QMS (Quality Meat Scotland)
19 June 2015
Prices and Supplies
New season lamb prices at GB price reporting abattoirs have opened the 2015/16 season at much lower levels than those seen last year. In the week ending May 23, the average SQQ1 lamb price was a fifth below its year earlier level at 421p/kg dwt. This was the lowest price for the third week of May since 2008. One factor placing pressure on farmgate prices has been carcase quality. In the first three weeks of May, 78% of lambs graded at R3L or better, down from 80.5% in the same period of 2014.
However, this was a one percentage point improvement on the first three weeks of the 2013/14 season. At Scottish auctions, prime lamb prices opened the 2015/16 season at a significant discount to 2014 levels, down 11.5% yearon-year at 206.5p/kg lwt. As May progressed, prices fell further, and, by the week ending May 27, the average SQQ lamb price had slipped to 183p/kg, 24.5% below its year earlier level. When considering potential drivers of the lower prices this year, the first place to turn is the euro to sterling exchange rate. With the European Central Bank committed to a prolonged period of bond-buying and negative interest rates, whereas the Bank of England is expected to raise its Bank Rate either later this year or early in 2016, the value of sterling has increased significantly in relation to the euro. In late May, sterling was 13% stronger than a year earlier, making it difficult to profitably export lamb into the European market (to hold a euro price constant compared to last year would require accepting 13% less sterling in return). In addition, sterling has also strengthened against the New Zealand dollar, making imports from NZ look attractive.
Another influence on the market has come from the supply side. Looking at the 4 weeks to May 27, the total number of lambs and hoggs reaching GB auction markets rose by nearly 5% year-on-year to 401,600 head. However, within these figures, the number of SQQ lambs and hoggs fell by 6% while the number of overweight lambs and hoggs was 44% higher. This suggests that although processors have had more prime sheep to handle, they have had fewer ‘supermarket spec’ lambs and hoggs to work with, lowering their potential returns and hence the prices they have been willing to pay producers.
At Scottish auctions, new season lambs have been reaching the market much quicker than last year. Numbers rose 17% year-on-year in the first four weeks of May with SQQ numbers up 10% and heavy lambs nearly 50% higher. April slaughter data from Defra showed that the UK prime sheep kill fell when compared with 12 months before for the first time since Q1 2014. Numbers were down by 3.5% at 1.063m head.
Auction market data for the month of April indicated that there were shorter supplies of both hoggs and new season lambs than during the same month of 2014. The regional split of the slaughter data showed that in contrast to the UK decline, numbers rose by 4% in Scotland and by 18% in NI; these gains were more than offset by a 5% decrease in E&W. The average carcase weight of the prime sheep slaughtered at UK abattoirs during April edged 0.2kg lower on the year to 20.2kg. This was only the second time in 22 months that prime sheep carcases had been lighter than 12 months before.
At Scottish abattoirs, slaughter numbers increased by 4% year-on-year in April to 130,200 head. This worked out at just over 26,000 prime sheep per week, compared with slightly fewer than 25,000 per week in April 2014.
In contrast to the UK as a whole, the average prime sheep carcase weight at Scottish abattoirs rose by 0.5kg year-on-year in April 2015, reaching 20.7kg. This was an increase of more than 2%. In the week ending May 27, cull ewe prices averaged £71 a head at Scottish auctions. This was up slightly on the same week in 2014, having been well ahead of year earlier levels through the winter.
With tight supplies pushing up prices significantly from October 2014 until March 2015, this suggests that the previous imbalance between supply and demand has now reduced. Although the level of ewe & ram slaughtering at UK abattoirs continued to trail year earlier levels by a significant margin in April, the decline did narrow to its lowest level in 7 months. At 141,900 head, throughput fell by 11% when compared to the same month last year. With both prime and cull sheep throughput behind year earlier levels in April, UK sheepmeat production fell by 6% year-on-year to 25,400t.
In the 12 week period to April 26, GB households purchased 2% more lamb than 12 months before. Sales volumes look to have been underpinned by competitive pricing. Indeed, with the average price of lamb falling by 5.5%, more households bought lamb; though it should be noted that 3.5% less money was spent buying lamb.
Looking deeper into the data, there was a shift in sales away from chops & steaks towards leg roasts, shoulder roasts and mince. This may have been influenced by chops & steaks being priced at a similar level to a year ago, whereas roasting joints and mince were around 6% cheaper. Between late April and late May, prices for heavy lambs2 fell back across most of the EU28. On average, heavy lamb prices slipped 0.5% to €5.56/kg dwt (399p/kg dwt). Places to see euro terms declines included GB (-1%), France (-5%), Spain (-9%) and Holland (-23%). However, prices were only slightly lower on average due to significant increases in the Irish Republic (4%), NI (11%) and Romania (36%).
Compared to a year earlier, heavy lamb prices averaged 6% lower in the EU28 in late May. In France, the Irish Republic, and Romania there were small declines of around 1-2%, but the decreases amounted to 6.5% in NI, 9% in GB, and 20% in both Holland and Spain. The average light lamb3 price in the EU fell by 5% in the four weeks to May 24, slipping to €5.73/kg dwt (411p/kg). Prices fell at a similar pace to the average in Spain, Portugal, Greece and Italy, but by 12% in Hungary. By contrast, there were small increases of 2.5% in Bulgaria and 4% in Croatia.
The recent declines left the EU light lamb average marginally below its year earlier level. Prices were 1-2% lower in Greece and Spain and 4-5% lower in Italy and Portugal. However, these declines were almost cancelled out by increases of around a fifth in Bulgaria and Slovenia.
The latest trade data shows that UK sheepmeat exports were down by 24% yearon-year in March at 6,400t; an 11-year low for the month. The significant decline came despite higher domestic production. This meant that, as a proportion of sheepmeat production, exports fell to less than 29%, compared with 41.5% in March 2014. Despite a stronger sterling against the euro, UK sheepmeat exports to the EU rose by nearly 1% year-on-year in March to 6,200t and may have been influenced by the earlier Easter. Although sales to customers in France fell by a third to 2,850t, this was more than offset by an expansion in trade with Belgium, Germany, Italy and Ireland. The average value of exports to the EU fell 2% year-on-year to £4,300/t. However, in euro terms, export prices averaged around 15% higher.
The main driver of the overall decline in sheepmeat exports in March was reduced sales to countries outside of the EU, and in particular, Hong Kong. In the past couple of years, Hong Kong had developed as a significant buyer of low value sheepmeat cuts. However, this trade has fallen away since September 2014. Export volumes totalled just 100t in March 2015 compared with 1,700t a year earlier. Similarly, exports of low value product to Ghana also declined considerably. At the higher end of the value scale, sales to Norway and Switzerland also fell back. Despite increased domestic production and lower exports, imports of sheepmeat into the UK surged in March relative to a year earlier. At 15,000t, shipments were up by a third and reached a 5-year high. This will in part reflect the earlier Easter this year which meant that a higher proportion of the UK’s Easter import requirements had to arrive during March. The other driver of increased sheepmeat imports will have been the higher volume of product available for export in New Zealand (NZ), the UK’s principal supplier. With a drought leading to tight feed supplies, NZ producers had an incentive to market lambs earlier than usual and abattoir slaughterings subsequently rose considerably. During March, 12,800t of sheepmeat arrived in the UK from NZ; up 52% year-on-year. As a result, NZ sheepmeat accounted for 85% of total deliveries compared with 74% in March 2014. A further 10% of imports came from Australia; though, at 1,500t, they were down by 10.5% year-on-year. In terms of the EU suppliers, Ireland delivered 60% less sheepmeat than a year earlier and France supplied less too. However, slightly more came from Holland and Spain.
News Round up
During the first two months of 2015, sheep slaughtering at Spanish abattoirs decreased considerably relative to a year earlier. At 1.129m head, throughput was down by 18.5%. In numbers, this was a decline of 255,500 head. With carcase weights averaging 0.2kg (2%) lighter than in early 2014 at 11.3kg, sheepmeat production volumes fell by a fifth (3,200t) to 12,700t. Looking at the regional split, abattoir supplies fell at an above-average rate in three of the four regions to kill over 100,000 sheep in the first two months of 2014. The exception was Castilla Y Leon, the largest sheep slaughtering region; though numbers were still down by 16% there. With supply tight, light lamb prices in Spain were 25-35% above year earlier levels throughout January and February. In the Republic of Ireland, export abattoirs found supplies more plentiful through late April and early May than they had during the same period last year. During the five week period ending May 23, throughput rose by an annual rate of 6.5% to 191,850 head.
In New Zealand, the number of lambs slaughtered during April was up 2% year-on-year at 2.231m head. Carcase weights averaged slightly lower than 12 months before at 17.7kg. As a result, abattoir production was up 1.5% at 39,600t. Looking at the season-to-date figures, kill numbers have risen fractionally to 15.185m head in the 7 months to April 2015. However, due to smaller carcases, production volumes were nearly 1% lower. The main driver of lower carcase weights, which fell by an average of 0.2kg to 17.8kg, was a drought around the turn of the year which led producers to market lambs at a lighter weights due to poor grass growth. After a slow start to the season, drought conditions pushed up slaughterings significantly in December and January, but they then fell back in February and March. During December, 9.5% more lambs were slaughtered than 12 months before while the January kill was 35% higher. Beef + Lamb New Zealand expect the total number of lambs slaughtered in the 2014/15 season to be 2.5% lower than in 2013/14. Given that numbers were up slightly in the October-to-April period, this suggests that abattoir throughput will decrease in the coming months. However, it should be noted that the 2014 NZ lamb crop was 2.5% larger year-on-year and the estimated slaughter decline reflects an expectation that retentions for future breeding will increase significantly. In part this reflects an expectation that the rate of conversion from sheep farming into dairy production will slow. Australia exported 393,300 live sheep during the first quarter of 2015 (Q1). This was down by a fifth on the same period of 2014 when 493,500 sheep had been shipped overseas. Australia’s main customers for live sheep are in the Middle East. During Q1 2015, the largest market was Qatar, taking 95,000 head, closely followed by the United Arab Emirates with 90,000 head. These were shares of around 24% and 23%, respectively. Live sheep exports have been trending lower in recent years. Indeed, the first quarter totals for 2011 and 2012 exceeded 550,000 head and they had been above 500,000 head in Q1 2013.
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