The beef sector will not be immune to the effects of the current economic downturn and farmgate prices could lose ground if consumer behaviour changes, says consultant Andersons in its latest market outlook.
Prime cattle prices have continued to rise steadily during 2008, although the rate of increase slowed, and then fell back into the autumn, said Andersons’ head of business research Francis Mordaunt.
“Supply in the UK is tight, as both the dairy and suckler cow herds continue to decline. This has resulted in the UK price being one of the best in Europe aided by the Sterling:Euro exchange rate. This is particularly important with Ireland now accounting for over 60% of UK beef and veal imports.”
As well as favourable exchange rate movements, finished beef prices have been helped by tighter supplies throughout Europe. This situation has been made mroe acute by the restrictions on Brazilian imports put in place at the start of 2008.
“It may take until the second half of 2009 before enough holdings are licensed in Brazil to cause EU imports to return to previous levels. Even then, there are reports that many South American countries are finding trading conditions with Europe and Russia tough, and export credit difficult to obtain,” said Mr Mordaunt.
With supplies tight, it is possible that prices will remain firm. The unknown factor will be whether the credit crunch will start to affect demand. There are reports that in the UK, and also France, consumers are switching to cheaper cuts or less expensive meat.
“On this basis, although the domestic beef industry does not rely on exports, it will not be immune from the current economic downturn. Therefore, even with a reduction in feed costs it is difficult to see any improvement in beef enterprise profitability.”