July 2019 Market Overview

African swine fever –UPDATE

African swine fever –an opportunity for beef and lamb?

As you may or may have read from our recent reports on ASF, it is a disease that is highly contagious and nearly always fatal to pigs. Although cows and sheep are unaffected by the disease, developments in the global pork industry may have some knock on effects for beef and lamb.

The disease has been known for a while. Originating in Africa, it has also been present in Eastern Europe for a number of years. However last August the disease was discovered in China, home to the world’s largest pig population –there are more pigs in China than the whole of the US and Europe combined.

ASF as we know has now spread throughout China, decimating the national herd and leading to an expected shortage of pork later in the year. It is expected that China will cover most of this shortfall through imports, not just of pork but other proteins as well. Although beef and lamb are still a small proportion of overall protein consumption (see below chart), there is potential for global markets to be supported by China.

Chinese pork consumption has declined 10-15% already in the year to date. This is primarily due to food safety concerns, despite ASF being harmless to humans. If pork prices begin to rise in China, consumption could decline even further. So how does this affect beef and lamb?

July1Demand for imported beef and to a lesser extent   lamb, has   already   been   growing   in China.   Chinese   consumers   are   increasingly familiar with these products. In 2016 China Customs reported imports of around 800,000 tonnes of beef and sheep meat. In 2018 this figure was 1.36 million tonnes.

The sheer scale of the pork production declines expected. Industry forecasts put the protein deficiency in China to be anything from 10 to 20 million tonnes, depending on how much of the pig herd is lost to ASF and its management.

With declining consumption and a protein deficit, it is likely that imports for other proteins will increase throughout 2019 and beyond. This is likely to come largely from chicken and fish, but beef and lamb are also set to experience increased demand.

In the past, lost domestic pork production might have been replaced with imported pork. However, even at conservative estimates, volumes needed to fill the gap are simply not available on the global market.

More UK pork plants look to be approved for China export

According to a Government announcement, China has recently approved five UK pork plants for export (two slaughterhouses and three cold stores).The National Pig Association says this will build on a market that is currently worth £70 million per year.

The approvals are subject to Food Standards Agency inspections.

It is believed that the approval has come much sooner than predicted due to the pressure on China to secure meat imports. African swine fever has decimated a huge proportion of the Chinese pig herd and, being both the largest producer and importer of pork, China now needs to fill this gap to meet consumer demands.

This will inevitably put pressure on UK Pork prices as China becomes a preferred destination due to the escalating export demand/price. The UK Export Certification Partnership said it was expecting formal confirmation of the five new pork plant approvals 'very soon' and that, as a result of UK authority engagement with Chinese officials, this application for approval has been "fast tracked".

The National Pig Association believes this development is particularly timely as it is expected that Chinese demand for pork imports will only increase throughout the year due to the impacts of ASF.

Global pork flow disrupted as China halts all Canadian meat imports

Reports from China on Tuesday 25thJune2019saidit wants the Canadian government to temporarily stop allowing meat shipments to China after bogus pork export certificates were discovered. The move disrupts a lucrative pork trade for Canada, the world's third-biggest shipper, and comes as China turns to meat imports after African swine fever killed millions of its pigs.

China bought Canadian dollars $310 million ($236.32 million US dollars) worth of Canadian pork from January through April, making it Canada's third-largest market by value. It is Canada's largest pork market by volume.

In the short term, more European pork is likely to flow into China.

ASF tightens its grip in six Asian countries

Official statistics from the Food and Agriculture Organisation show that you can now find ASF in Cambodia, China, Laos, Mongolia, North Korea and Vietnam -and experts predict its relentless march will continue. In Vietnam alone, officials report more than 2.5 million pigs have been culled from the national herd due to ASF. The disease has spread to nearly every province. In a country of 95 million people where pork makes up 75 percent of total meat consumption, this reality spells trouble.

Meanwhile in China, the picture does not look too much better. The nation’s pigherd shrunk 21 percent on the year in April to a level not seen since the early 1990s.The herd will decline between 20% and 30%in 2019 from the previous year when China recorded a herd of 428 million pigs.

July2

July3The disease's toll on China's pigherd continues to reach epic proportions with recent estimates pegging current and future losses related to ASF at more than 200 million pigs. With the losses that farmers have had to face, some are reluctant to begin repopulation as has been encouraged by the Chinese Government for fear that they could lose their entire herd to the disease again. This said, some commercial herds are looking at expansion with New Hope Liuhe, a Chinese integrator, announcing its plans to add 1.6 million pigs to its herd across three provinces.

Investigation into the spread of the disease concluded that that vehicles and workers are the most common way that ASF spreads. Feeding swill and transporting live pigs or pork with ASF contamination are also key methods of ASF transmission.

 

 

Pork Over view

UK Prices

GB finished pig prices increased in April, with the EU-spec Average Pig Price averaging143.80p/kg. Nonetheless, the month-on-month change was only small, at 0.94p. Pig prices were still around 5p below last April’s level, although the annual difference continued to narrow

Pig prices typically rise from March onwards, and this year EU prices have escalated sharply due to tightening supplies and increasing Chinese demand. Brexit stockpiling activity has delayed the anticipated uplift in Britain. As these stocks are depleted, we would expect retailer preference for British pork to help recover the GB price premium. However, Brexit and ASF mean the current market circumstances are unusual, so price relationships may also behave irregularly.

The first three weeks of May recorded a further slow but steady increase in finished pig prices. The EU-spec APP reached 147.74p/kg in the week ended 18 May, 3p below year-earlier levels.

July4

EU Pork prices continued to strengthen in May, reaching €174.21/100kg in the week ending 26 May. This was around €40 higher than the low point of €134.03 recorded in early March. However, the pace of growth has slowed recently, with prices gaining less than €5 in the past 4 weeks. This in turn is partly due to some resistance from buyers not prepared to pay unrealistic prices being inflated by demand from elsewhere, the ceiling has been met but may not fall that far in the short term.

Beef Overview

New market access could be offer £230 million boost for British beef

British beef could be served on Chinese dinner plates by the end of the year, following an agreement reached between China and the UK. The move could be worth an estimated £230 million for producers in the first five years alone, and comes more than 20 years after the Chinese government imposed a ban on UK imports of beef in 1996. The announcement comes after China recently approved five British pork plants to export products to China, which will build on a market which is already worth £70 million a year. We look forward to further approval of qualified UK pork plants by the end of 2019.

The UK-China Beef Protocol is the culmination of several years of site inspections and engagement between UK and Chinese government officials. China’s ban was lifted in June last year when market access engagement for UK beef exports began.

China is the largest beef importer in the world. With a rapidly expanding population and a growing middle class, consumption of beef and other red meat is forecast to climb. This is particularly significant now, given the outbreak of African swine fever decimating China’s domestic pig population. As such, China and other Asian counties represent huge export potential.

Demand for manufacturing beef from Japan, South Korea, and China has been growing steadily for the last couple of years. Part of this growth has been driven by the westernisation of diets and growth in foodservice.

McDonalds opened over 300 new stores in China last year, bringing the total to 2,800. By 2022, McDonald’s expects to have 4,500 stores across China and Hong Kong.

Food and supply chain transparency are key attributes of quality to Asian consumers. McDonalds have incorporated these values into their dining experience by:

Adding a feature onto their website to enable customers to trace from which farm their food originates.
Scannable QR codes on packaging to allow consumers to easily access nutritional information.

Another key trend driving increased demand for manufacturing beef from Asian consumer is the increased feeling of time scarcity. Longer working hours and active social lives means consumers are looking for pre-prepared products, e.g. marinated, de-boned and processed meat, which make the cooking process easier and faster.

UK Beef Overview

Demand for all steak meat through the summer months will be seasonally high and keep prices firm for the prime steak cuts. Cuts from the Fore-Quarter meat will be more favourable for exporters as demand for manufacturing meat is very high, this will keep margin on carcasses when seasonally this can fall back due to Autumn, Winter cuts slowing down through Spring, Summer.

Deadweight cattle prices moved down in the week ended 22 June. The GB all prime cattle average was down 4.5p/kg to 334.4p/kg. Estimated prime cattle slaughtering numbers were also down to 31,000from 31,750 a week ago. Prices fell across all categories, steers by 4.8p to 334.8p/kg and heifers by 4.5p to 337.8p/kg.

July5

Lamb Overview

Lamb prices return to seasonal trend

The liveweight lamb price returned to the downwards trend that is typically seen this time of year. The liveweight New Seasons Lamb averaged 205.7p/kg in the week ending 26 June. The price remains around 6p above the 5-year average for the time of year.

Estimated sheep slaughter numbers for the week ending 22 June was relatively unchanged on the week at 217,500 sheep. Similar to the liveweight price in the corresponding week, the deadweight price remained relatively stable in the week ending 22 June, to average 451.6p/kg.

July6

The kind weather continues to benefit throughput of New Season lambs. Through puts of New Seasons Lambs are 19% higher in 2019 than the previous year. The two spring periods for 2018 and 2019 have been at either end of the spectrum and the effect is clear to see. Despite this, overall throughputs are down around 1% for the year.

Demand through the next three months will all be on middle cuts, Loin Chops, Cutlets for the UK market and whole Middles for Export to Italy, demand for further processed middle cuts to Germany, Belgium for Lamb Racks, Loin Eyes and Tenderloins will balance the carcass. As with the beef forequarter cuts will be exported with France being the preferred destination for supermarket promotions along with leg meat. The UK spot trade daily market will be unpredictable in terms of price for forequarter meat and will depend on supply/demand.

Seasonally the carcase prices will now start to fall back as UK producers ramp up production with the UK Lamb season being in full flow now with availability. The weather has also been a lot more favourable for farmers at the moment this year with the perfect mix of rain and sun meaning the grass is growing and feed is not being brought to supplement this.

Poultry Overview

Poultry demand grows on back of African swine fever

The ongoing African swine fever problem in the world's largest pig producing country, China, is increasing the demand for other proteins besides pork. Increased import levels are expected, with market access recently opening to a number of countries. Official trade data records Chinese imports of fresh/frozen poultry already increasing 40% (+42,000 tonnes) year on year in the first quarter.UK/ EU prices have remained firm with demand through the summer months following seasonal trends on top of increased demand for export because of the above having an impact on all proteins.

Summary

We think by now you are all aware of the impact the ASF has had across the industry with demand for proteins to fill the gap keeping prices firm and pushing prices up to levels not seen for a long time. We will continue to monitor the effect particularly in pork and pork associated products as these have seen the largest increases both in terms of our purchasing and the availability in the supply chain.  

Next month we must return our focus to October 31st2019 (not deciding on the outfits for the office party) but the potential hurdles/challenges we as an industry will face in the event of a deal or no deal Brexit along with a new PM at the helm to lead us through very choppy waters.

Download the July Report 2019 as a PDF file