|Global Market Analysis|
MEAT AND MEAT PRODUCTS
The 2008 increases in meat prices provided some breathing space to producers who witnessed a consistent deterioration of profit margins over the last few years. However, new data for 2009 suggests that profitability is once again decreasing, following a steady drop of international meat prices since their peak levels in October 2008. International prices have not yet returned to the levels observed in the first months in 2007, and they appear to show signs of stabilization. The decline was most pronounced for bovine, ovine and poultry meat, while pig meat prices remained relatively stable. The fall of meat prices largely reflects the weakening of demand, as a worsening of the global economic environment is dampening consumption growth, especially in the developed countries.
Table 10. World meat markets at a glance
* Jan-May 2009
World bovine meat production is expected to remain virtually unchanged in 2009 around 65 million tonnes. Reduced opening cattle inventories in Oceania, Europe, North and South America are likely to limit the number of animals slaughtered and depress output in those regions. However, globally, these shortfalls are anticipated to be compensated by increases in Asia and Africa.
In North America, where animals are intensively reared and finished in feed lots, bovine meat production in 2009 is forecast to rise by 3 percent in Canada, while it may decline in the United States, where cattle numbers have steadily decreased since 2005, in line with the deterioration of the beef/feed price ratio. The price relation improved somewhat over 2008 but did not prevent a further herd downsizing in 2009. In South America, where cattle are raised under extensive pastoral systems, Argentina, Brazil, Paraguay and Uruguay endured a prolonged drought from mid-2008 to April 2009. However, abundant rains in May helped pasture conditions to recover in some countries. The sector was also constrained by high input prices and more difficult access to credit. As a result, beef production is forecast to decline in Brazil for the second year in a row as well as in Argentina. Uruguay’s production prospects were also downgraded, but still point to a small increase from last year. In Oceania, uncertainties remain for Australian beef production in 2009, as the final outcome will depend on the extent to which improved pasture conditions following recent abundant rains can mitigate the impact of expensive feed on the sector’s profitability. On the other hand, low producer prices, which are strongly linked to international prices, because more than half of Australia’s production is shipped abroad, are not encouraging farmers to slaughter, which may result in a 3 percent decline in production in 2009. Little change in beef output is expected in New Zealand, where farms are recovering from drought. In Europe, aggregate beef production in the European Union is anticipated to increase somewhat, as low meat and dairy prices, combined with high feed costs encourage culling. Profitability continues to be poor and cattle numbers are down in various countries, including the United Kingdom where the national herd may reach a historical low this year. The restrictions on animal movements following outbreaks of bluetongue disease have also disrupted the sector. Production is expected to decline in the Russian Federation and Ukraine by a further 2 percent, in line with recent trends. In Asia, China’s beef production is anticipated to contract due to the combined effect of low profitability, limited government support and strong competition from pork and poultry meats. By contrast, output it is set to increase in Pakistan and the Republic of Korea, as well as in India, mainly consisting of buffalo meat.
World exports in bovine meat are expected to remain unchanged at some 6.8 million tonnes in 2009, as increased shipments from North America are forecast to compensate for some declines in the rest of the world. Exports from Brazil, the world’s largest bovine meat exporter, could decrease to some 1.6 million tonnes, because of lower export availability. Import restrictions, which were imposed on Brazil in 2008 by the Russian Federation on Sanitary and Phytosanitary (SPS) grounds (foot-and-mouth disease [FMD]) and the implementation of labelling regulations (Sistema Brasilero de Identificación Bovina y Bubalina (SISBOV) standards) may also slow the pace of Brazil’s beef exports to the European Union. Australian shipments were up in the first quarter but news in April of a 10 percent fall in the number of cattle in feedlots suggest that shipments from the country may decline in 2009. However, the weakening of the Australian Dollar could offset the price decline, and therefore the possibility of an expansion of exports in the second half of 2009 should not be excluded. In the United States, exports are anticipated to increase by 12 percent to 900 000 tonnes, following the reopening of the Republic of Korea’s market to United States’ beef, which had been closed since 2004 following the discovery of Bovine Spongiform Encephalopathy (BSE). At that level, exports would still be 200 000 tonnes below the pre-BSE levels in 2003. World bovine meat imports are forecast to rise slightly above last year, sustained by moderate increases in purchases by developed countries, in particular the European Union, Japan and the United States. However, beef deliveries are anticipated to fall in the Russian Federation, where the economic downturn is depressing consumer demand, and in the Republic of Korea following an expansion in production.
Bovine meat prices in the next few months are expected to remain stable, as the depressing effect of the slowdown of the economies and import restrictions on demand could be dampened by reduced supply for export in South American countries.
Global sheep meat production is expected to expand slightly in 2009 to some 14.2 million tonnes, or less than one percent, reflecting a modest increase in Asia. In Oceania, where most of the trade is sourced, production is anticipated to stagnate, as increases in Australia fully offset a contraction in New Zealand. The increase in Australia is expected to stem partly from culling of the breeding flock, as farmers move away from wool production, and partly from a recovery of lamb supply during the second half of the year. Conversely, the decline anticipated in New Zealand would reflect a tendency for farmers to rebuild their flock following two years of drought, which is limiting the number of sheep available for slaughtering. The production outlook in South America remains uncertain and will depend on the effect of the current rains on the ongoing drought on producer decisions to retain their animals or downscale their flocks.
Current prospects for trade in ovine meat in 2009 points to little change in the volume of world exports, which should remain around 860 000 tonnes. In New Zealand, reduced production in the country along with a strong currency, are anticipated to constrain the country’s exports over 2009, with the gap expected to be filled by Australia and the European Union.
World pig meat production in 2009 is forecast to increase by 2 percent to 106 million tonnes, sustained by sizeable increases in China, which accounts for half of world pigmeat production, but also in Canada, Mexico and Viet Nam. Those increases are expected to more than offset a contraction in the European Union, the Republic of Korea and the United States. In China, the sector is set to recover from the disruption caused by outbreaks of the Porcine Reproductive and Respiratory Syndrome (or PRRS) in 2007 and the resulting culling of animals, sustained by falling feed costs, government support and strong domestic demand, which are resulting in relatively high returns. By contrast, prospects for lower pig meat production in the European Union and the United States reflect the combined effect of stagnating profit margins, high feed costs, and concerns over the effects of Influenza type A/H1N1 on consumer demand for pigmeat. In the United States, the decline in output would also be caused by an expected reduction of imports of live animals from Canada, following United States implementation of the Country of Origin Labelling Legislation (COOL). On the other hand, the reduced number of live pigs exported by Canada could well boost pig meat production in the country.
FAO’s forecast for world pig meat trade points to a 7 percent contraction to 5.4 million tonnes in 2009, as consumer concerns related to a possible link between Influenza type A/H1N1 and swine flu are expected to depress import demand. On the supply side, the fall would be a direct consequence of lower exports from the European Union (27 percent) and the United States (14 percent). After soaring to unprecedented high levels in 2008, imports are forecast to fall in Ukraine to the 2007 level, or some 70 000 tonnes. Imports will also decrease in China by 18 percent on account of both the higher availability of domestic produce and a slowing down of the economy. The Japanese pigmeat market is expected to show resilience to the world crisis and imports are estimated to fall by only by 3 percent, while a more pronounced decline of 5 percent is anticipated in the Republic of Korea. In the Russian Federation, the depreciation of the Rouble, the country’s import substitution strategy, and SPS import restrictions for non-heat treated pigmeat are anticipated to depress pigmeat deliveries to the country by 7 percent to 800 000 tonnes.
International pig meat prices, which were relatively strong by the end of 2008, are expected to decline in 2009, largely reflecting a faltering global import demand. Apart from the recent outbreaks of diseases, the economic downturns, the imposition of non-tariff measures and a weakening of currencies in major import markets are all expected to drive international prices lower in 2009.
The outlook for world poultry meat production has been revised downwards since November 2008 to 94.7 million tonnes, largely on account of the Avian Influenza epidemic in Asia, where numerous outbreaks have been reported since the end of last year. At the forecast level, global poultry meat production would increase by a mere 1 percent compared with 2008, the slower pace of growth this decade. Although the price of feeds, a key component of costs, fell relative to that of poultry meat in the last quarter of 2008, the relation reversed in early 2009, when consumer demand started to falter, portending another year of low profits or even losses.
In Asia, poultry production is anticipated to increase in most countries. China’s growth is expected to slow down to 3 percent, amidst sluggish domestic demand. In the past, China’s poultry consumption was fuelled by rising purchasing power, especially among the urban population, but this engine of growth is now under pressure from the current international financial crisis. The outlook for growth in India, Indonesia, the Islamic Republic of Iran and Thailand is positive, despite accumulated debts from high feed costs last year. No cases of Avian Influenza were reported in Thailand, where output is anticipated to grow by 6 percent. In Indonesia, two fatalities from avian influenza were reported in December 2008 and the government banned small-scale poultry production in Jakarta to combat the disease. However, compliance may prove difficult because of the significant contribution of poultry rearing to most rural household economies, and national poultry production is expected to increase by 5 percent. In North America, wholesale broiler prices in the United States tended to increase in early 2009 due to a sustained demand coupled with a tight supply constrained by expensive feed costs. Early indications of a contraction of poultry production in the first half of 2009 suggest output may fall by 3 percent to 19.3 million tonnes compared with 2008. In Europe, production growth in the Russian Federation may slow down to 9 percent, weaker than the growth witnessed in the past two years of 16 percent average. Little change in European Union’s poultry meat production is currently anticipated. In South America, Brazil’s output is forecast to grow by only 2 percent in 2009, as farmers were called by the Brazilian Association of Poultry Exporters (ABEF) to reduce production for export to counter the difficult world market situation. In Africa, Kenya, Nigeria and Uganda farmers struggle as the bag of poultry feed increased significantly in recent months and loans are not forthcoming. Concerns have also been raised about the perceived shortage of eggs in local markets. Conversely, South African industry shows signs of recovery in early 2009 from a difficult 2008 and growth is anticipated to reach 5 percent.
World poultry trade has been revised downward and is expected to decline 3 percent in 2009, to just over 10 million tonnes despite the relatively low price of poultry meat vis-à-vis other meats. The decline is expected to reflect a contraction of exports by the United States to volumes similar to those shipped in 2007, following reduced profit margins and lower import quotas by the Russian Federation. Exports from the European Union are likely to be also compromised by the Russian Federation’s cut of access and face the additional difficulty of poultry plants being de-listed on SPS grounds. The expansion of poultry exports from Brazil is anticipated to slow down because of reduced credit availability and voluntary export restrictions. In addition, Brazilian exports to China were suspended in early 2008, when doubts were raised about the origin of the produce in a registered firm. Part of the deficit, some 150 000 tonnes, was covered by larger imports from the United States. Discussions are underway between Brazil and China to set up inspection and guarantee procedures that could contribute to lifting these restrictions. Should the ban be suspended this year, United States poultry exports would once again face competition from Brazil in the Chinese market. On the import side, the anticipated decline in trade would be mainly on account of lower shipments to China, the Russian Federation and Ukraine. In the latter, this would reflect a return to more normal imports from the exceptionally 2008 high level
|GIEWS||global information and early warning system on food and agriculture|