Brown: historic market assumptions don’t apply to 2010 conditionsWritten by Christy Hemken
Denver, Colo. – The big decrease in the meat expenditure index from 2008 to 2009 will continue into 2010, according to European consultant Richard Brown.
Brown was present to speak at the 2010 International Livestock Congress during the National Western Stock Show in Denver, Colo.
“In 2009 the price reaction came down more than we were expecting, because the economy was worse than we were expecting, except for China,” noted Brown.
He explained China’s prices stayed high because of a Porcine Reproductive & Respiratory Syndrome (PRRS) epidemic in the country’s pork industry that reduced production by 3.5 million tons in 2009.
“The Chinese government didn’t turn to the world markets, saying they had a problem and importing more to have meat available for their people,” said Brown. “Instead, their purchases were strategic and lifted the pig price, which caused Chinese pig farms to make a serious effort to produce more meat.”
“The place where a quarter of the world’s meat is consumed does not have a huge bearing on world trade,” said Brown. “China does not import much meat at all.”
Brown noted that the Middle East and Africa are complicated regions, but “massively important vacuums” for importing meat, including chicken, sheep and beef.
“Those regions are very important for the future because they’re very likely to import an ever-increasing quantity of meat, and exporters need to have a better understanding of how that market works,” commented Brown.
Although Russia can be “huge” for importing meat, Brown said that country has an “erratic total import volume.”
“The long-term trend expectation for importation to Russia is down for pork and poultry, but less so for beef,” explained Brown. “It’s clear the Russians don’t have a vital beef industry, and not much capital into increasing beef production. It’s likely the volumes of beef imported will be considerable for quite some time, and the prices will be interesting to all of us.”
“China will be the big question mark for the long term,” said Brown.
Of the worldwide cattle herd, which takes a long time to build up, Brown said everyone around the world has been surprised the U.S. cattle herd has not seen the expected upturn.
“Not surprisingly, production is down and thank heavens for that,” said Brown. “If it hadn’t been down we’d face much lower prices than we’ve had in the last year. It’s a fortunate coincidence as far as cattle farmers are concerned.”
“The U.S. is the largest producer of beef in the world, and its trend is down for 2009 and 2010. Brazil is not down, with a big change there in the last couple years,” noted Brown.
Regarding worldwide markets, Brown emphasized it’s “not one big homogenous cattle industry.”
“Different types of cattle are needed in different parts of the world, at different costs and different conditions,” he added. “There are significant differences in the preference of beef people like to eat. Producers need to be extremely careful to understand the different national cultures in beef.”
Because of that, it’s not easy to make meaningful production cost comparisons across countries. “If you look at Germany, France, Italy and the U.K., their cost of production is much higher than Poland’s, and the U.S. has a lower cost than all of Europe, and South America is much lower than the U.S.,” said Brown.
“Absolutely you’re not comparing like to like and one shouldn’t regard beef as a homogenous commodity and there are opportunities to market in different places in different ways. It’s an interesting, segmented beef market,” he added.
Looking ahead, Brown said a “very significant” decrease in volumes exported by Brazil is expected.
“They have not responded to traceability, and it’s taking Brazilian farmers a very long time to respond to what the politicians require, and the retailers,” he explained. “It’s incredible how the thinking has changed over a two- or three-year period of time. Now there are supermarket chains with absolutely no interest in South American beef whatsoever. They’re extremely sensitive to the issue of sustainability and everything that goes with that. It’s a very complicated subject.”
“There are whole loads of factors that are changing, including the supply chain, regulations and protectionism, cost of production, profitably, sustainability and climate change,” said Brown. “Producers will need to reflect carefully upon them in forming long term strategies. It’s a time for the meat industry and farmers to be very cautious, understanding the market before we pour too much capital into developing our businesses on historic assumptions.”