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Sector trends

A beef outlook

Tom Forshaw, red meat analyst at the Agriculture and Horticulture Development Board, looks at the current situation and outlook for the beef market. 

Price points

The prime cattle price has been on a downward trend for the past nine months. Despite a slight rally in May 2019, the GB R4L steer price has fallen by 44p since September 2018, to average 340p/kg in the last week of June. 

We have to accept that further declines are possible. In 2018, and to some extent 2017, the price rose at the start of the year, but this is not a typical trend. Looking back at previous years, it’s actually more common for the price to fall in the first half of the year because the supply of prime animals typically outweighs demand for the cuts they usually produce. For instance, between October 2015 and the June 2016, the price fell by more than 40p. Similarly, at the start of 2014, the price fell 54p, coming out of a particularly high price carried over from 2013.

Source: AHDB

Supply is high

UK beef production has been higher in the first half of 2019 than a year ago. Cow and prime slaughter are still fairly stable compared to 2018, but prime cattle carcase weights have risen. Forage was in short supply throughout 2018, which led to an increase in hard feed usage. Cattle feed usage grew significantly through 2018 as producers compensated for the lack of forage. This has potentially pushed a lot of cattle on, increasing carcase weights and reducing finishing times. A mild winter and strong grass growth through the spring has also been beneficial to growth rates and finish levels. This has all led to long waiting times to get cattle into abattoirs.

Cattle slaughter in Ireland has been particularly high this year. According to the Central Statistics Office Ireland, cattle slaughter is 7% ahead of 2018 levels. Although trade with the UK has decreased in 2019, much of this product has gone to Europe, most likely in direct competition with UK exports.

The market demand

Prices generally start to fall at the start of the year for a number of reasons. As everyone knows, Christmas is the peak time for selling beef in the calendar year. As a result, prime cattle slaughter peaks slightly in the month or two before as processors fill storage in anticipation of a high volume of sales. Going into the new year, as the high value sales of roasting joints and steaks subside, the prime cattle price tends to decline.

For the past two years (2017/18), demand for manufacturing beef has been strong in both the UK and throughout Europe. This has supported both the cow and prime price through those years, despite cow slaughterings across Europe being high. Manufacturing demand generally peaks in the first quarter of the year, in line with peak mince sales. This is why the cow price is usually supported more in the first half of the year in comparison to the prime price.

In 2019, however, reports suggest demand for manufacturing beef has subsided throughout Europe. This has coincided with a particularly high amount of beef being in cold storage, partly due to Brexit, and partly just regular leftover stocks from the winter period. After being elevated for some time, cow slaughterings have dropped back slightly across Europe, although they remain relatively high. This is keeping supply ahead of demand, and here in the UK, domestic demand has been struggling.

The trading landscape

UK fresh/frozen beef exports have increased by 8%, while imports are down 10%. However, beef has been exported at a discounted rate, averaging £3,500/tonne, down around 7% compared to 2018. Extra beef in storage has likely led exporters to offload surplus stock. Meanwhile, as previously mentioned, Irish exports as a whole are up, by almost 20%, although exports to the UK specifically have declined slightly. Supply in Ireland is expected to tighten up and exports to decline slightly, which could relieve some pressure on the market.

Looking ahead 

Looking forward to the rest of 2019 and beyond, both the UK and Ireland have forecast the availability of prime cattle to tighten up towards the end of the year. Lower calf registrations in 2018 are likely to keep the supply level a bit tighter going into 2020. The UK breeding herd, both beef and dairy, has been declining recently, which is also forecast to have an impact on supply in the longer term. However, as the use of sexed semen increases within the dairy herd, more beef calves are likely to be registered, making up for the decline in the suckler herd.

Source: AHDB, Defra

Further to this, the effect of African swine fever in China is likely to impact all protein markets, including beef. This could be welcome news for UK beef producers. The UK recently regained market access to China after an absence of more than 20 years. The first shipments are expected to go at the end of 2019 or the beginning of 2020 and could provide a boost to the domestic market. AHDB has published a detailed production forecast for beef, as well as the other agricultural sectors.

The recent trade deal between the EU and the Mercosur economic bloc (Argentina, Brazil, Paraguay, Urauay and Venezuela) will open up a beef trade tariff quota (TRQ) for Mercosur of 99,000 tonnes (carcase weight equivalent). This is larger than any existing EU beef TRQ but equates to about 1% of EU production. The split between fresh/chilled and frozen beef is currently reported as 55/45. The in-quota tariff is set at 7.5%. Brazil will have about 44,000 tonnes of this TRQ, with around 30,000 tonnes for Argentina.

EU tariff rates for third-country imports of beef range from around 41% – 171% in ad valorem terms. According to trade data, beef imports into the EU from Mercosur have averaged 143,437 tonnes (2014 – 2019). With the TRQ described above, these South American exporters are set to increase their market share in the EU market as their prices are likely to be more competitive, given the new reduction in tariffs and the fact their costs of production are relatively lower than their European counterparts.

For more information, visit the AHDB website .

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the NatWest Group Economics Department, as of this date and are subject to change without notice.

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