Meat outlook buoyant despite recession

The global recession is having only a muted effect on international meat prices because, while demand is being hit by lower disposable incomes, it is occurring at a time of falling supply.

For a comment from the conference, see Phil Clarke’s Business Blog 

Addressing this week’s EBLEX/BPEX Outlook 2009 conference in London, industry analyst Richard Brown of Gira Consulting said it was a “lucky coincidence” that meat production was contracting

The credit crunch had dwarfed all other variables affecting the meat market, leading to cancelled orders in Russia and China last autumn, and “distress sales” of meat which had undermined international prices.

In the EU, consumer reaction had been relatively modest, he added. But Mr Brown predicted there would be continued trading down in the quality of meat people bought, even if volumes held up in 2009. Consumer expenditure was therefore predicted to fall.

Normally this would lead to a weakening of the market. But across all species, with the possible exception of poultry, supplies were looking tighter. This should help underpin prices and producer profitability.

For example, in the pigmeat sector there had been big production decreases in the USA, the EU and Brazil on the back of financial losses in 2007 and 2008. With feed prices now lower, there may be some recovery in 2009, but this would be “modest”.

In the beef sector, there had been small production falls in most areas of the world, due in part to poor pastures and in part due to a general desire to rebuild herds.

This was especially true in Brazil, where more females would be retained rather than slaughtered in 2009. Combined with a 40% devaluation of the Brazilian real, this suggested longer term the Brazilians would return as major exporters. “These boys are going to be back in business as very competitive sellers of meat,” said Mr Brown.

The sheep sector was also suffering from a drop in global supply, mainly on the back of the droughts in Australia and New Zealand which had led to flock contraction.

Only in the poultry sector were there signs of significant supply pressure, following a production boom in 2007 and 2008. Mr Brown predicted more careful expansion in the next few years, given the long payback time on new investments.

Longer term, the prospect was still of strong growth in global meat consumption, especially for pig and poultry meat and especially in China. The forecast was for 20% demand growth by 2015.

For meat producers to fulfil this, prices would have to trend upwards, said Mr Brown.