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Beef Outlook 2010
By Brian Jennings
After the worst economic down turn in living memory, it is somewhat ironic that the red meat sector has emerged more or less unscathed. In fact, most beef and sheep farmers have enjoyed better finished stock prices than they have since the 1996 BSE crisis. However, with most financial experts predicting a very slow worldwide recovery, is this new found prosperity sustainable?
In this article, we look at the influences which have caused the revival that could affect the future prospects of our industry. Both beef and dairy cow numbers have been in steady decline, driven by poor beef and milk prices and the gradual decoupling of subsidy payments.
Even including cow beef to the human food chain and an increase in pure bred Holstein/Friesian bulls, UK production is below 2000 levels. Despite consumption rising in recent years, the credit crunch has caused a significant change in consumers shopping habits. Sales of high value steak and roasting joints have been substituted for cheaper mince and chuck beef.
Fortunately for UK farmers, South American imports have fallen to very low levels. These factors have resulted in a near market balance, although farm gate prices have dropped from last year’s high, there is evidence which points to a supply shortage, reversing the downward trend within a few months.
UK prices, compared to other EU countries have been favourable over recent months, mainly due to the pound/euro exchange rate, which is the reason for the uplift in domestic prices, resulting in processors and retailers paying more. With the current turmoil in Greece and the stalemate of the UK election having considerable effect on the value of the pound, at the time of writing, it is too soon to call what long-term effect this will have on producer returns.
On a more positive note, cattle numbers across the EU are in decline and retailers are, at last, waking up to the prospect of supply sustainability becoming a problem. Evidence of this lies
in more supermarket chains sudden desire to secure producer contracts and urging farmers to consider keeping their black and white bull calves.
It is a staggering fact that over 80% of beef consumed in the home is supplied by the big five supermarkets, which makes their need to secure their own direct supply more understandable. However, there are several ancillary businesses which take a cut before the farmer gets his cheque. The list is probably longer than at first appears. Hauliers, auctioneers, dealers, abattoirs, more hauliers, cutting and packers and yet more hauliers, all are service providers to the industry. Add to this the cost of disposal of various waste products, offal and other items, it starts to become clear how the costs rack up. Although the processing sector is increasingly controlled by fewer companies, they have invested heavily in their facilities which are only efficient when they are working at near capacity, so they are showing some confidence in the future.
Despite all of the above, consumers are still buying beef week in, week out, and as the economy recovers, it is likely they will return to higher value cuts. Worldwide, demand is set to grow as developing countries adopt western style diets, and supply could struggle to keep up. There is also the longer term effects of global warming, which could threaten cattle production in more hostile climates than we enjoy in the UK. According to the latest census figures, suckler cow numbers seem to be stabilising and more dairy bulls are being kept. But farmers will only invest in the industry if they are confident they will receive an economic return for their stock, with retailers beginning to understand this.
The positive outlook does come with a caveat in that farmers will have to improve their efficiency, if they are to maximise their potential margins in years to come. Cattle slaughter age and weights are obvious areas where improvements can be made, when most cattle can reach a target weight of 320kg dwt at 22 months, it is a waste of valuable resource to still have stock on farm at 30 months, but it is astounding to realise that nearly 40% of slaughtered cattle are over 26 months of age.
The final piece in the jigsaw is the issue of greenhouse gasses, which potentially could be a threat to the whole industry. EBLEX and others have been working on this aspect for some time and have identified a realistic strategy to substantially reduce emissions from ruminants. Their report is worth reading for all livestock farmers and is obtainable by post or online.
Overall, we remain optimistic that beef farmers can look forward to much more positive times than they have endured in the past. We are committed to helping the industry maximise efficiency of home grown forage and passing on research based information, combined with tips from farmers themselves. If you need any further information, contact Lachie Maclachlan (
lachlan.maclachlan@molevalleyfarmers.com) or Adam May (adam.may@molevalleyfarmers.com).
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