|No.2 December 2006|
|Global Market Analysis|
MEAT AND MEAT PRODUCTS
Global meat markets in 2007 are expected to recover gradually in the aftermath of animal disease outbreaks that have plagued the sector for the past years. Low poultry prices and renewed consumer confidence, in the context of strong economic growth and reduced disease outbreaks, are forecast to sustain a gradual recovery in global meat demand. While this would stimulate an increase in meat output, the sector response will largely depend on the impact of rising feed prices on industry profitability. On the trade side, meat shipments, after witnessing an animal disease-induced cyclical pattern of losses and recoveries, are forecast up 7 percent to 22 million tonnes in 2007. These favourable trade prospects are dependent on the progressive lifting of animal disease-related trade bans and on a steady recovery in consumption. Key, of course, to both consumption and trade growth, however, are consumer responses to any further disease outbreak.
Despite expectations of a gradual recovery of meat consumption and trade in 2007, meat prices in most of 2006 remained depressed, with the FAO meat price index, through September 2006, at 115 points, down from 127 points in mid-2005, the highest in the FAO database, which dates back to 1990.
Poultry prices, after rising more than 30 percent in the context of avian influenza (AI)-reduced export supplies since 2003, plummeted nearly 20 percent since mid-2005 as AI was reported in over 40 previously unaffected countries in Europe, Middle East and Africa. Poultry prices in the United States and Brazil, the suppliers of 70 percent of global trade, dropped 40 and 25 percent respectively between mid to late 2005 and April 2006. Rebounding import demand, however, has allowed export prices to recover but not yet to pre-AI levels.
Meanwhile, abundant supplies in 2006 have put pressure on pigmeat prices, which fell by 16 percent in mid-year 2006 compared with early 2005. In particular, high stocks in Japan, the recipient of nearly one-quarter of global trade in pigmeat, have led to considerable decline in Japanese import prices. While higher feed prices may lift pigmeat prices in 2007, continued strong supply growth from integrated United States industries and a competitive exchange rate are expected to mitigate the increase in international prices in 2007. This supply growth has allowed the United States to raise its share of global pigmeat exports from 16 percent in 2003 to an estimated 25 percent in 2007.
Despite tight supplies of world beef supplies (induced by foot-and-mouth disease (FMD) outbreaks in Brazil, bovine spongiform encephalopathy (BSE) trade bans on North American beef, and Argentine export bans) FAO’s trade-weighted average of beef prices through mid-2006 was down marginally from the 2005 average of US$3 507. While a strong recovery in Asian beef consumption and imports in 2007 is likely to support grain-fed beef prices, overall beef price rises are expected to be moderated by increased South American exportable supplies.
Table 8. World meat markets at a glance
1 January – August
Note : percentage calculated on unrounded data.
Global meat output is set to rise by more than 8 million tonnes to almost 285 million tonnes in 2007, an increase of over 3 percent from the previous level in the context of a recovery in consumer confidence. Nearly 70 percent of these gains is expected in Asia and South America which account, respectively, for 42 and 12 percent of global output. Strong economic growth and consumption in Asia is supporting output gains while, in export-oriented South America, an easing of previous trade barriers will likely prompt an increase in slaughtering and production. The estimated 4 percent rise in developing countries meat output is twice that expected for developed regions, bringing their contribution to global output to 60 percent, 10 percentage points more than a decade ago.
While developed countries are set to witness relatively large increases in output, most of the gains is likely to originate in the United States and drought-affected Oceania. European production is expected to increase only marginally, with rising meat prices prompting a slight increase in cattle and pigmeat slaughter. Poultry production, hit by AI outbreaks in 2006, may also record a modest recovery.
However, uncertainties facing the meat industry include the potential effects of higher feed costs in many countries, as increased interest in biofuel production combined with heat-related production shortfalls push up grain prices. In early November 2006, the maize price in the United States, the largest animal feed producer and exporter, soared to ten-year highs, putting pressure on livestock profitability and suggesting potentially higher meat prices in 2007.
Prospects for higher prices is pushing up beef production prospects in 2007 to 67.5 million tonnes, up nearly 3 percent. Most of the production gains, with the exception of China, are expected in many of the export-oriented countries in North and South America. In South America, expectations of higher beef prices, in the context of a lifting of FMD-related trade restrictions, will support a 3.5 jump in output, while Argentine beef production is likely to be boosted by an easing of the partial export bans put in place in 2006 with the objective of dampening domestic inflation.
Low grain prices over the past few years have contributed to positive producer returns in the hog sector in many countries. In 2007, the sector is expected to expand at 4 percent, similar to the rate witnessed in 2006, pushing up global output to 112 million tonnes. As swine and pork production becomes more concentrated in feed grain producing areas in China, output continues to expand at 5 percent. Combined with a favourable outlook in Brazil, Mexico and Viet Nam, the pigmeat share of developing countries in global output is expected to rise from 63 percent in 2006 to 64 percent in 2007. Meanwhile, in developed countries, output gains are expected to average around one percent, as only the United States is expected to expand output in the context of steady returns. Growth in the Canadian industry, which exports over 50 percent of its output, is currently constrained by a strengthening of the country’s currency. The strong growth in global pigmeat supplies in 2007 is likely to moderate the tendency for prices to rise in 2007, while expectations of higher feed prices will put pressure on margins and industry profitability.
Prospects for recovering consumption and prices of poultry in 2007, in the aftermath of AI, which, in 2006, depressed in output growth to its lowest level in two decades, are expected to prompt a recovery in global poultry output of 2.5 million tonnes to 85.5 million tonnes. This increase in output is expected to be shared equally between developed and developing countries. The export-oriented markets in South America are projected to expand their output by nearly 5 percent supported by higher prices and the rebounding of demand in many of their traditional export markets in Europe and the Middle East.
Ovine meat output is expected to reach 13.8 million tonnes in 2007, 3 percent more than in 2006. Most of the growth is expected to be concentrated in Asia, in particular China, India, the Islamic Republic of Iran and Pakistan, which account for nearly 60 percent of global production. While production in the major exporting region of Oceania is up due to drought-induced slaughter in Australia, recovering output in Argentina and Uruguay reflects government programmes aimed at reviving the sector, which was put under pressure in the late 1990 by low wool prices.
As human health concerns related to AI ease in the context of changing consumer risk perceptions, per caput meat consumption is set to increase by 2 percent to 43 kg/caput. Influenced by a reduction in the number of AI outbreaks, more effective communication strategies and strong economic growth, developing countries, which already account for 60 percent of meat consumption, are expected to be responsible for nearly 80 percent of the gains in meat utilization. While per caput intake in developing countries is set to rise by nearly 1 kg/caput to 32.3 kg/caput in 2007, this still is only one-third of the 85.1 kg/caput average consumption in the developed countries.
Relatively low meat prices and recovering consumption are setting the stage for a 7 percent rise in meat trade in 2007, to 22 million tonnes. While trade prospects for all meats appear favourable, the beef and poultry sectors are set to account for 80 percent of these trade gains, as they both benefit from a lifting of animal disease-related trade restrictions. Brazil, which has surpassed the United States as the largest meat exporter since 2004, is expected to maintain this position in 2007. While losing some market share in 2006, Brazilian meat exports are set to expand by 8 percent in 2007, supported by strong import demand in traditional markets in the Middle East and Africa.
After witnessing an AI-induced 2 percent drop in poultry trade in 2006, world exports are forecast to expand by 6 percent in 2007, to a record 8.7 million tonnes. As global demand recovers to 85.4 million tonnes and many of the affected regions in Africa and the Middle East resume traditional importing patterns, Brazil, the United States and the European Union, are set to increase exports. The outlook for poultry import demand is favourable, with strong demand stemming from Asia, in particular China, and countries in the Middle East. The outlook for the Russian Federation, the world’s largest importer, is negative, however, as imports are set to decline for the second year in a row due to uncertainty about issuance of import licenses and a strong recovery in domestic production. Meanwhile, the outlook for poultry imports by the European Union, the world’s third largest importer, is clouded by ongoing discussions with Brazil and Thailand about the establishment of new quotas for salted chicken. This negotiation follows a mid-year WTO panel decision in 2006 that requires the European Union to lower tariffs on selected poultry cuts.
Pigmeat trade is expected to expand by 4 percent to 5 million tonnes, supported by strong demand in Asia and the Russian Federation. This is despite lower imports by Japan, the largest market, which are set to decline in view of the high stock levels and some competition from beef imports. A diversification of product exports from Brazil to some of the growing non-traditional markets in Asia will support a rebound in their shipments, while United States exports are expected to rise by 4 percent in the context of favourable exchange rates. Conversely, exports from Canada and the European Union will likely be constrained by less competitive prices arising from strong currencies.
A lifting of import bans on beef from Brazil and North America, the suppliers of over 40 percent of global beef shipments, is expected to boost bovine meat trade by 9 percent in 2007. After declining in 2006, beef imports are forecast to reach 7.2 million tonnes in 2007, supported by a double digit increase in Asian imports, in particular China, Japan and the Republic of Korea. Imports of low quality cuts by the United States, the world’s largest import market, are set to expand as herd rebuilding will likely constrain domestic output. The country’s robust demand is expected to be met by higher shipments of manufacturing grade beef from Oceania, where drought in Australia is pushing up slaughter and exports. While the reopening of markets to Brazil and the United States beef will boost these countries’ exports, reduced cattle supplies and high prices in Canada and the European Union will limit their participation in the global market in 2007.
A drought-induced increase in exportable supplies of ovine meat from Australia in 2006 and 2007 is anticipated to boost global exports by nearly 5 percent to 855 000 tonnes in 2007. Two successive years of strong export growth from Oceania, a region which supplies over 80 percent of global shipments, has induced a nearly 16 percent drop in the FAO price indicator for lamb since mid-2005. These low prices are expected to stimulate imports in many of the major markets, including Canada, China, Japan, Mexico and the United States. Meanwhile, a slow herd rebuilding and tight supplies in the European Union, the world’s largest import market, is prompting a recovery in imports. Additional supplies are also being sourced from non-traditional exporters, such as Argentina and Uruguay.
|GIEWS||global information and early warning system on food and agriculture|