The main supply comes in the form of chilled and frozen lamb cuts from New Zealand. In recent years New Zealand has accounted for around 6 per cent of German imports. Last year, recorded imports of sheep meat were down by three per cent on the year earlier at 43,9 tonnes, although this was almost entirely due to a reduction in shipments from New Zealand. New Zealand exporters regard the German market as a premium one and considerable marketing efforts have been put in over the years. This is not the case anymore, as the New Zealand marketing spend has fallen drastically over recent years. However, the UK and Germany remain the only two markets in which Beef + Lamb New Zealand markets lamb. German import data indicates that the United Kingdom has steadily increased its trade over the last ten years, giving it a market share of 2 per cent of German imports by 214 although in reality its share is probably greater than this. In 25 the UK s market share was only five per cent. UK trade is still dominated by chilled lamb carcases, although the percentage of cuts is steadily increasing, backed by consistent marketing investment from AHDB. In particular, the development of a British lamb presence in German retail stores is steadily taking place with loin products such as racks and straps the most in demand. While the official evidence is still positive, there are a number of issues in terms of assessing the true volume of exports from the UK. It is thought that some categories are being under reported. In addition, the re-export of UK sheep meat from neighbouring countries such as France, the Netherlands and Belgium is also taking place. Mark Kozlowski, Senior Analyst, AHDB Beef & Lamb mark.kozlowski@ahdb.org.uk Lionel Colby, Consultant Lower New Zealand lamb crop forecast New Zealand exports in the 215/16 season are forecast to fall following a decline in the size of the sheep flock, according to the latest new season outlook from Beef and Lamb New Zealand. In the year to June 3 215, New Zealand sheep numbers decreased by four per cent on the previous year to 28.6 million head. This fall was largely driven by a decline in the number of breeding ewes, following a lower carry over due to the drought last year and some farmers continuing to switch to dairy farming. There was also a fall in the number of hoggets, due to the dry conditions, leading to a limited carrying capacity through the winter, especially true on the South Island. The smaller size of the breeding flock in June is expected to lead to a seven per cent decline in the lamb crop for the 215/16 season at 23.8 million head. The smaller breeding flock is the main driver of the beefandlamb.ahdb.org.uk Cattle and Sheep Market Update/Published September 215/Issue 39 - Page 9

10 fall, but poor body condition scores and scanning results, particularly on the drought affected east coast, are also likely to contribute to a reduction in the lambing percentage. As a result of the smaller lamb crop in the 215/6 season, lamb slaughterings are forecast to fall by seven per cent on the year, to 19.4 million head. This would be the lowest slaughter level since the 211/12 season, when bad weather led to severe losses at lambing. Carcase weights are expected to increase in the season which will partially offset the lower throughputs. However, overall production of lamb for export is forecast to fall by six per cent to around 354,6 tonnes. Mutton production is also forecast to decline, due to the already low size of the breeding flock after three years of high levels of slaughtering. Older sheep slaughterings are forecast to fall by 15 per cent to 3.4 million head. As with lamb, carcase weights are also forecast higher, marginally offsetting the fall in slaughtering. However, overall mutton production for export is forecast to fall fourteen per cent on the year to 87,1 tonnes. The combination of these factors are expected to lead to New Zealand lamb exports being six per cent lower in the 215/16 season at 293, tonnes. In addition, a decline in mutton exports is expected, with volumes back 14 per cent at 77, tonnes. Actual and forecast New Zealand sheep meat exports tonnes Lamb Mutton 211/12 212/13 213/14 214/15 (p) 215/16(f) Source: Beef + Lamb New Zealand While exchange rate movements will have a significant impact on prices received by New Zealand sheep producers, these tight market conditions are currently expected to result in higher prices (based on a midlevel exchange rate). If this mid-level occurs, lamb and mutton prices are expected to average NZ $5.47 and NZ $3.9 cents per kilo respectively in , up four per cent and 17 per cent respectively on the provisional prices for In addition, competition from Australia on the global market is also forecast to be limited by tighter production, due to high levels of slaughtering in the previous two years resulting in a smaller breeding flock and a reduced lamb crop. With the two largest exporters experiencing lower levels of both mutton and lamb production, it is inevitable that supplies of sheep meat on the global market will be lower. However, higher levels of domestic production in both China and the EU could keep a lid on demand in New Zealand s two largest markets. Stocks in China are currently thought to be at a high level, while the EU could provide increased competition on the global market, following higher production, particularly in the UK, and a weaker euro. If these price levels are achieved, they would be higher than those recorded in the 213/14 and 212/13 seasons. However, they are still some way of the record levels of the 21/11 season. The current forecasts indicate that if the NZ$ is particularly weak in the coming season then these record prices could be surpassed. Mark Kozlowski, Senior Analyst, AHDB Beef & Lamb mark.kozlowski@ahdb.org.uk Changing consumption trends require innovation The reasons behind consumers shopping choices have changed as their lifestyles have altered. There has been a steady drive for convenience, linked to changing household structures and increasingly busier lives. According to the latest data from Kantar Worldpanel, consumption of protein in the home declined over the 52 week period ending 24 May 215. This is amidst competition from alternative convenient meal options and a recovery in the frequency of consumers eating out. The number of meal occasions featuring beef and lamb were down two per cent and seven per cent respectively. Family size has been changing for a long time which as a result means fewer family meal occasions. This change in household size has affected the way we cook and the quantity of products we buy. The beef and lamb categories have both been affected by this trend. In particular, there is a clear reduction in the number of roast dinner meal occasions, which usually require larger joints of meat. While this is a challenge, innovative new products and cuts, together with the provision of meal solutions is helping to keep the beef and lamb categories relevant. So much so that AHDB Beef and Lamb have responded to this trend with the mini roast campaign, which aims to promote the convenience of a roast dinner during the week. beefandlamb.ahdb.org.uk Cattle and Sheep Market Update/Published September 215/Issue 39 - Page 1

11 Household structure, % person households 3+ person households Source: ONS The ageing population is also a point of interest for the industry - the over 6 age group is growing. In 212 over 6s made up 28 per cent of the UK population; it is predicted by the ONS that by 232 they will account for 35 per cent. Over 65s, in particular, have a higher propensity to cook using a microwave and so developing new packs which will encourage meat consumption in this format needs to be looked at. In addition, cooking from scratch has declined in 18 of the last 2 years. While there is an increased desire to cook, less time is the prohibitive factor, with the average cooking time for the main meal now reported to be just 31 minutes. These changes in household structure and increased time pressures have influenced the type of meals we consume. Over the past 2 years the emphasis has shifted to dish based meals rather than one that involved a primary protein. This is an opportunity for beef, it is the protein source most associated with specific dishes, followed by chicken and lamb. However, as far as fresh meat is concerned, Sunday lunch remains the cornerstone of overall consumption levels. It accounts for 42 per cent of meal occasions and as such will remain the focus going forward. With the growing change in lifestyle, consumers have less time and hence the need to provide meal options is ever more critical. Examples could be cuts of meat that are ready marinated or meal packs that include all the ingredients for a specific dish, such as bolognaise. While convenience is a particularly strong driver for the ageing population, as they do not have the desire to cook for themselves, it is also a strong focus for the millennial generation. While the first cohort of millennials are now in their early thirties, most members of this generation are at the beginning of their careers and so important consumers in the decades to come. Fresh meat share of lunchtime meal occasions Weekday in home adult relaxed alone 6% Weekday in home with kids 12% Weekday in home adult relaxed sharing 18% Weekday in home adult quick alone 3% Adult lunchbox 6% Weekday in home adult quick sharing 4% Saturday lunch in home 9% Sunday lunch in home 42% Source : Kantar Usage, 215 Not only are consumers willing to pay more for this type of convenience, these products may well benefit further from a gradual easing of spending austerity as consumer confidence increases on the back of the improving economy. Budgeting has already become less important; the number of consumers who say they work to a strict budget is now the fastest declining attitude change since 212. Also linked to the recent rise in consumer confidence is making more healthy choices. The latest data indicates that nearly a third of consumers choose products because of their health implications. This has steadily risen since 213. The long term population change, alongside busier lives, has created the need for more convenience and this causes a challenge for beef and lamb, which is traditionally associated with protein centred meals. There is a need for innovation in new meal options in order for beef and lamb to maintain sale volumes. AHDB Beef and Lamb have been very active in this area, developing new cuts and adding value to the carcase, while encouraging consumers to cook with products they may otherwise not have considered. A new 1 million TV and online advertising campaign is being launched this autumn to promote Quality Standard Mark (QSM) and Red Tractor lamb and beef. It will promote lamb and beef mini-roasts as a quick, easy and versatile midweek meal and is being supported by extensive digital and press advertising and a PR campaign, as part of a wider 1.6 million consumer marketing campaign to promote lamb and beef consumption. Alice Blatchford, Trainee Analyst, AHDB Beef & Lamb alice.blatchford@ahdb.org.uk While the Agriculture and Horticulture Development Board seeks to ensure that the information contained within this document is accurate at the time of printing, no warranty is given in respect thereof and, to the maximum extent permitted by law, the Agriculture and Horticulture Development Board accepts no liability for loss, damage or injury howsoever caused (including that caused by negligence) or suffered directly or indirectly in relation to information and opinions contained in or omitted from this document. AHDB Beef & Lamb is a division of the Agriculture and Horticulture Development Board. Agriculture beefandlamb.ahdb.org.uk Horticulture Development Board 215. All rights Cattle reserved. and Sheep Market Update/Published September 215/Issue 39 - Page 11