Abbreviations:
RPI: Retail Price Index
Real terms: refers to a value that has been adjusted to take into account the effects of inflation
Sheep Market:
The data from the June 2020 farm survey tends to show that the ewe flock as I was noting in November evolved linked to long term factors on the sheep market (Brexit fears, Demand but low prices). Though last year there was a market shift in general on lamb markets. Demand on the world and domestic stage roughly maintained itself while there was a global reduction in the flocks and slaughter of main exporters [3][4] (Ireland, UK, New-Zealand, USA and Australia)(i-e -18% in slaughter numbers in Jan 2021 in the UK).
Nota: After an initial drop as the traditional easter demand was cut back lamb meat benefited from take-aways, as well as a focus on remunerative retail channels. The two big pacific exporters (NZ and AUS) have been shifting their focus on China and South-East Asia growing demand.
This gradually translated in higher prices. It is likely that with increasing trade difficulties (even before the Ever-given Suez blockade) this trend was more prominent. At the same time the necessity for processors to maintain throughput of their plant certainly stirred additional competition on the buyer market.
From this point of view 2020 and the beginning of 2021 can be seen as an opportunity with high buoyant prices that led to a "liquidation" in terms of lambs and ewes. There has been a lot of tension on the replacement ewe market in a positive market despite EU threats, with a stable flock some farms might be ramping up ewe numbers while others liquidated their assets.
Ahead the outlook is less positive as China might crack down on Australia and New-Zealand in the face of political differences. On the EU side the deal doesn’t precludes import though with increased information and cost to be taken into account.
On this graph you can see winter and easter seasonality as well as the fact that in real terms prices stagnated and that even now they are not that high if we take into account forecasted RPI for 2021. France lamb prices fare better and are way higher. More importantly they tend to be less volatile.
Global economic context:
The seemingly buoyant context must not make us forget that we are witnessing a change in economic patterns. Economies are unstable linked to a massive influx of liquidity through very different channels. Central banks have committed themselves to continuing the quantitative easing policy as long as the economic recovery is not secured. On the flipside nations are currently pouring money into closed sides of their economies. There is a financial boom from which commodity benefits that follows the financial crash of March 2020. The increased liquidity available is for now not linked to the “hard” economy, with little increase in prices and RPI matching the witness outflow at the source. Most costs including shipping are rising, it would be peculiar not too have an inflation. The worry would be that real food prices (discounted from the inflation) could be crushed further by this move.
Finally the pandemic even in developed economies has increased awareness of some of the limits linked with liberalised economies all the more in key sectors of the economy.
Grain and oilseed markets:
Remain at high level similar to pre-Covid19 crisis. If supply (or forecasts) is good, price will hit a resistance despite commodity investments on the wider markets like on wheat in early 2021. More closely aligned to fuel grain and oilseeds kept creeping up. [10]
Compared evolution of Maize (Blue) Wheat (Orange) and Soybean (Brown) on the commodity market (FT 04-21)
Brent crude oil prices evolution in $/barrel (FT 04-21)
Milk Market :
Milk Prices in the UK, France and the EU compared. All in p2019/l.
Overall milk production areas in the world face a strong international demand with stored products at low levels. The impact of covid19 was limited in time last year, a sharp reorientation of the “milk flow”[9].
Nota: this confirms fieldwork observations.
The production is stable (slightly down) has farmers face increasing input prices in late 2020-2021 [8]. On the cereal side or on the fuel side the evolution is not in favour of livestock producers. Winter has also been rather harsh while spring has been eventful delaying slightly the return to grazing.
More worryingly is the fact that once again prices tend to range around the same values and are decreasing in real terms on the long term.
The impact of price rises will not be fully felt as of now but will certainly be higher later.
Nota: For now the UK milk market pricing seems still fully coupled to the EU one.
Beef Market:
There is a decrease in cattle output and as a result the prices are buoyed as production is lower in the UK (-10% according to the AHDB on 2020). On the world stage beef prices are up as well. Those are high prices (not so much in real-terms) but it is likely that the price of rearing will keep increasing [13].
On this graph you can see the fact that real prices show that 2021 are not particularly good if you take into account scheduled RPI. They show the fact that over 6 years cattle prices lots nearly a fourth of their value in the UK in real terms. The C19 crisis and recent moves only partly reversed this trend.
Conclusion:
It is interesting to notice that both in France and in the UK there is little variation in lamb and sheep retail prices overall. The burden of rising prices is taken by intermediaries. This is also the case on beef prices so far [14]
It seems that at least part of the good fortune of beef and sheep producer has been linked to increases and pattern shifting in domestic consumption in a lockdown context. As we slowly come out of lockdown this will adapt gradually as demand shift towards a more price focused hospitality sector, and this time maybe milk prices might increase in turn.
GB export news will be clearer in the next couple of months give a better view of the impact of the new trading rules with the EU; requiring among other elements additional veterinary certificate (as stocks from pre EU custom union exit are consumed and adaptation to the new set of requirements).
Théo Lenormand, 10 April 2021
Sources:
- [1] Hybu Cymru 2021 (UK): https://meatpromotion.wales/en/news-industry-info/market-bulletin (March and January 2021 Bulletins)
- [2] AHDH Supermaket Red Meat Prices (UK)(April 2021): https://ahdb.org.uk/supermarket-red-meat-prices
- [3] IDELE (Institut de l’élevage) Tendances Lait Viande (FR)(April 2021): https://www.tendances-lait-viande.fr/category/lait-de-vache/?numero=326
- [4] https://www.agriculture.gov.au/abares/research-topics/agricultural-outlook/sheep-meat
- [5] https://ahdb.org.uk/lamb-market-outlook
- RNM: Réseau des Nouvelles de Marché
- [7] Statista; Rate of inflation for food in the UK from March 2015 to February 2021
- [8] DEFRA UK Milk Production statistics: https://www.gov.uk/government/statistics/uk-milk-prices-and-composition-of-milk
- [9] UK milk monthly deliveries; https://ahdb.org.uk/dairy/uk-monthly-milk-deliveries
- [10] AHDB grain market report: https://ahdb.org.uk/news/market-report-06-april-2021
- [11] Financial times; grain and oilseed prices curves
- [12] UK milk prices https://ahdb.org.uk/dairy/uk-farmgate-milk-prices
- [13] AHDB Beef Market Prices: https://ahdb.org.uk/news/average-gb-prime-cattle-prices-edge-ever-closer-to-400p-kg
- [14] AHDB Beef price rises absorbed by supply chain https://ahdb.org.uk/news/beef-supply-chain-absorbing-cattle-price-increase
