Jan 2019 Market Overview

Breeding Herd


The total number of cattle and calves in the UK in June 2016 was up over one per cent on the year to just over 10 million. A reflection of the growing breeding herds in more recent years, it is the first time it has been over the 10 million threshold since 2010. The herds in England, orthern Ireland and Wales all grew, while
 in Scotland it was almost unchanged on June 2015.cow at pasture2


Prior to 2014 the breeding herd in the UK had been steadily falling, from just over 3.7 million in 2006 to below 3.4 million in June 2013. However, since then it has increased in each of the last three years and now stands at 3.5 million animals. While the dairy herd continues to account for over half of the breeding herd, in a change to developments in recent years at 1.9 million head there was no tangible growth in June. Given the previous challenges in the dairy sector this is not an entirely unexpected development. In contrast, the beef herd increased for the second year running, rising by over one per cent on June 2015 to account for 1.6 million head. It has now grown 27,000 head over the past two years and consolidates the extended period of time in which the component parts of the UK breeding herd had been moving in opposite directions.


Calf registrations In 2016 total calf registrations were changed very little on the previous year. At 2.70 million head they are up just short of half of one per cent, or 10,000 head. Given that this just about carries on the increasing trend in calf registrations seen over the past couple of years or so, it does have some implications for production levels over the medium term. However, in 2016 there was change to the growth profile of the previous two years, in that dairy registrations were lower compared to the year earlier. Consequently, the small uplift is entirely a result of increased beef breed calf registrations. If not linked to a fall in cow productivity, this could well be a signal of decisions made by producers to exit the dairy industry, albeit a year ago. Dairy female calf registrations were back five per cent year-on-year, while dairy male registrations were back eight per cent. Despite the better feed outlook, producers seem to have not been encouraged into retaining dairy males for finishing in the short term. This development could well be partly as a result of the decision by a major processor to end its procurement of young beef bulls.


Slaughterings

The effects on prime cattle throughputs of higher calf registrations over the past couple of years, on the back of better conditions and improved productivity, will be felt later this year and into 2018. However, some prime cattle that were forecast to come forward last year are now expected to present for slaughter early in 2017, on the back of slower finishing over the summer and a better feed outlook for the winter housing period. The number of male cattle on the ground reported in Defra’s June livestock survey supports the outlook for increased supplies in the UK this year. Those between one and two years of age was up three per cent year on year, as were the number of those under one year of age. In addition, the number of females in these age brackets were up five and two per cent, respectively. While some of these females will be destined for breeding, many will be available for slaughter. Consequently, prime cattle slaughter is forecast to be just under two million head this year. If achieved, it will be the closest to the two million threshold since the bumper production year of this decade, in 2011.

Sheep

Prices
Both deadweight and liveweight lamb prices started 2019 above the previous year’s level, by 21p and 11p respectively. This premium has not lasted and overall for the quarter, the average price is lower than it was last year. This is largely due to record breaking high prices recorded last year, with the later timing of Easter and Brexit uncertainty bringing added pressure this year. The price for most of the year so far has been at or close to the five year average.


Production
Total production for quarter one stands at 71,000 tonnes, which is steady on year earlier levels, according to Defra data. However, what has Sheepchanged is the mix of product, with an increase of 10% in cull kills to 418,000 head. Meanwhile the number of lambs coming forwards is down 7%, to 2.9 million head. The effect on production of the rise in the number of ewes coming forwards has been compounded by an increase in average carcase weights, especially during March. The increase in numbers and weights supports reports that there has been as increase in the number of empty ewes this year, which are now being sent forwards having been fed as if they were in-lamb. Estimated lamb slaughterings from the 2018 lamb crop are sitting 6% lower than this point last year which is not a surprise given the reduction in the 2018 lamb crop by an estimated 990,000 head to 17.2million head.


Trade
Trade data was not available for the whole first quarter of 2019 at the time of writing, so considering the period December – February UK imports of sheep meat have plummeted. Shipments fell 12% year-on-year to 16,600 tonnes. The value of imports was also down 11%, at £82 million. Last year recorded the lowest import volumes on record, so with this start to the year could we see volumes fall lower still? Retail demand for sheep meat is weak and this could affect the future market in the UK.
Some of this fall in imports can be attributed to a reduction from New Zealand, falling 19% to 9,500 tonnes. Around a third of imports from New Zealand are leg cuts, which are important in balancing the UK sheep meat market.
There is some divergence of trends though within this three month period, as during December there were some sharp year-on-year rises, and some significant declines during January and February.
UK exports of sheep meat are closely correlated to production. Exports were down 9% year-on-year in December to February to 22,100 tonnes. This was led by reductions in exports in December and January and although February’s exports were higher, they were not enough to mitigate the previous two months. This trend reflects shipments to France, the UK’s biggest export market. In contrast, exports to Germany and the Netherlands were higher than last year across the first two months of 2019.
The ‘flexible extension’ to Brexit until October alleviates supply concerns from our EU buyers in the short term. This may support the export market, and farmgate prices, in the coming weeks.


Global situation
Prices on the global sheep meat market have continued to trend above historic normal levels, with farmgate prices in both New Zealand and Australia currently trending around 70p above their respective five year averages. Prices have now been trending at this higher level for just over two years, with a tightening of supply in New Zealand and Australia coupled with an increase in demand from China driving much of the price rises. Due to the UK market dynamics, UK prices have not reflected the rises down under, although have had some support. Both New Zealand and Australia are forecasting a tightening in supply over the coming year, as they work to rebuild flock sizes after the drought. The Ministry of Primary Industries (MPI) in New Zealand is forecasting the global price of sheep meat to remain buoyant over the coming years.
During 2018 there was a sharp rise in volumes of sheep meat coming from New Zealand and Australia onto the global market, however much of this was mutton.
During 2018, Australia continued to almost fill its EU sheep meat quota, whereas New Zealand did not fully utilise its allocation. It should be noted that there is a vast size difference in the quotas.

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