June 2019 Market Overview

Pork Overview

African Swine Fever – an opportunity for beef and lamb?

Current situation

You may or may not have come across African Swine Fever (ASF) in the press recently. 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 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.

 

 

Effect on beef and lamb

Dutch bank Rabobank recently estimated that 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?

  • Demand 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.

A relatively tight supply situation in lamb could be further tightened by increased demand from China. Although the cattle market is set to be a touch better supplied globally, a protein shortage in China still presents an opportunity to introduce more Chinese consumers to beef.

Lamb Liveweight prices up but deadweight decline again

Liveweight lamb prices have had a small increase in the week ending 19 June. The GB liveweight NSL SQQ stood at 213.71p/kg, up 2.5p. The average price is still below last year but above the 5 year average. Throughputs were up on last week with new season lambs making up 94% of the throughput.

During the week ended 15 June, the GB deadweight NSL SQQ dropped 21.0p, to 451.5p/kg. This is below last year’s price and the 5 year average. Estimated clean sheep slaughter was 217,800 head, down compared to last week but 14% higher than the same week last year.

 

Growing demand for manufacturing beef from Asia

Just a few days ago, it was announced that China has agreed market access for British beef. This is the first time British beef will be allowed to enter the market since 1996. It is estimated this could be worth £230 million in the first five years.

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.

It could be asked what are the developing needs of the Asian markets and explore what opportunities they could hold for British food exports. For beef, religious factors in some South Asian regions mean export potential varies between nations. However, there are two main avenues of opportunity; premium, high value cuts and manufacturing beef.

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.

McDonald’s 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 hygiene and supply chain transparency are key attributes of quality to Asian consumers. McDonald’s 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.

Prime cattle prices drop back

In the week ended 15 June:

  • GB all prime average ↓5p to 338.9p/kg
  • Estimated prime slaughter ↑1%
  • Overall steer prices ↓6p to 339.6p/kg

Deadweight cattle prices have fallen back once again in the week ended 15 June. The GB all-prime average was 338.9p/kg, a decline of 5.0p on the previous week. This is the largest week-on-week decline since December last year. As a result, prices have now dropped back below the five-year average. Estimated prime slaughter was 31,760 head, a 1% increase on the week.

Reports suggest that demand continues to disappoint, with the feeling trade may be holding off until the weather improves.

Overall steer prices fell by 4.6p on the week, to average 339.6p/kg, despite only a marginal decline in throughputs. However, prices for steers meeting the R4L specification did not fall to the same magnitude, declining 2.7p to average 350.5p/kg. Heifer prices also declined on the week, falling 3.9p to 342.3p/kg. Young bull prices fell the most significantly compared to the previous week (-8.2p), likely pressured by the highest throughput since August last year. Young bull prices averaged 325.1p/kg.

The cow trade remained relatively flat in the latest week, with estimated slaughter remaining flat on the week, at 9,850 head. However, prices fell back by 4.2p on the week, to 235.0p/kg. Despite the recent declines, prices still remain above the five-year average.

Market demand for GB beef

In the last 52 weeks, primary beef volume sales through retail are down 2.2% (6,200 tonnes) although in the last 6 months, the decline has slowed to -1.8%. Burger and grill sales have been subdued in the last few months, compared to last year when the prolonged heatwave shifted large volumes. 2,500 fewer tonnes of beef burgers and grills were sold in the last three months, compared to the same period last year. (Kantar, data to 16 June 2019)

In foodservice we see a more significant decline (year ending March 2019) of approximately -6.8% volume, the equivalent of 12,000 tonnes (MCA, year ending March 2019). While total out-of-home visits are stable, the decline in beef occasions is driven by traditional meat-centred dishes and the slowdown in burgers which peaked in 2017/18. Burgers are the most popular meat-based dish in foodservice, with 626 million servings last year. However, this is down 7% on the previous year, representing a loss of approximately 4,200 tonnes of beef.

Lunch accounts for a third of beef occasions out-of-home but is struggling across foodservice with total lunchtime visits down 5% year on year. Lunchtime diners are looking for cheaper and convenient options; Quick Service Restaurants and Supermarket/Convenience stores are the only channels to increase their number of visits this year, while pubs and independent restaurants have struggled.

For the past two years (2018, 2017), demand for manufacturing beef has been strong in both the UK and throughout Europe. This has supported both the cow and prime price through those years, despite cow slaughterings across Europe being particularly high. Manufacturing demand generally peaks in the first quarter of the year, in line with peak mince sales. This is why the cow price is usually more supported in the first half of the year in comparison to the prime price.

In 2019 however, reports suggest that demand for manufacturing beef has subsided throughout Europe. This has coincided with a particularly high amount of beef being in cold storage, partly due to Brexit, and partly just regular leftover stocks from the winter period. After being elevated for some time, although cow slaughterings have dropped back slightly across Europe, they remain relatively high, and are keeping supply ahead of demand.

Download the June Report 2019 as a PDF file