Farm Ireland
Independent.ie

Monday 25 September 2017

Slice of good times on way for beleaguered beef men

With prices outside Europe booming and supplies to Irish plants set to fall, 2011 provides a unique opportunity for beef finishers to shed the shackles and secure a serious lift in returns

Eddie Punch

Hardened cynics will say they've heard it all before whenever anyone dares to stick their head out and predict better times ahead for our beef sector.

Nonetheless, at the risk of losing mine, I believe that 2011 provides a unique opportunity for farmers to realise the highest beef prices ever seen in Ireland.

However, in order for that to happen, farmers here as well as in Britain, need to be aware of the factors that put them in the driving seat to an extent not seen previously.

Our beef processors, in turn, need to see that the time has come to stand up and demand better prices from European retailers who must be made to understand that current farm-gate prices for beef are unsustainable in a world where extraordinary things are happening in the beef trade.

While the global economic meltdown may be seen as an unlikely backdrop to a rising beef price, the reality is that no matter how hard times are, people still need to eat. To some extent, a more price-conscious consumer can help by being more receptive to cheaper cuts. In boom times, any fool could sell steak, but selling forequarter beef was challenging.

A more balanced demand for the entire carcass, combined with new opportunities for energy from animal waste means a more sustainable processing sector.

Finally, harsher financial times are having a real effect on consumers. Record levels of savings suggest that people are postponing the big expenditures but are in a position to buy a proper dinner.

In a world where extravagance is increasingly seen as tasteless, there is a sense that a tasty home-cooked meal is not so extravagant.

Also Read


Of course, there is also the reality that the retail chain needs to function better with a fairer share of the retail price going to farmers.

In a time of surplus supply, that rebalancing was never going to happen. Now, however, the surplus supplies are drying up.

In terms of supply, Ireland is looking at a vastly different landscape in 2011, compared with 2010. Farmers were deeply disappointed with beef prices, which remained sluggish throughout much of 2010, even as world market prices for beef rocketed.

Surplus

However, 2010 saw a surplus of beef that was predictable enough when you look back at the higher number of calves born in 2008, a year in which live exports also fell sharply.

The inevitable consequence was that factories were seldom under pressure to deliver a better price when the total kill was almost never below 30,000hd/wk, and total prime kill was averaging some 24,000hd/wk.

Can 2011 be any different? At first glance, a headline figure is that the live export of calves and weanlings to our three best export markets (Netherlands, Spain and Italy) was up by some 63,000hd in 2009 compared with 2008.

This mirrors a wider boom in exports of all types of cattle with the result that we are on course to export a total of 340,000 cattle in 2010, compared with 286,000 cattle in 2009 and just 158,000 in 2008. (See Figure A)

However, the total export figure consists of all ages of cattle, and a more detailed analysis is required.

In this exercise, I have attempted to predict what the availability of prime cattle will be in 2011. Table 1 shows the assumptions made, based on data from the Department of Agriculture AIM report and Bord Bia.

The basic methodology involves taking the calves born in a given year and predicting how many will be available for slaughter in two years' time, having allowed for exports, replacements and mortality.

This is not an exact science, but interestingly it does make a pretty close stab at the prime kill for 2010. Using the same methodology, the outcome is a drop of almost 5,000 prime cattle per week available for slaughter in 2011.

The key factors in this prediction are based on the following (see Table 1):



  • A drop in calf registrations of some 150,000 in 2009 compared with 2008 (see Figure B);
  • An increase in exports of animals under 12 months by some 119,000hd;
  • Some extra stores exported (ie, 46,898 animals born in 2008 and exported in 2009; 50,684 animals born in 2009 and exported in 2010).


The outcome is a drop in cattle supplies to meat plants unlike anything we have seen in recent years, as can be seen in Figure C.

Will this translate into a price increase? We know that beef price hit a high in 2008 at €3.17 (annual average R3 steers) which was a full 15pc above the 2007 price. Lower numbers in 2009 did not help but then all commodities were hitting lows in 2009.

In 2010, cereals and milk regained a lot of lost ground, but beef did not follow suit.

It could be argued that too much availability of cattle throughout 2010 in Ireland had a detrimental effect not only on Irish beef price but also on the British price. As a consequence, the price stayed in the doldrums even as other commodities picked up, and world beef prices increased spectacularly.

It is the extraordinary changes in price in the key global beef-producing countries that is really worth sitting up and taking notice of.

Hike

Table 2 shows remarkable beef price hikes in all of the key beef producing countries outside Europe. In the first week of December this year, beef price in the US was higher than the equivalent week in 2009 by an astonishing 44pc, 38pc in Australia, 54pc in Brazil and 142pc in Argentina. Even on an annualised basis, the increase is at least 25pc across all four.

Before we get carried away, it is more sobering to realise that beef price across Europe has seen no such hike. However, there are positive signs in markets such as Germany and Italy, where the trade looks somewhat better in recent weeks with year-on-year increases of 8-16pc. Germany is benefiting from some exports to Turkey, where beef hit what must be a record €8/kg.

So what can we conclude? Barring an unforeseen catastrophe, it is inevitable that the Irish beef price will be higher in 2011 than in 2010.

Given that the 60,000 more cows were slaughtered in Britain in 2010 compared with 2009, there is a sense that we are heading into a prolonged period where, at last, the farmer is not at the mercy of beef factories or retailers.

In early December, the UK's Livestock and Meat Commission (LMC) stated that the total cost of producing suckler to beef was now more than Stg£4/kg dw for efficient producers.

This will come as no surprise to Irish farmers. Of course, retailers can ignore these facts and continue to bury their heads in the sand, but there is nothing like the threat of empty shelves to concentrate the minds.

That's why I am going to stick my head out and predict that beef will hit €4/kg in 2011.

Eddie Punch is the general secretary of the ICSA

Indo Farming