Commodities outlook 2015: Beef

Beef values fell back sharply in 2014, as household consumption became increasingly sensitive to previously high prices. As a result, domestic beef supplies may reduce in 2015 and 2016, with a decline in the UK breeding herd and fewer cattle on the ground, says Andersons consultant Ben Burton.

“However, this trend may be offset by continuing strong Irish production – the source of 68% of UK imports. Furthermore, Irish beef is trading at an increasing discount to the UK, which – combined with the strong pound – may pressure domestic prices.”

The termination of milk quotas in 2015 is likely to affect the number and type of cattle on the market, particularly in Ireland, which is seeking to increase milk production by 50%.

See also: Welsh beef sector must balance free market and support

“Longer term, this could reduce Irish beef imports as its suckler herd contracts – although there will be additional dairy-bred calves around.”

In the UK, more beef cattle are hitting target specification, although typically 12% are too fat and 36% are of poor conformation.

“Processors have been more selective on out-of-specification cattle, so to maximise returns it’s important to meet those targets,” says Mr Burton.

Forage quality and yields were generally good in 2014, with lower feed and straw prices likely to help farmers to reduce production costs.

“However, many producers, particularly in the uplands, remain heavily reliant on subsidy payments.”

The effect of CAP reform is therefore significant, particularly in Scotland, where producers are moving from high-value entitlements to lower-value regional payments.

“Greening complications are also an issue; while the three-crop rule and EFA requirements should not be an issue for most, they may prove challenging for some.”

In addition, the forthcoming general election could herald changes in the relationship between the UK and EU, he warns.

“In 2013, 16% of production was exported, most to the EU. Any divergence in policy may create considerable trading uncertainties.”

Outlook

  • Discounted Irish beef could threaten UK prices
  • CAP reform likely to affect Scottish producers in particular
  • Uncertainty over impact of general election on export trade

Business pointers

  • Focus on technical efficiency – the most efficient are making money
  • Calculate production costs and sensitivities to fluctuating input costs so you can buy with confidence
  • Understand required carcass specification and work to meet it
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