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QMS (Quality Meat Scotland)

17 September 2014

QMS Monthly Market Report - September 2014QMS Monthly Market Report - September 2014

QMS - Quality Meat Scotland

Prices and Supplies

After the heavy declines of June and July, deadweight lamb prices at GB price reporting abattoirs trended slightly lower through August. After opening the month at 383p/kg dwt, standard quality quotation (SQQ1) prices ended August 8p/kg lower. Whereas prices for medium lambs (weighing 16-5- 21.5kg dwt) fell by 9p/kg, the monthly decline for standard lambs (weighing 12- 16.4kg dwt) was a slower 4p/kg. This difference may reflect a tighter supply of standard lambs; indeed they accounted for around 10% of the GB deadweight sample in the second half of August compared with 14% 12 months before.

Carcase quality continued to run higher than last year during August. 71% of SQQ lambs in the GB price reporting sample achieved an R3L or better grade compared with 69.5% in August 2013.

While deadweight lamb prices have moved slightly lower of late there has been a more significant downwards trend at Scottish auctions. In the week to September 3, the Scottish auction average for SQQ lambs fell 8p to 155.5p/kg lwt. This was 13p lower on the month (8%) and 15p lower on the year (9%). It was also a 5-year low for the beginning of September.

In addition to exchange rate movements, an increase in the proportion of lambs being sold out-of-spec has pressured the market. Indeed, in the week ending September 3, 20% of the total weekly volume of lambs sold through the ring in Scotland were outside of the SQQ (normal market specifications) compared with 12% in the same week last year. This may well have been an indirect consequence of producers focussing on harvesting while the weather has been good. This could help explain why Scottish prices have been trading at a discount to the average in England & Wales for 7 consecutive weeks; and why the year on year decline in Scotland has been greater (9% vs 7% over the 7 weeks). In the week ending September 3, 82% of the lambs sold at E&W auctions were SQQ. One year earlier it had been 85%.

Growth in lamb slaughterings slowed at UK abattoirs in July. Having risen by 10.5% year-on- year in May and June, kill numbers rose 6.5% in July to 1.27m head. Relative to recent years, the average weekly kill, at 254,100 head, was at a 3-year high for the month compared with the 6-year highs reached in May and June.

For a second successive month the average lamb carcase weight at UK abattoirs was 19.0kg. Compared with 12 months before, the average weight was up by 0.3kg. As a consequence, the volume of lamb produced by UK abattoirs increased by 8.5% year-on-year to 24,150t.

In Scotland, lamb slaughterings rose by 6% year-on-year during July, reaching 118,300 head. Nevertheless, numbers remained lower than in the same month two and three years ago. Scottish abattoirs accounted for 9.5% of UK slaughter; the same share as in July 2013. The average lamb carcase at Scottish abattoirs weighed 19.8kg. Like in the UK as a whole, the average carcase weight was 300g heavier on the year.

Lamb consumption continued to decline in GB according to the latest figures from Kantar Worldpanel. During the 4 weeks to July 20, expenditures were 0.5% lower year-on-year, and with prices averaging 7.5% higher at £8.80/kg, the volume retailed fell by 8%. However, this was an improvement on the previous 8 weeks; indeed, consumption was down by 18% year-on-year over the longer 12-week period. Moving back to the 4-week figures, performance varied widely across the cuts. Chops, steaks, mince and shoulder roasts were all in higher demand than a year earlier with respective increases of 3.5%, 6%, 1% and 42%. However, this was more than offset by respective declines of 7% and 30% in the volume of stewing lamb and leg roasts sold.

Cull ewe prices fell seasonally in the second half of August. However, they fell only a fraction as September began; trading at £52.50 in the week ended September 3. Though approximately £4 a head lower on the month (7.5%), this was nevertheless still nearly £5 a head higher year-on-year; a gain of 10%. With volumes picking up on both the week and year, it implies some strength in demand.

For a fifth consecutive month there was a double-digit decline in the mature sheep kill at UK abattoirs. July numbers were down 12.5% year-on-year at 170,700 head. However, the average weekly kill picked up seasonally, reaching a 5-month high of 34,100 head. With the UK ewe flock increasing last year, the much lower slaughter levels throughout 2014 suggest that further expansion has been taking place this year. Set against higher ewe numbers at GB auctions, a declining abattoir kill indicates that fewer ewes are being sold direct.

At 28,700t, monthly sheepmeat production in the UK was 5.5% higher than a year earlier in July. On a weekly basis, production was at its highest level since December. Lamb accounted for 84% of sheepmeat production; the highest level since November 2012 and a 16-year high for the month of July.

Heavy lamb prices fell across most of the EU during August. The average price fell by 2.5% to €4.78/kg dwt (380p/kg). Prices fell in line with this average in GB, France and the Irish Republic but fell by 4% in Northern Ireland. There were more significant declines of 6% in Germany and Holland; and 10% in Belgium. However, Spanish prices held firm and there were gains of around 2% in Austria and Romania.

On average the EU 28 heavy lamb price was 3% lower on the year. Prices in Ireland were slightly lower while UK prices fell by 1.5%. Spanish, Austrian and Romanian prices fell in line with the average but they traded at a 7% discount in France. By contrast, Dutch producers were paid around 1% more than a year ago and there was an 8% increase in Belgium.

In contrast to the heavy lamb trade, there was some price appreciation for light lambs during August with the EU average rising nearly 2% to €5.94/kg dwt (473p/kg). While there was a slight increase in the key Spanish market, Greek producers saw prices lift by 2.5% and there was a 5% increase in Italy. Nevertheless, the average remained 7% below its August 2013 close. This was mainly down to Greek and Spanish prices trading at significant discounts of 6% and 14% respectively.

UK sheepmeat exports rebounded from a weak May to post a 13% annual increase in June. Export volumes exceeded 9,000t for the first time since December and were at their highest June level this century. 43% of domestic production was exported compared with an average level of 36.5% in the first half of the year. The overall increase was driven by a significant lift in sales to the rest of the EU, rising 17% to 7,450t; an 8-month high. However, trade with third countries fell marginally on the year, totalling 1,700t.

Deliveries to the UK’s largest market, France, grew 8.5% year-on-year to 4,300t and accounted for 47.5% of total shipments. The second largest EU market in June was Belgium and it took 950t of UK sheepmeat; an annual increase of nearly 50%. Sales to Italy and Ireland also increased but trade with Germany and Holland cooled.

Looking further afield, overall shipments to non-EU countries fell, driven by a sharp year-onyear decline in sales to Norway and a small decrease in volumes to Ghana. However, trade continued to expand with Hong Kong, rising by a quarter to 1,200t.

UK sheepmeat imports fell to a 12-year low for the month of June, slipping 14% to 8,550t. This meant that imported product accounted for around 42% of the sheepmeat on the UK market in June. Though down from 48% in the previous month and from 45% in June 2013, it was slightly above average for the first half of the year.

72% of the sheepmeat arriving in the UK during June came from New Zealand (NZ). Deliveries totalled 6,200t and were down by more than a fifth from the same month last year. This was despite NZ slaughter numbers exceeding year earlier levels in May and June. The average value of imports from NZ increased by nearly 12% year-on-year to £4,500t and this may have contributed to the considerable decline in deliveries. By contrast, imports from Australia continued to run well above 2013 levels in June despite being more expensive. Volumes rose by 36% on the year to 1,100t at an average value of £4,400/t (up 7.5%). Meanwhile, for a fourth consecutive month, imports from Ireland were down on a year ago. However, shipments from the smaller suppliers of Spain, France and the Falklands were above June 2013 levels.

News Round up

Two factors potentially bearing down on lamb producer prices of late are the offal and sheepskin trades. If these become less valuable then it affects the realisable value of a lamb to the processor, therefore limiting the amount of money they are willing to pay for it. One way of assessing the market is to look at the export trade in these products. In terms of offal, the export trade is relatively small; indeed, June volumes totalled just 165t. Despite the average value being 7% lower year-on-year at less than £1,500/t, sales volumes were down by two-thirds. With higher abattoir throughput, a decline in the export trade implies that a much higher volume of sheep offal was on the UK market in June, placing downwards pressure on the value of a lamb to the processor. Meanwhile, for sheepskins, the market was depressed throughout the first half of the year, with average values beginning the year much lower, before sliding even further as summer began. This meant that despite higher volumes being exported, the total sales revenue generated was still down by 20-25% yearon- year in May and June. China is the main market (71% of June volumes). Chinese manufacturing industry surveys have been weak in recent months so perhaps the sheepskin market has been affected by a downturn in the garment industry. However, it could also be that the significant increase in sheep slaughter in Australia has provided Chinese importers with a source of competitively priced sheepskins. Meat and Livestock Australia’s (MLA) monthly sheepskin market report for August noted that overseas demand was weak.

During June, France imported approximately 8,500t of sheepmeat; an increase of 8.5% from the same month of 2013. Out of the total volume, 6,700t (79%) was supplied by other EU Member States. However, deliveries from EU countries grew at a much slower pace of less than 3%. The UK was the principal supplier, delivering 3,000t and accounting for 35% of the total. Since imports from the UK were only 3% higher on the year, they lost two percentage points of total market share. The second largest EU supplier was Ireland, exporting 1,900t which worked out at around 22% of French imports. Ireland also lost two percentage points of market share as deliveries rose by just 0.5% year-on-year. In terms of third countries, out of the 1,800t imported, 1,400t came from NZ while Australia provided a further 100t. Imports from NZ were up by a quarter year-on-year, capturing a 21% share of the total compared with 14% in June 2013.

Despite considerable declines in consumption in recent years, Greece remains the largest consumer of sheepmeat per head of population in the EU28. During 2013, each Greek consumed an average of 5.8kg of sheepmeat compared with an EU28 average of just over 1kg. Despite having a large sheepmeat market, Greece is much less open to trade than other Member States. Indeed, imports accounted for just 9% of total market supplies in 2013 while less than 5% of production was exported. Greece is a minor market for UK exporters with shipments totalling just 43t in the 12 months between July 2013 and June 2014. The main suppliers of lamb to Greece last year were New Zealand, Spain, Macedonia, Romania and Bulgaria.

Beef + Lamb New Zealand have released their annual stock number survey. As of 30 June 2014, they found that the NZ ewe flock had contracted by 1.5% year-on-year to stand at just under 20m head. The decline was driven by two factors: one being the continuing shift towards dairy production on the South Island; and the other being a second year of increased ewe culling - this time due to strong mutton demand from Asia pushing up prices. However, across the bulk of the country, the combination of better weather conditions at mating and better feed supplies supported ewe condition. As a consequence, the national lambing percentage has been forecast 1.5 percentage points higher (at 122%) suggesting a simlar NZ lamb crop to last year. Nevertheless, a greater proportion of the predicted 25.6m lamb crop is expected to be retained for future breeding, leaving available export supplies down 2.5% in the 2014-15 season (October 2014 to September 2015).

Australian lamb exports posted an eighth consecutive month of year-on-year growth in August with volumes rising by 10% to 17,950t. Demand from the US and EU underpinned the increase with sales to the US up nearly half at 3,500t and shipments to the EU rising by more than a third to reach 1,000t. Japan and South East Asia also bought more Australian lamb than 12 months before; deliveries rose by 4% and 7% to 700t and 900t, respectively. However, the largest export market, the Middle East, contracted by 9% to 4,900t while sales to China were 1% lower at 3,150t.

1 SQQ: carcases weighing between 12.5kg and 21.5kg dwt and lambs weighing 32.1-45.5kg lwt

September 2014

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