Developments on the Global Meat Markets Rupert Claxton 6 th January 2017
Global Overview Meat industry benefits from increased imports to China in 2016
2016-2017 global meat market characteristics Continued disease impact: HPAI - US & EU. The threat remains as HPAI becomes endemic in wild birds ASF - Eastern Europe, including some parts of EU Concurrent production increases of all meats in both 2016 and 2017 Inevitable price pressure to increase in 2017 Particularly in the US and CA, with the added difficulty of a strong USD to export + Beef cycle to turnaround in 2017 in AR and BR But profitability supported by continued low feed prices CN increases its share of world meat imports except in sheepmeat Welcome price support for exporting countries, in pork particularly But risks associated to such a dominant position Farming concentration and "industrialisation" is inevitable and will raise productivity. What impact on future imports? Russia further reduces its imports But will need to export Pk particularly... while refusing to recognise EU ASF regionalisation strategy! Hostile global/political context and economic situation At a minimum likely to be trade disruptive
World meat consumption, 2010-2021f Disappointing 2016 growth Stronger growth expected in 2017 and through 2021
International meat trade volumes Significant recovery in 2016 with +11% in Pk 2017 growth led by Py again
Global Beef Overview Tight Australian supply changes Asian dynamic
2016-2021 Beef headlines Sector growth, but with short-term price erosion Herds: small but regular growth lead by developments in SSA and IN, + also in the Americas Production: cattle retention in AU, AR and BR limits world growth. Significant rise expected in 2017. US reverts to a medium term decline? Consumption: affected by 2016 production declines in AU, AR, BR and RU, but world total offset by increases elsewhere Trade rises in both 2016 and 2017 despite a decline from AU as BR and IN increase their shipments, Essentially to MENA and Asia Constant price index declines significantly, influenced by sharp falls in the US and lesser ones in BR and CN AU prices remain high 7
Beef & veal consumption changes, 2016-21f Very few anticipated declines 9
World beef & veal importers Less into US, CA and RU More into MENA, CN and other Asia Including IN grey via VN 11
World beef & veal exporters Less from AU and NZ - More from all other exporters 12
Australian Beef production in strong decline Drought fuelled production boom has ended, & now restocking Australian Beef Balance 2005-17f, 21f Last 4 years defined by severe drought Drought ended in 4Q15 2016 was a year of rebalancing. Strong production decline, high prices reduced export demand 13
Brazil - Beef Industry Overview Trough of accentuated cattle cycle reached; recovery in slaughtering and production beginning Brazilian Beef Industry Overview, 2005-21f Production declining for 3 rd consecutive year, with consumption damaged; Exports however recovering with China a key driver 14
Indian Beef Balance Domestic market secondary to more attractive prices at export Not a direct competitor for Irish beef! Indian Beef Balance, 2005-21f Clear export market preference and this will not change Consumption possibly understated by the magnitude of the informal sector 15
Indian exports continue to grow Volumes recovering in 2016 from 2014/15 dip; key new market of Indonesia now opened Indian Beef Exports, 2005-16e China (via Vietnam) has become the number 1 market strong need for imported low value beef Developing opportunity in other Asian markets for low value product. 16
Global Sheepmeat Overview Chinese import demand has not held up at hoped for levels
Marginal changes in flocks and production Clear productivity objectives Declining consumption levels Total and PC Losing ground in mature markets Trade Reduction in 2016 supply limitations in exporting countries Small 2017 increase compared to depressed 2016 level Sharp pressure on producer price index CN is the major contributor to price movement Still, small declines without CN Despite a rising price in AU 2016-21 Sheepmeat headlines In macro terms, difficult to be overly optimistic for the sheep & goat meat sector 18
Sheep & goat flocks, 2005-21f Flock growth concentrated in developing countries Marginal increases foreseen in AU and EU 19
Sheep/goat meat consumption changes, 2015-17f Supply driven, primarily fuelled by population growth 20
EU sheepmeat balance, 2005-2017f, 2021f EU Sheepmeat Balance No major changes overall by 2021 2021 forecast Flock - expected to rise marginally 2017-21 with a higher concentration in fewer countries Production - rises but slightly less than flock due to a higher proportion of light lambs in the mix Imports - expected to stabilise at 200,000t cwe. Exports - expected to reach again their 2013 level at 35,000t cwe. Population growth is expected to outpace consumption growth leading to a slight decrease in per capita consumption. 21
Australian Sheep production declines Post drought - Flock is in a period of rebuilding Australian Sheep balance 2005-17f, 21f
Head (000) Tonnes (hot) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017f 2021f Volume ('000 t cwe) NZ Sheepmeat balance Production challenged by competition for land 700 NZ Sheepmeat Supply 600 500 400 300 200 100 0 Production Consumption Imports Exports Declining sheep numbers - Down 2.9% per annum over the last 10 years Breeding Ewes and Lamb production Sheep flock at 28.3m head in 2016 50,000 Source: Gira, GMC, Beef + Lamb New Zealand Economic Service % change 1990-91 to 2015-16 Competition for land and resources from dairy has eased with the global dairy price Flock expected 45,000 to regain slightly in the mid-term but long-term trend 450,000 to continue 40,000 Export focus - >90% of lamb Total and Lamb ~95% Production of mutton -6% production CN: 30% of 35,000 lamb and 35% of mutton exports 500,000 400,000 350,000 30,000 300,000 23
EU Beef Milk price has become the dominant driver
Highlights for beef in 2017 EU-28; Production slows as milk prices rise... Production: slight fall Production +0.2% Growth slows after dairy cow cull of 2015/16 ends as milk prices begin recovery Some selective dairy herd rebuilding as producers take advantage of rising prices + quota free market Brexit uncertainty has negative effect in UK and Ireland better clarity by year end hopefully! Processors still operating well under-capacity in many plants Trade: stable, but uninspiring HQB II is saturated remains this way Other imports flat, as other global markets draw more attention. Exports Renewed Russian access unlikely Turkey continues to import live from EU focused on live cattle but not long term sustainable MENA presents growing opportunities, but volumes still small (BSE restrictions) Asia & Africa of low value / non-traditional cuts as an outlet rather than real value return! Demand: little volume growth and constrained retail prices Flat consumption, +0.2% as supply growth slows Ongoing economic uncertainty in central EU and elections in key member states Price: small recovery, but not incentivising reinvestment in herds Premium beef breed schemes over subscribed, and likely to lose production incentives 25
Russia missing from August 14 Multitude of low volume markets make up key export destinations Extra-EU Beef Exports by destination, 2001-17f (000t cwe) 26
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Import Volume ('000 tons lw) Turkey: Live Cattle Imports Imports of live breeder and feeder cattle are open again Turkey - Live Cattle Imports, Jan-13 Oct-16 25 Others 20 15 10 5 0 Nov-14 Imports of feeder cattle start slowly Brazil Uruguay Other EU Estonia Austria Slovakia Hungary France Czech Republic Germany Ireland Growing trade: strong likelihood of increased exports 1 st shipment sent in October good potential France BT Issues = lower exports May-16 0% live import tax introduced for 3 years Source: GMC 2016 Gov. importing breeder + feeder cattle with 0% import tax between 2016-18 (3 rd May 2016) 150,000 hd breeder (at least 9 month s old) 400,000 hd feeder (at least 220 kg lw) 20,000 hd small ruminants (at least 95% of which are female) 27
Brexit and the EU cattle industry Still massive uncertainty, but intra-eu trade is the key concern UK Beef Imports by Origin, 2001-15 EU Share of UK Beef Imports UK has become heavily reliant on EU to supply beef imports Ireland is the major supplier Average import prices from the EU are lower than from non- EU, reflecting share of HQB2 in non-eu imports
The Irish problem UK represents 54% of beef export volumes Irish Beef Exports by Destination, 2001-2015 Irish Beef Exports to UK Ireland is heavily reliant on the UK market, with cutting and retail packing facilities aligned with UK retailers. Cross border trade with Northern Ireland of both live cattle and meat a useful outlet in both directions!
China Decline in pork production opens door to import surge
Pigmeat is the major meat in China, but consumption fell due to lower production in 2015-16 Chinese Meat + Fish Consumption, 2005-17f, 21f Meat + Fish Consumption, 2016e Fish is the major protein, but only just ahead of pork Pork consumption on a per capita basis appears to be above Taiwan! (according to Chinese government). Low profitability, the removal of subsidies and tightening environmental policy has led to a decline in pork Beef is growing steadily, helped by introduction of western eating habits and better quality beef! But high price of beef detracts from consumption growth, underlying demand is good 31
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017f Import Volume ('000 tons pw) Total Chinese Meat Imports Direct + Grey channel Surge in import demand has favoured direct trade in 2016 Direct & Grey Meat Imports, 2005-17f 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2016e: +2.13 mio t Sheepmeat, Grey Sheepmeat, Direct Poultry, Grey Poultry, Direct Beef, Grey Beef, Direct Pigmeat, Grey Pigmeat, Direct Source: Gira Meat Club 2016 China has approved more direct suppliers diverting volumes from Grey routes Hong Kong import route has become more complicated and costly reducing volumes Vietnam continues to act as the supply route for Indian buffalo, although not without issue! There is also significant trade in offal both direct and grey channel! 32
Conclusions Increasing reliance on global opportunities to balance supply / demand
Conclusions 2017 will not set the world on fire But EU prices are improving, and demand is stable 2017 Outlook EU beef supply will grow, but with less cull cows in the mix as milk prices improve More opportunity for prime beef, with some improved demand for steak cuts albeit at suppressed prices EU sheep remains constrained by lacklustre consumption, but traditional markets should not be undervalued, but continue to need marketing support Production growth combined with is the challenge as it holds prices down 2021 forecast Growing global demand for all meat is the key part of the mid-term outlook, with more people, and increased disposable incomes in the developing world. For Ireland the opportunity is 2 fold it removes product from competitors it provides new markets Supply of beef in the global market will grow as key producers develop herds. Supply of lamb is more muted, although recovery form Australia is likely to be the biggest challenge to global prices. Impact of Brexit remains the big unknown for inter-european trade 34
Thank you for your attention 35