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QMS (Quality Meat Scotland)


19 August 2014

QMS Monthly Market Report - August 2014QMS Monthly Market Report - August 2014


QMS - Quality Meat Scotland

Prices and Supplies

After cooling through June, prime lamb prices fell further in July at GB price reporting abattoirs. From a level of 460p/kg dwt in the opening week of July, prices fell sharply to trade at 382p/kg dwt in the week ending August 2. With weekly supplies steadying, it suggests that the price decline was due to a seasonal fall in demand caused by warm weather and the peak summer holiday season. Prices traded below last year’s levels throughout July, closing the month at a 7.5% discount. Contributing factors will have included a 20% increase in the number of lambs being handled by price reporting plants plus an 8% stronger pound against the euro. A stronger pound meant that exporting firms would have had to have lowered their sterling prices by 8% from last year to hold their euro export prices constant, thereby placing pressure on margins.

During July, 72.5% of the lambs in the GB price reporting sample reached an R3L or better grade, compared with 72% 12 months earlier. Back in July 2012, the proportion achieving an R3L or better grade was just 68.5%.

At Scottish auctions, the average SQQ lamb sold for 169p/kg lwt in the week ending August 6, up 4p on the week. Nevertheless, prices were still 11p (6%) lower than in the first half of July. Furthermore, compared to the same week a year ago, prices were down by 11%. This was despite volumes now running behind last year’s levels. Indeed, having been up 76% on the year in May and by 50% in June, auction volumes were just 1.5% higher in July, before falling 26% below their year earlier level in the opening week of August. With the supply situation changing, lower prices indicate weak demand.

Lamb slaughter at UK abattoirs exceeded its year earlier level by 70,100 head (8.5%) in June. At 906,700 head, numbers reached a 6-year high for the month, reflecting the (likely) increased lamb crop and better seasonal conditions. The weekly average kill was at its highest level of the year so far; the first time this has been the case in June for 3 years. Furthermore, this was only the third time in the past 17 years that this has occurred.

The average carcase weight of the lambs slaughtered at UK abattoirs in June was 0.2kg lighter than a year earlier, at 19.0kg. This was a 7-month low as well as being a three-year low for the month. Given the beneficial growing conditions, it suggests that producers may have sold their lambs to abattoirs at younger ages than in the past couple of years.

Lamb throughput at Scottish abattoirs rose by 13.5% on the year to 71,350 head in June, exceeding slaughter growth in the UK as a whole. Nevertheless, supplies remained tighter than in the same month two and three years ago. After such strong start to the season in May, the monthly increase in throughput between May and June slipped to a 10-year low of 3,800 head. By contrast, last year, supplies had risen by nearly 16,500 head between May and June. At 19.6kg, carcase weights were down fractionally on both the month and the year.

The latest GB household purchasing data from Kantar Worldpanel does not make good reading on the lamb side. In the four weeks to June 22, sales volumes declined by 18.5% year-on-year as households spent 13% less money buying lamb and prices averaged 7% higher. This continues a trend that has seen consumption fall back from last year’s levels throughout the first half of 2014, with volumes down 13.5% in the year-to-date. However, a closer look into the data shows that the overall decline reflects a decline in imports. Indeed, the volume of home produced lamb purchased in the four weeks to June 22 was up by 27.5%, while it was 7.5% higher in the year-to-date. Furthermore, the average price of this home produced lamb was marginally lower than a year earlier in the most recent period. By contrast, the volume of New Zealand lamb retailed fell 53% and it was nearly 10% more expensive to buy.

As August commenced, cull ewe prices rebounded, matching their level of two weeks before. While this £7 (14%) increase to £56.80/head may have been partly down to fewer ewes being marketed, the previous week’s average price was held down by one sale in particular. Excluding this poor sale, prices have steadied in late July/early August, placing them broadly in-line with year earlier levels.

Slaughterings of ewes and rams at UK abattoirs were behind 2013 levels throughout H1 2014. June was no exception with numbers back 10% year-on-year at 132,500 head. However, the average weekly kill lifted seasonally in June, reaching a three-month high of 33,100 head, compared with 30,800 in May and 31,800 in April.

UK sheepmeat production totalled 21,000t during June. This exceeded the June 2013 volume of 20,000t by 5%. While the volume of prime lamb rose by more than 7.5% to 17,300t, mutton supplies tightened by 6.5% to 3,700t.

The EU28 average price for a heavy lamb opened August at €4.89/kg dwt (388p/kg). On the month, prices cooled the most in the British Isles with an 18% decline in GB and a 14% decrease in both the Republic and Northern Ireland. The only other Member State to see a large decline was Cyprus, down 10.5% while Belgian prices fell 6%. Meanwhile, there were smaller falls of 2% in Germany and Holland and marginal declines in France and Romania. By contrast, prices edged higher in Poland and Austria and rose by 2.5% in Spain.

Compared to 12 months before, the EU heavy lamb average was up by 0.5%. Due to currency movements, prices in GB and NI were little different to a year earlier in euro terms, rising 1% in GB and cooling 1.5% in NI. Prices in the Irish Republic moved similarly to those north of the border, and Spanish prices were also 1% lower. Meanwhile, prices in Germany and Holland were around 7-8% higher year-on-year.

The trade in light lambs was relatively stable during July when viewed at a southern-Europe level. The average price edged up 0.5% through July, reaching €5.84/kg dwt (463p/kg dwt). Prices levelled in Spain, Italy, Portugal and Bulgaria and rose by 2% in Croatia and Greece. Slovenian producers gained the most with light lambs closing the month 5% more expensive.

However, compared to the same week last year, the average light lamb price was lower, mainly due to a sharp 14.5% decline in Spain. Nevertheless, the market was also down in Italy (-0.5%), Greece (-3%) and Hungary (-4%). By contrast, producers saw an annual price lift of 3% in Slovakia, 4% in Portugal, 11.5% in Slovenia and a quite considerable 27% in Bulgaria.

The first estimate of UK sheepmeat exports during May indicated that they were down by 9% year-on-year at 7,400t. This would suggest that 38.5% of monthly domestic production was exported, compared with 45.5% in May 2013 but only 32% in May 2012. However, HMRC have tended to upwardly revise export figures when better information about sales to the EU becomes available. The initial estimate of trade with the EU for May is showing an annual decline of 21% to 5,500t. By contrast, sales to non-EU markets increased by 57% to 1,900t.

The first estimate of UK sheepmeat exports during May indicated that they were down by 9% year-on-year at 7,400t. This would suggest that 38.5% of monthly domestic production was exported, compared with 45.5% in May 2013 but only 32% in May 2012. However, HMRC have tended to upwardly revise export figures when better information about sales to the EU becomes available. The initial estimate of trade with the EU for May is showing an annual decline of 21% to 5,500t. By contrast, sales to non-EU markets increased by 57% to 1,900t.

Initial export figures for May showed that Sweden and Italy bought more sheepmeat from the UK compared to a year earlier while sales to Austria were flat. Other markets, including the key destination of France, were considerably lower, but this is likely to be revised.

As noted above, deliveries to non-EU countries picked up sharply in May 2014 compared with the same month of the previous year. The 700t increase was driven by a jump in sales to Hong Kong which rose by more than 550t (70%) to nearly 1,350t. Other growth markets included Ghana, the Philippines, Thailand and Singapore. However, trade with Norway and Switzerland contracted relative to May 2013.

With domestic sheepmeat production rising strongly in May and exports subdued, fewer imports were required. Consequently, volumes fell by 5% on the year to 10,550t and accounted for around 47% of total market supplies compared with 53.5% a year earlier. Though monthly imports were still higher than in May 2010, 2011 or 2012, they were well below the levels of 2004 to 2009.

Sheepmeat from New Zealand (NZ) made up 80% of imports during May; an 11-month high. However, the 8,400t delivered from NZ was 5.5% lower than in the same month last year. Pushing down on imports from NZ was a rebalancing of their trade from the EU towards China, plus a lower UK import requirement given the higher level of home production. Although the average value of imports from NZ slipped to a 7-month low of £4,400/t, this was 11.5% more expensive than in the same month a year ago, and may have placed downwards pressure on trade. Meanwhile, imports from the second largest UK supplier, Australia, were up by more than 40% year-on-year to 1,200t; a 7-year high for the month of May. Expansion came despite the headwind of an average price 16% above its year earlier level, at nearly £4,350t. Closer to home, imports from the Irish Republic halved on the month and on the year, slipping below 300t for the first time since 2006. Of the smaller suppliers, only the Falklands and Chile provided more sheepmeat than 12 months before.

News Round up

In Spain, sheepmeat consumption was almost a fifth below its year earlier level during May 2014. Spanish households consumed 5,500t of sheepmeat during the month compared with 6,800t a year earlier. A significant headwind to sales will have been higher retail prices, which averaged more than 4% higher year-on-year at €9.60/kg (£7.60/kg). A further headwind will have been tight supplies; sheepmeat production fell 16% year-on-year during May. Sheepmeat accounted for just under 3% of all meat sales volumes in Spain during the month compared with around 3.5% in May 2013. With sheepmeat a relatively expensive protein, this level of consumption in volume terms required a higher proportion of the money spent on meat. Indeed in May 2013, spending on sheepmeat accounted for 5% of spending on meat, slipping to 4.5% a year later. In the first five months of the year, sheepmeat consumption fell 13% to 33,000t as the average price picked up by more than 2.5% to €9.70/kg.

Slaughter statistics from Statistics NZ show that supplies have recently picked up in New Zealand. Lamb throughput at NZ abattoirs increased at an annual rate of 6% in May and then by 7% in June, having been lower in three out of the first four months of the year. Moreover, with much heavier carcases, the volume of lamb produced rose to an even greater extent, up 11.5% in May and by 12.5% in June at 32,500t and 20,700t respectively. In part, the increase reflects low kill levels and lighter carcase weights in these months last year, when drought conditions of the first quarter had pulled forward slaughter and poor grazing conditions had lowered growth rates. As a consequence, compared with 2012, numbers were still down by 18.5% in May and by 0.5% in June, while volumes were 22% and 3.5% lower, respectively, as despite the rise in carcase weights this year, they remain below 2012 levels. The average export lamb weighed 18.4kg in June 2014 compared with 17.6kg in June 2013 but 19.1kg in June 2012.

MLA has released its mid-year industry projections for the Australian sheep sector. It has forecast lamb slaughterings to decline by 3% from last year’s record level of 21.886m head to 21.2m head. However, this will still mean historically high slaughter levels. The decline is largely the result of producers reacting to weather conditions. After a prolonged drought between 2005 and 2009 led to a significant decline in the country’s ewe flock, two years of above average rainfall in 2010 and 2011, coupled with strong global lamb prices, saw producers expand. Then in early 2013, drought struck once again, leading to a lower retention rate against an increased lamb crop. As a consequence, lamb slaughter levels rose 9.5% in 2013. At the same time the drought conditions saw ewe slaughter rise by a third and caused problems with mating, and, with fewer gimmers and ewes on the ground, the lamb crop contracted. However, with a relatively dry start to 2014 leading to earlier marketing, kill numbers remained above 2013 levels throughout the first quarter before falling back in April and May. The effect of the 2013 drought on sheep numbers is expected to continue lowering lamb supplies in the next two years with MLA forecasting a 2.5% decline in 2015 and a 1% decline in 2016. However, from 2017 onwards, a recovery has been predicted. Nevertheless, assuming that annual rainfall is around the average in the coming years, lamb slaughterings would still fall around 0.5% short of their 2013 level at the beginning of the next decade.

the lamb crop contracted. However, with a relatively dry start to 2014 leading to earlier marketing, kill numbers remained above 2013 levels throughout the first quarter before falling back in April and May. The effect of the 2013 drought on sheep numbers is expected to continue lowering lamb supplies in the next two years with MLA forecasting a 2.5% decline in 2015 and a 1% decline in 2016. However, from 2017 onwards, a recovery has been predicted. Nevertheless, assuming that annual rainfall is around the average in the coming years, lamb slaughterings would still fall around 0.5% short of their 2013 level at the beginning of the next decade.

August 2014

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