Wholesale meat market expected to experience ‘extremely competitive’ 2017

Quality Meat Scotland (QMS) has warned that the wholesale meat market will remain competitive over the next 12 months. 

This comes after Kantar Worldpanel’s latest grocery figures reported that grocery sales in UK supermarkets had increased by 1.8% for the 12 weeks to 1 January.

However, this relates to turnover and not volume, with like-for-like grocery prices increasing 0.2% after 28 months of deflation. According to QMS, higher prices mean that volumes grow more slowly than the total value of sales.

“The concern for 2017 is that rises in consumer prices may well improve supermarket turnover, but actual demand for the product may not grow,” said Stuart Ashworth, head of economics services at QMS.

“This would be particularly possible if consumers became concerned about a squeeze on disposable income because wage movements do not match consumer price increases.”

Although some retailers have suggested there is a need to lift consumer prices, due to sterling’s relative weakness, indicators from other retailers have suggested there will be continued fierce retail price pressure.

“One large supermarket chain, while reporting a 2.9% improvement in like-for-like grocery sales, also cut the price of 800 products post-Christmas,” added Ashworth.

“While the former may suggest some support for wholesale and producer prices, the latter does not. The wholesale market then is likely to remain extremely competitive during 2017.”

Ashworth said that when looking at producer prices, volume was a key influencer. This comes in the guise of either the volume of meat available from producers or the volume of meat demanded by retailers. He highlighted that if these two sides of the market were not in balance, then producer prices could quickly rise or fall.

“Looking back to January 2015, the prime cattle price lifted immediately after Christmas suggesting a strong need to refill the supply chain. However, as January closed, producer prices began to fall and did not turn the corner until midway through the year,” he said.

“A year ago, prime cattle prices fell immediately after Christmas, suggesting there was no need to refill the supply chain, and prices continued to slide until the end of April. In general, the Christmas retail grocery trade in 2015 was considered poor – hence there was no need to significantly refill the supply chain in early 2016.”

Prime cattle prices have held steady so far this month. This suggests a better, although not outstanding, retail demand over the Christmas period than the previous year.

“However, history would suggest that some downward pressure on farmgate prices is likely in the first quarter of the year,” said Ashworth.

One way to counter this is to supply lighter cattle and reduce the volume of beef on the market.

“Slaughter weights were 2% lower in November than a year ago and the slaughter age fell slightly. However, there was growth in slaughter numbers, as some cattle were sold younger and also the pool of cattle was slightly bigger as a result of higher calf registrations two years ago,” explained Ashworth.

Traditional carcase weights tend to be at their heaviest in the second quarter of the year. As a result, there is potential to reduce carcase weights by earlier sale. Subsequently, this could boost the number of cattle available, but not necessarily the volume of beef produced in the first quarter of the year.

“The market then is likely to continue to depend on demand to support price rather than reduced supply and that remains a significant challenge,” concluded Ashworth.  

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