Cattle & Beef – Liberalization of the dairy sector is driving beef production

The abolishment of the milk quotas in April 2015 is driving beef production. Based on the expansion of the dairy herd, the calf crop, slaughter and beef production are forecast to increase through 2015. But this trend is adjusted to a lower level than was anticipated in the Annual Report. The tight global beef supply is restricting EU imports but has inspired EU exporters to find alternative markets for Russia.

Cattle

Country

EU-28

Commodity

Animal Numbers, Cattle (1,000 Head)

USDA Official [EU-28]

Posts estimates [EU-28]

USDA Official [EU-28]

Posts estimates [EU-28]

USDA Official [EU-28]

Posts estimates [EU-28]

Market Year

2013

2014

2015

Total Cattle Beg. Stocks

87,106

87,106

87,645

87,619

88,050

88,150

Dairy Cows Beg. Stocks

23,193

23,193

23,482

23,475

23,650

23,600

Beef Cows Beg. Stocks

12,043

12,034

11,900

11,916

11,850

12,000

Production (Calf Crop)

29,050

29,050

29,150

29,150

29,250

29,300

Extra EU28 imports

0

0

0

0

0

0

TOTAL SUPPLY

116,156

116,156

116,795

116,769

117,300

117,450

Extra EU28 exports

505

505

450

499

460

510

Cow Slaughter

10,837

10,810

10,750

10,900

10,690

10,800

Calf Slaughter

6,619

6,713

6,645

6,600

6,665

6,650

Total Slaughter

26,195

26,229

26,400

26,250

26,450

26,350

Loss

1,811

1,803

1,895

1,870

1,890

1,890

Ending Inventories

87,645

87,619

88,050

88,150

88,500

88,700

TOTAL DISTRIBUTION

116,156

116,156

116,795

116,769

117,300

117,450

Liberalization of the dairy sector is driving beef production.

The anticipation of an increased calf crop through 2014 and 2015 remains intact but is adjusted to a slightly higher level in 2015. The increased production of calves is a result of the abolishment of the milk quotas in April 2015. Expansion of the dairy herd is expected to take mainly place in Northern Europe: the United Kingdom, Ireland, Germany, the Benelux, the Nordic Countries, Poland and France. In most other EU Member States, the dairy herd is shrinking mainly due to the phasing out of government support programs and increased competition on the EU domestic market. Based on the December census statistics of twenty-four Member States (representing 85 percent of the total herd), the EU beef cow herd has increased during 2014. The main expansion is reported in Spain and France.

The increased availability of animals will raise slaughter in 2015.

In 2014, higher than expected exports to Lebanon and Russia balanced lower exports to other destinations in the Middle East and Northern Africa. As forecast in the Livestock Annual Report, live exports are projected to recover in 2015. Expansion is anticipated for exports of breeding cattle to Russia and exports of both breeding cattle and animals for halal slaughter to Turkey. While cow slaughter is adjusted to a higher level, slaughter of calves is revised to a lower level than forecast in the Annual Report. With the nearing abolishment of the milk quotas, dairy farmers continued to renew their herd, which supported the slaughter of older dairy cows. The slaughter of calves for veal continues to decline due to the suppressed demand in the main markets, France and Italy. The slaughter of cows is expected to fall after April, with the liberalization of the dairy market in effect, but could be sustained at a high level if the milk prices drop further. As a result of the lower than anticipated slaughter of bulls in Italy and France in 2014, total slaughter is revised downwards. Based on this increased availability of animals, EU slaughter is estimated to increase during 2015.

Beef

Country

EU-28

Commodity

Meat, Beef and Veal (1,000 Head)(1,000MT CW)

USDA Official [EU-28]

Posts estimates [EU-28]

USDA Official [EU-28]

Posts estimates [EU-28]

USDA Official [EU-28]

Posts estimates [EU-28]

2013

2014

2015

Slaughter (Reference)

26,195

26,229

26,400

26,250

26,450

26,350

Beginning Stocks

0

0

0

0

0

0

Production

7,384

7,388

7,475

7,410

7,475

7,440

Extra EU28 imports

376

376

360

371

355

365

TOTAL SUPPLY

7,760

7,764

7,835

7,781

7,830

7,805

Extra EU28 Exports

244

244

255

301

245

325

TOTAL Domestic Use

7,516

7,520

7,580

7,480

7,585

7,480

Ending Stocks

0

0

0

0

0

0

TOTAL DISTRIBUTION

7,760

7,764

7,835

7,781

7,830

7,805

EU beef production is rising but at a slower pace than was anticipated.

As anticipated in the Annual Report, beef production is trending upwards. But in line with the revision of slaughter numbers, production in 2014 and 2015 is adjusted to a lower level. During the first eleven months of 2014, beef production in the official slaughterhouses rose by 0.23 percent, while also backyard production of beef shows an increasing trend. Elevated beef production is reported in Poland, Ireland, the United Kingdom and Germany. Beef production is also supported by higher slaughter weights due to the good availability of fodders and low prices of compound feed. EU beef imports continue to shrink from the main suppliers, Brazil, Uruguay and Argentina, but imports through the High Quality Beef (HQB) quota from Australia are gearing up.

EU beef exports are forecast to increase further in 2015.

On August 7, 2014, Russia banned EU fresh and frozen beef as part of sanctions on a wide range of agricultural and food products. But as foreseen in the Annual Report, the EU found easily alternatives for the Russian market. This can be explained by the tight global beef supply. Beef exports to Russia were mainly redirected to the Balkan. Also Hong Kong increased their beef imports from the EU, mainly from the United Kingdom and Ireland. The outlook for EU beef exports looks promising. On December 30, 2014, Ireland became the first EU Member State to achieve USDA approved equivalence status for their beef inspection system. This opens the way for beef exports to the United States to recommence after nearly 20 years. The United States will likely be a high value, low volume, niche market for Irish beef. Access to the United States beef market is also important from a reputational perspective and could lead to increased market access for Irish beef in other third country markets.

Limited availability of non-dairy beef suppresses domestic consumption.

Despite the increased availability, EU beef consumption is forecast to stagnate. With the revision of production and trade figures, it must be concluded that EU beef consumption was overestimated in the Annual Report. Consumption of beef in the highest quality segment is constrained by the limited availability, while the use of the lower qualities is also stagnating due to the dwindling consumption of processed beef and snacks.

Policy

Update on U.S. beef exports into the HQB quota

The EU High Quality Beef (HQB) quota is a result of the 2009 Memorandum of Understanding on the WTO Hormone Dispute between the EU and the United States. The EU Customs database TARIC indicates that 41,358 MT of beef was imported during the July/June 2014 quota year, compared to 33,572 MT in the previous quota year. This left 6,862 MT of the quota unfilled. Australia and Uruguay accounted for the majority of the quota fill. In August, the EC allowed Argentina to join the group of countries which are eligible to export under the quota.

As EU beef imports into the HQB quota continued to increase, the quota ceiling was almost reached in the first and second quarter for quota year 2014/2015. This increased uncertainty for the trade, as EU quota management rules demand that when the quota reaches its 90 percent "critical" fill rate importers must pay the full import duty for all shipments overshooting the quota ceiling.

Majority of EU MS decide to continue coupled support

Of the 28 Member States (MS), 24 have decided to maintain at least some form of coupled support for their beef producers under the new Common Agricultural Policy (CAP), which will be implemented from 2015 on. Of the important beef producers, only Germany and Ireland decided against the continuation of coupled support for beef production. It is forecast that EU specialized beef production will continue to decline as coupled aid will be substantially lowered from past support levels in most MS. The end of the EU dairy production quota system as of April 1, 2015 is expected to lead more farmers to reconvert cattle herds away from beef production.

NOTE

In this report the following HS codes and conversion factors are used:

HS codes

Conversion factors

Beef

0201, 0202

021020, 160250

PW X 1.40 = CW

PW X 1.79 = CW

PW = Product Weight CW = Carcass Weight

ABBREVIATIONS

EC: European Commission

EU: All twenty-eight Member States of the European Union.

MS: An EU Member State

NMS: The thirteen new Member States which joined the EU in May 2004, January 2007 and July 2012

Benelux countries: Belgium, the Netherlands and Luxembourg

Nordic countries: Denmark, Sweden and Finland