Wednesday, 23 April 2014

Outlook for beef prices in the long term a cause for optimism

Beef should be on everyone’s mind at the moment with St George’s Day heralding the start of a week-long national campaign to raise awareness of the product.

While consumers are being reminded that they have such a versatile product on their doorstep, however, anyone in the industry will be acutely aware of recent falls in prices that beef farmers are receiving.

A multitude of factors have led to the current situation, but longer-term beef price prospects should prompt a more optimistic outlook. The absence of any significant seasonal uplift in the final quarter of last year resulted in downward pressure on prices. As Christmas approached, expectations of a November/December increase in prime cattle values quickly dissipated on the back of continued subdued retail demand.

Processors managed stocks carefully and reported little difficulty in securing supplies necessary to fulfil their Christmas retail contracts. Cattle outside required specifications were proving to be more difficult to place, particularly young bulls over 16 months and any plainer steers and heifers

Traditionally, the cattle trade would see some easing of prices for January and early February, amid subdued consumer demand after the holiday period.  This pressure has been compounded in 2014 by the absence of any colder weather, which would normally give retail demand a boost. As such, processors have continued to drive caution in the trade with small changes in supply being a determining factor on prime cattle price movements.

Another factor to consider is the impact of last year’s horse meat revelations which added some significant upwards pressure to prices during the spring and summer in 2013 as demand for British beef intensified.  Deadweight prices were hitting new record levels week after week. Additionally, the late start to the spring limited grass growth which gave some challenges to finishing.  When the opportunity for turnout arrived, some cattle required additional feeding to finish adequately which in the short term contributed to the tight supply/demand balance and gave further impetus to the already robust upwards pressure on price.

Cattle supplies in the first quarter of 2014 have been more readily available, with GB prime cattle slaughterings in the first three months  of the year over two per cent  ahead of year-earlier throughputs. Consequently, supply has more than matched demand, which has been a major factor in keeping a lid on prices as the year has progressed so far.

In addition, there have been some significant pressure points in the trade of late.  Demonstrating evidence of difficult market conditions for young bulls outside industry requirements, pressure on price for these types has been the greatest and they have consistently traded at a significant discount to other prime cattle.

As of December 2013, there was reportedly an increased number of cattle on the ground, as weaker market conditions gave little encouragement for producers to market cattle. These results supported the current market signals of there being increased supplies in the first half of the year. The number of male cattle on the ground over two-years-of-age and those aged between one and two years were both recorded to be higher on the year.

There does, however, appear to be light at the end of the tunnel as the survey recorded fewer cattle on the ground under one-year-of-age, indicating a potentially fairly swift return to tighter supplies.  Longer term, calf registrations in the first two months of this year are at their lowest number since 2009. Therefore, cattle availability in the next three-year production cycle is destined to remain tight, which should contribute to generating better returns for producers

While acknowledging that the current situation is tough, tight supplies in the future, coupled with EBLEX’s ongoing marketing activity to stimulate consumer demand with initiatives such as mini joints and a TV advertising campaign scheduled for the autumn, should certainly give beef producers cause for optimism for better prices in the longer term.