Livestock trade outlook hangs on supply and demand

With fewer suckler cows and the on-going impact of sexed semen reducing the number of beef-sired calves from dairy herds bound for the slaughter line, there’s every indication that supplies of finished cattle coming on to the market will tighten further during 2014.

Consumer resistance to the higher prices at the retail end of the beef chain is only one issue in a thread of pricing problems currently facing the UK beef sector.

Many beef producers and auctioneers believe 2014 should see the start of a constructive debate about “who gets what” in terms of profit from the beef cycle.

Lower feed prices are helping keep a loose lid on costs of production for beef finishers, but it’s clear they still need the level of returns at well over 200p a kilo to keep them in business. But these are price levels the processors and the retailers are struggling with – and further down the line so too are consumers.

Consumer resistance to high beef prices is a trigger that’s cocked. Whether it fires the gun that shoots down prices remains to be seen. Although auctioneers don’t truly expect prices will show any marked fall in the coming year, finishers know they can’t take too much of a hit in 2014. The figures they are working with – the price of bought-in stores and finishing costs – don’t allow any room for manoeuvre.

And as suckler cow numbers continue to fall – coupled with alarming figures that even the top third of lowland suckler herds are losing £60 a cow – it’s becoming increasingly evident the crisis in the suckler sector isn’t being fully recognised at the killing end of the beef industry. Many beef sector pundits who acknowledge the pivotal role played by suckler herds in the beef supply chain say 2014 must be the year when something needs to be “pulled out of the hat” to halt the decline in suckler cows. A failure to react swiftly could have dire consequences for the supply of beef cattle at a time when beef crosses from the dairy herd are also in decline.

Auctioneer Paul Gentry, who has sold 30,000 head of fat cattle through the sale ring at Newark over the last year, says there will undoubtedly be fewer finished cattle coming on to the market in 2014 and is concerned that carcass weights are going to become smaller because of the influence of native-breed beef schemes.

“If suckler producers do their sums and work out what price they need for their 500kg stores to give then a decent return on capital, and finishers honestly look at what it’s costing them to finish cattle, we are looking at a price for finished cattle that isn’t going to happen. It’s a big worry.

“And there is so little understanding of the suckler industry by a lot of feeding men and processors,” says Mr Gentry.

EBLEX forecasts for 2014 indicate little change in production and consumption of beef and veal with a predicted level of production at 877,000t and consumption at 1,139m tonnes including imports.

Sheep

Sheep producers are heading into 2014 in a stronger position than they were a year ago. As the hogget marketing season begins producers have stock in better condition, forage stocks are adequate and bought-in feeds are costing less. Many ewes were tupped in record time this autumn and are in “good shape” which bodes well for plenty of lambs this spring if the winter is kind.

But for the rest of the coming marketing season EBLEX forecast finished sheep supplies will be tight.

The key outcome of these forecasts continues to be the message that supplies of sheepmeat are expected to be in relatively short supply for the remainder of this season. The 16.2 million lambs that will be slaughtered by the end of the current marketing year are below the 2012 figure.

It’s estimated more prime lambs will be marketed during the first six months of 2014, but EBLEX still believes the early part of the New Year will see lamb lower numbers of hoggets on offer. What will be interesting to watch is the availability of new season lamb in a year when it’s thought more flocks have opted to lamb later to try and avoid bad weather and to reduce feed costs. If that is a trend for 2014 it’s likely that supplies will remain tight for longer.

Prime lamb exports are predicted to reach 36% of UK production in 2013 and lower supplies of lamb in New Zealand look like keeping imports in check. Prime lamb production for the whole of 2014 is predicted to fall to 1,915m tonnes compared with 2,098m tonnes. With all eyes on the hogget market in the early part of 2014, figures suggest numbers will be below last year – 475,000 between January to March compared with 498,000 head last year.

Archie Hamilton, auctioneer at Longtown Auction Mart in Cumbria, says a strengthening pound is not going to help lamb exports but he’s convinced the start of 2014 will see prices “remain steady.”

“I don’t think we’ll see prices take off initially but the market could get stronger by March when numbers start to reduce. We’ve already seen a problem with too many lambs being marketed at heavier weights and outside the specification that earn the best returns. I think that’s going to continue to be a problem. This year’s lambs won’t stop thriving.

“We could see a sticky period for lambs in the 44-48kg range but I don’t think we’re going to get any price dip for the good stuff. The hogget selling season won’t see a massive rise in values but there won’t be any price collapse either.”

Dairy

Could the demand for dairy cows be so great among rapidly expanding herds that auctioneers could start selling milking cattle in multiples of fives or tens? It’s something that may not quite happen in 2014, but it certainly can’t be ruled out for the future according to West Country auctioneer Derek Biss of Greenslade Taylor Hunt.

“The lukewarm guys of our dairy industry have gone and a lot of those who are left are continuing to expand. We’ve recently had one man looking to buy 100 fresh milkers in one go to increase his herd.

“We’re now seeing the 300-cow herds going to 500 and the 600-cow herds going to 800. The demand for dairy cattle is there and prices will reflect that during 2014. For the next 12 months I think we’re going to see a pretty vibrant trade. Expansion is being driven by a better milk price and a shortage of milk. There’s going to be a tremendous demand for milk at the start of the year,” believes Mr Biss.

The removal of quotas in 2015 in countries that have been sending dairy heifers to the UK in recent years looks like reducing the number of cattle available for export – a situation many auctioneers believe will drive buyers back into the home market in search of replacements.

“It has been a tough time for milk producers but I think 2014 will see things really turn a corner. While there is a view that dairy herd replacements may hit a peak price at which buyers won’t go beyond, I think those who are committed to their expanding businesses need to produce milk and they need the cattle to do the job. We’ve seen some sales this year where prices have gone ballistic because large scale units have needed cattle.”

Pigs

Although pig producers have a long way to go to recoup the losses of recent years, much needed reductions in feeds costs and record pig prices achieved in November 2013, create a favourable starting point for the pig sector for 2014. Forecasters believe pigmeat supplies will remain tight as a direct result of the official figures showing a 2% reduction in sow numbers during 2013.

The latest AHDB/BPEX forecasts for UK pig meat supplies predict that the tight situation on the UK market may ease somewhat in 2014, although availability would still be below the levels recorded in 2012. With data from the June Agricultural Survey showing a 2% year-on-year decline in the UK breeding herd, numbers of finished pigs will remain constrained in the near future. Approximately 850,000t of pigmeat is expected to be produced during 2014.