Wednesday 28 September 2016

Beef prices set to decline in 2016 as EU supplies increase

Kevin Hanrahan

Published 09/12/2015 | 02:30

A reduced supply of cattle for sale has increased prices.
A reduced supply of cattle for sale has increased prices.
Kevin Hanrahan

The price of finished cattle has rebounded this year following the "crisis" of 2014, while prices of calves, weanlings and store cattle have also increased strongly on last year.

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The buoyant Irish cattle trade in 2015 is based on a confluence of supply and demand factors in domestic EU markets. The outlook for 2016 is not so positive, though developments in the euro exchange rate could mitigate the negative outlook for euro prices.

The supply of cattle available for slaughter this year was considerably lower than in 2014 and this contributed to the improvement in Irish cattle prices. On the demand side, on-going growth in the UK market, an economic recovery in the Eurozone and higher EU demand for beef contributed to improved prices.

The depreciation of the euro relative to sterling also boosted Irish cattle prices although the difference (in euro terms) between UK and Irish R3 Steer prices has grown to record levels.

With stable costs of production, margins earned by both single suckling and cattle finishers have improved. The average gross margin earned by single suckling enterprises is estimated to have increased by 37pc in 2015 while cattle finisher gross margins are estimated to have increased by 33pc. Despite the strong improvements in cattle farming incomes, most Irish cattle farms will still rely on decoupled direct payments for most, if not all, of their family farm incomes.

Supplies of cattle both in the EU and Ireland are expected to grow in 2016. The expansion of the EU dairy cow herd over the last three years will increase the supply of cattle available for slaughter within the EU. With over two-thirds of EU beef supply originating in the EU dairy herd, the increase in EU dairy cow numbers - even with on-going contraction in suckler cow numbers -will be reflected in higher EU beef supplies in 2016. The extra supply of beef on EU markets is forecast to exceed growth in demand and as a result EU cattle prices in 2016 are forecast to decline.

The strong expansion in Irish dairy cow numbers and in cattle available for slaughter and for feeding are also being driven by strong growth in dairy cow numbers.

AIMS data from the Department of Agriculture, Food and the Marine indicate that dairy cow numbers are likely to be over 10pc higher by the end of this year compared to 2014. With further expansion in the Irish dairy herd forecast for 2016, increasing supplies of cattle (and ultimately beef) from the Irish dairy herd are inevitable.

Inventories of suckler cows on the basis of AIMS data look like they have stabilised following a number of years of decline. The outlook of an increased number of cattle available for feeding and for slaughter in 2016 and beyond both in Ireland and the EU is likely to limit the prospects for on-going improvements in Irish and EU cattle prices.

A factor that could affect Irish cattle prices in 2016 is ECB monetary policy. With the ECB likely to further loosen monetary policy via another programme of quantitative easing, it is possible that the euro could weaken further against sterling and the dollar. This could offset the impact of weakness in European beef prices on Irish prices given that the UK accounts for over half of Irish beef and cattle exports.

However, in the absence of a weaker euro in 2016 it looks like cattle prices and margins in cattle production are set to decline in 2016.

Dr Kevin Hanrahan works with the Teagasc Rural Economy Research Centre (RERC) in Athenry, Co Galway

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