|Global Market Analysis|
MEAT AND MEAT PRODUCTS
Rebounding demand together with tight supplies and rising production costs sustain meat prices in 2007
FAO's meat price index recovered from the low value of 112 in March 2006 to 123 in August 2007 (1998-2000=100), reflecting higher prices for all the three major groups of meat, i.e. bovine, pig and poultry meat. With increased costs of production in major producing countries, the rise in prices can be expected to continue. In August, beef prices were almost 6 percent above year earlier levels, sustained by a strong import demand and limited export supplies, especially in Australia. Despite a slight tendency for pigmeat prices to firm over the year, by August 2007 the FAO's pigmeat price index stood at only 99 points; up from 96 in August 2006. Much of the growth reflected developments in China where low domestic supplies have converted the country from a net exporter to a net importer. Currently, the main source of the increase in FAO's global pigmeat index is a gain of around 12 percent in the wholesale price of pork loins from the United States between January and August of 2007. On the supply side, the price pattern was also influenced by rising feed and energy costs. From January to August 2007, average poultry export prices in Brazil and the United States 1/ had increased by 21 and 30 percent, respectively, compared with the same period in 2006. The export price strength largely reflects the continued recovery of global poultry import demand in 2007, despite a recurrence of avian influenza in different parts of the world and sharply higher feed and energy costs. These specific market developments were captured in the FAO poultry price index, which strengthened considerably since January, reaching 136 points in August 2007, the highest level observed in the last ten years.
Table 8. World meat markets at a glance
1 Jan-Aug 2007
Global bovine meat output in 2007 is currently projected at 67 million tonnes, 1.3 percent above last year. All of the increase will arise from larger production in developing countries now set to expand by 3.2 percent to 37.5 million tonnes. This will more than offset an anticipated contraction of 1 percent in bovine meat production in developed countries. In North America, bovine meat production is forecast to decline by 0.7 percent. In the United States, the expected fall would result from a retention of heifers for herd rebuilding and lower slaughter weights, due to a combination of poor pasture conditions and reduced grain feeding. Likewise, lower domestic slaughter numbers are projected for Canada, where the herd is contracting due to unprofitable conditions associated with higher feed costs and an appreciated exchange rate. In South America, Argentina's production is forecast to increase by 7 percent, triggered by poor pasture conditions and policy measures2/ that have stimulated slaughtering. Production in Brazil, one of the most competitive world suppliers, is growing more slowly than in the recent past because of a reduced animal inventory. An amplified but similar trend in inventories applies to Uruguay, which also faces shortages of replacement cattle. Bovine meat production in the European Union remains on a downward trend, reflecting the structural reduction of the dual dairy herd, which is constrained by milk production quotas and rising yields. The decline also reflects the impact of the ongoing decoupling of government support from production. Recent outbreaks of Foot-and-Mouth and Bluetongue diseases will also negatively affect the output in the European Union. The continuing drought in Australia has influenced the profitability in the sector and lowered meat production. However, should a herd liquidation process be initiated before the end of the year, production may rebound in 2007. With New Zealand's sustained expansion of the dairy herd, which continues to represent a large share of beef production, a decrease in output is anticipated this year. China's production is forecast to increase by nearly 5 percent, reflecting a steady herd expansion, improved genetics and feeding practices, as well as continued strong government support. Bovine meat output is likely to increase also in India and Pakistan, in response to growing domestic demand and expanding dairy industries.
International trade in bovine meat for 2007 is forecast at 7.0 million tonnes, up 2.5 percent over 2006, as the market continues to recover from the shock caused by the Bovine Spongiform Encephalopathy (BSE) incidents in North America and the resulting import bans, which are being progressively lifted. Among the major import markets, shipments to Japan are set to rise by 4 percent, largely reflecting larger purchases from Australia and the United States, fostered by a disease-induced shift of domestic demand from poultry to other meats. Improved access following the implementation of free trade agreements is expected to boost imports to the Republic of Korea. Purchases by the United States, the world largest importer, are also set to rise by 5 percent, due to revised import regulations of products from animals over 30 months old. By contrast, imports of beef into the EU-27 have declined, reflecting a partial ban on beef import from Brazil together with a stagnating domestic demand. Imports to the Russian Federation are likely to continue rising, to meet a growing demand in the wake of falling production.
Turning to bovine meat export, shipments from Brazil have soared recently, replacing Argentina's and Uruguay's limited export volumes. Exports of buffalo meat by India continues to increase rapidly in 2007, supported by growing investment in the sector and strong import demand from Malaysia, the Philippines and countries in the Near East. On the other hand, the strong Euro and a high internal price continue to depress exports from the European Union. Canada's beef shipments are also expected to fall, negatively affected by the introduction in the United States, its major market, of Country of Origin Labelling legislation.
Global pigmeat production in 2007 is forecast to fall by 1 percent to 105.8 million tonnes. The principal reason for the decline is a major contraction of output in China, where the sector was much affected by a massive pig culling following an outbreak of PRRSV disease and high feed prices. In South America, an increase in pigmeat production is anticipated in the main producing countries. Brazil and Chile, which harvested record soybean and corn crops, are the main forces sustaining the output expansion in the region. In the European Union, pigmeat production is forecast to grow only slightly in 2007, constrained by rising feed costs and recent outbreaks of swine fever in both Bulgaria and Romania. In the Russian Federation, production is set to expand as pig numbers have increased by more than 10 percent, sustained by government support under policies aimed at boosting domestic production and at lowering import dependency over the medium term. Pigmeat output in Australia may increase in the short term due to a reduction inventories, caused by a combination of drought-induced grain price increases (feed grain accounts for approximately 40 percent of feed input), record imports and the strengthening of the Australian Dollar. Pigmeat output in Canada is likely to decline along with the pig breeding herd, as the processing industry continues to consolidate, also pressured by the strong Canadian Dollar. In the United States the outlook for pigmeat production is favourable as slaughter weights in 2007 are close to those of the previous year, while slaughter numbers are increasing. In North America, pork retail prices have risen, as the sector has been able to pass some of the increase in production costs to consumers.
World trade in pigmeat is estimated to remain in the order of 5.0 million tonnes in 2007, virtually unchanged from last year. A major development for the sector this year was the coming of China onto the market as a buyer, as the country was crippled by a lack of pork supplies following the outbreak of PRRSV. Among the major importers, purchases by Japan are expected to remain at a standstill this year, after declining in 2006. Imports of pigmeat by Mexico are also unlikely to change much this year. By contrast, shipments to the Republic of Korea are expected to increase, sustained by rising domestic demand. Pigmeat deliveries to the Russian Federation, which continue to be subject to tariff rate quotas, are expected to be only marginally higher, a reflection of large production gains and consistent with the prevailing government policy. China (mainland), this year is expected to import 100 000 tonnes of pork, more than double the level in 2006, in an attempt to dampen the pressure for domestic prices to rise. As for pigmeat exports, sales from Brazil and Canada are forecast to rise, partly boosted by increased shipments to China. By contrast, declining exports are now anticipated in the United States, reflecting strong domestic consumption, and in the European Union, depressed by a strong Euro.
Global poultry meat production in 2007 is projected at 86.2 million tonnes, 3 percent higher than last year. Growth is expected in all regions, except in North America. United States' production will stagnate, because of higher feed and production costs3/, which fostered a slight downsizing of the sector for the first time. Canada's situation will greatly depend on the outcome of the measures taken to contain its recent AI outbreak, but the country is expected to increase its output. Production is also likely to increase in South America. Argentina and Brazil are showing the highest growth amongst producing countries reflecting, as in the case of pigmeat, a relatively favourable feed situation and competitive production systems. Thailand's poultry production is forecast to increase at a slower pace this year, as the market was burdened by large supplies carried over from 2006. This year, despite recurring outbreaks of AI, China is anticipated to increase its poultry output through measures that improve feed conversion into meat. The outbreak of AI at the beginning of the year had little impact on Japan's poultry sector, with output expected to increase slightly. All the other major poultry producers, namely Australia, Colombia, India, Indonesia, the Islamic Republic of Iran, the Russian Federation, South Africa and Turkey, are expected to increase their poultry production in 2007, largely in response to improved domestic demand.
In Africa, overall output is anticipated to increase slightly, mostly reflecting higher production in South Africa and a recovery in Egypt from AI, which had strongly depressed the sector in 2006. Despite the resurgence of AI in parts of the European Union, prospects for poultry production in 2007 remain relatively optimistic. Competitive prices, with respect to other meats, consumer preference for white meat and increased use in food preparations have favoured poultry meat. The accession of Bulgaria and Romania at the start of 2007 had only minor impacts on European Union poultry sector since their combined output contributes only 4 percent, or close to 500 000 tonnes, of the EU-27 poultry production.
Trade in poultry meat is projected to rise by 1 to 2 percent to 8.2 million tonnes, sustained by increased import demand, but limited by scant export supplies in the United States. Much of the import growth is expected to originate from Asia, especially China, Singapore and Viet Nam, where consumers have mostly substituted broiler meat for pork after the first outbreak of PRRSV in May 2006 in China and the subsequent spread to other parts of the region. Imports by Angola and Cuba are also forecast to rise, principally sourced from United States . Likewise, imports by Turkey are anticipated to recover from the AI-related contraction in 2006, reflecting a return of consumer confidence. By contrast, imports by Japan are set to decline, due to some AI-related concerns amongst consumers and high poultry meat stocks built up in 2006. A tightening in sanitary import requirements by the Russian Federation along with increased domestic production is also expected to result in smaller shipments to that destination.
As for exports, larger sales of chicken meat by Brazil are expected to account for most of the expansion in poultry trade. Exports from the country are now anticipated to surge by 11 percent, to 3.0 million tonnes, in response to strong import demand from countries in the Far East, the European Union, Venezuela and Near East countries, such as Kuwait and Saudi Arabia. Thailand's exports of poultry are set to rise strongly, as the country benefited from the recently introduced European Union import quota on salted poultry and cooked chicken meat. By contrast, despite larger sales to China, the export forecast for the United States points to a 5 percent contraction from last year's 2.9 million tonnes reflecting growing competition from Brazil, especially on the Asian market.
Global sheep and goat meat production is forecast to reach 13.9 million tonnes in 2007, 2.1 percent higher than last year. Underlying this trend is a continuous expansion in China, the Islamic Republic of Iran and Pakistan, sustained by a dynamic domestic demand. Output is expected to rise also in Africa, reflecting developments in the Sudan, but also in South Africa where production should recover in parallel with herd sizes. In Latin America and the Caribbean, Argentina's output should increase, as limited feedstuff availability and poor pasture conditions resulted in increased slaughter numbers. By contrast, production is anticipated to contract in most developed countries. In Australia and New Zealand, continued retention for flock rebuilding should again result in a reduced output. Similarly, in the European Union, the decoupling of annual premiums for ewe numbers continues to depress production.
World exports of sheep and goat meat in 2007 are estimated to decline in 2007 to 840 000 tonnes. Overall sheep meat exports from Australia are now set to contract in 2007, reflecting the production shortfall, more than offsetting a small increase in deliveries by New Zealand. Among the major ovine meat importers, purchases by the United States are forecast to increase by 4.7 percent, driven largely by consumer demand. Stable demand combined with falling production should also foster an increase in imports by the European Union, the most important destination of trade in ovine meat.
1. Which together supply 70 percent of global trade.
2. Such as export taxes and restrictions on beef exports, which have been implemented to keep domestic beef prices affordable and inflation in check.
3. The cost of production for poultry is estimated to increase by 27 percent according to the Economic Impact of Ethanol on Livestock, Brian L. Buhr, University of Minnesota, 2007.
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