May 5, 2008

EU beef prices on the rise due to drop of South American supply

EU beef producers are enjoying higher cattle prices as demand exceeds supply mainly due to limited supplies from South America.

In the UK, deadweight values are GBP 0.42 per kg higher than a year ago while production of UK prime beef fell 5 percent in the first quarter of 2008. Overall first quarter UK beef production has also dropped to 219,000 tonnes from 225,400 tonnes in the first quarter on-year.

After reductions in beef and dairy cows, supplies could remain tight for the rest of the year. The EU is currently also reducing its cattle herds except for France where production is still on the rise due to production subsidies.

The EU has banned imports of Brazilian beef since late January after EU inspections cast doubts on Brazilian controls on foot-and-mouth disease (FMD) and a perceived lack of a strong traceability system.

Brazilian beef exports to the EU have declined considerably to only 23,000 tonnes this year before the ban took effect. Brazilian beef exports to non-EU countries have also dropped to 229,700 tonnes from 299,400 tonnes and its trade with Russia, one of Brazil's important beef market, has also declined.

Argentina's beef industry is also undergoing a tough time. The Argentine government has banned all beef exports due to high domestic prices. However, due to the recent farmers' strike, the Argentine government has agreed to export up to 48,000 tonnes per month but only if domestic prices fell to a level set by the government. That means exports could be cut off anytime, making Argentina an unreliable supplier.

Uruguay could possibly exploit the current situation to their advantage and while it could meet its quota with the US, preferred markets are the EU and Russia where prices are much higher.

A source reports of breeding cattle culling in Argentina and expects production to drop significantly for several years at least, which would further drive up beef prices.