FAO/GIEWS - Food Outlook No.4 - September 1999 p. 9

MEAT AND MEAT PRODUCTS

• Bovine meat output up marginally while trade recovers slightly
• Sheep and goat meat output increases, trade down
• Pig meat supplies continue to be abundant, trade remains strong
• Favourable margins prompt poultry meat output gains despite gloomy trade outlook
• Considerable price uncertainty expected in the short-term outlook
  

Uncertain trade prospects and hesitant price recovery appear to characterise the global meat market in 1999. The international meat price index recovered recently, supported by indications of a gradual contraction in pork output and the beginning of a cyclical decline in beef output by many of the major exporting countries. Despite this total meat production in 1999 is projected to move up by 2 percent to 222.9 million tonnes, supported in part by favourable producer returns as feed grain prices remain low.

The 1999 meat outlook continues the trend of stronger output gains for the developing countries than for the developed countries. Slowing from the annual 6 percent gains witnessed since 1990, meat production in the developing countries in 1999 is still projected up 3 percent to 118.8 million tonnes, moving its share of global meat output from 34 percent in 1980 to a projected 53 percent in 1999. Surging Chinese production, particularly of poultry and pork, has accounted for nearly 70 percent of the growth in output over the period. While 1999 per capita meat consumption figures for developed versus developing countries continue to show a large disparity, the gap is gradually narrowing. Meat availability in developing countries, forecast at 25.8 kg per caput in 1999 compared to14 kg in the 1980-1982 period, is up an estimated half kg from last year. Per caput availability in the developed countries is estimated to average nearly 78 kg in 1999, up slightly from last year.

The aftermath of economic difficulties in major meat markets, which in 1998 shattered more than a decade long uninterrupted growth in global meat trade, is projected to extend into 1999 with trade being forecast to stagnate around 14.7 million tonnes. Export opportunities, particularly for red meat, in 1999 are strongly linked to exporter programs and policies. Unlike in 1998, when economic turmoil in the Republic of Korea and the Russian Federation prompted a nearly 4-percent decline in bovine meat shipments, the decline in overall meat trade in 1999 is expected to be lead by poultry meat with sluggish Russian demand depressing global poultry meat deliveries by 4 percent. By contrast, bovine meat trade is likely to recover in 1999, sustained by improved economic conditions in the Republic of Korea and the inclusion of bovine meat in the United States and EC food aid packages to the Russian Federation. Global trade in pig meat is also expected to increase, supported by continued high export subsidies from the EC, and the Russian Federation food aid package which includes 150 000 tonnes pig meat.

Bovine meat output up marginally while trade recovers slightly

Despite the continued contraction of the beef industry in the Russian Federation and Eastern Europe and cyclical downturn in major exporting countries, global bovine meat output in 1999 is expected to increase slightly to almost 58 million tonnes. In the United States, output is expected to rise slightly as an anticipated reduction in slaughtering will likely be offset by increasing carcass weights. Reduced slaughter in Australia is expected to depress output, while EC production will likely continue its steady decline because of lingering effects of BSE slaughter schemes and low prices of other meats. Drought-induced slaughter is expected to slow in New Zealand; however, higher carcass weights are expected to boost overall output in 1999. The recent foot-and-mouth disease outbreak in eastern China, combined with sluggish consumer demand, is expected to dampen overall production gains in Asia to less than 2 percent in 1999.

Supported by the inclusion of 270 000 tonnes (product weight) of bovine meat in the package of food aid to the Russian Federation, global bovine meat trade in 1999 is projected to recover from the 4 percent contraction witnessed in 1998. Despite food aid shipments and a continued contraction in livestock numbers, overall Russian bovine meat imports are set to continue their double-digit decline in 1999. By contrast, economic recovery and a strengthening of the currency in the Republic of Korea is contributing to a surge in meat imports, allowing exporters to fill delayed Korean import tenders from 1998 as well as those for 1999. Similarly, demand is strengthening in the Philippines, Malaysia and Indonesia, prompting increased shipments of low-priced Indian bovine meat, as well as a recovery in feeder cattle imports from Australia. Stronger imports are also expected from the United States where herd rebuilding is contributing to stronger prices for manufacturing grade beef. Purchases by Brazil are expected to decline as the currency devaluation there is prompting an increase in slaughtering and discouraging imports. The devaluation should, on the other hand, stimulate Brazilian exports, upsetting the normal pattern of regional trade in beef, with especially adverse effects on shipments from Argentina and Uruguay. While United States deliveries are expected to be boosted by increased sales to Mexico and Asia, exports from Australia and New Zealand are likely to be constrained by supply availability. Limited demand from Russia for commercial shipments of bovine meat, combined with lower EC export refunds, are likely to curtail any gains in EC exports in 1999.

Sheep and goat meat output increases, trade down

Supported by continued growth in Asia, global production of sheep and goat meat in 1999 is expected to rise 1 percent to 11.3 million tonnes. Despite economic uncertainties, output in China, the largest world producer, is expected to rise by 3 percent to 2.3 million tonnes. Increases are also forecast to be recorded in Bangladesh, Pakistan and India. Despite wool prices hitting new lows during the year, sheep slaughter in Australia is falling; however, large lamb kills in Australia, aided by increased carcass weights, are supporting an increase in overall output. Meanwhile, in New Zealand, a prolonged drought combined with diversification of land from sheep production into other agricultural activities should keep output on a downward trend. An expansion in the United Kingdom breeding stock in 1998 is expected to prompt a slight increase in EC output in 1999. The sheep meat sector in the United States is expected to continue its steady pace of decline. Output in South Africa and in most producing countries in South America, with the exception of Brazil, will continued to be pressured downward by increasing demand for land for cattle production.

Global sheep and goat meat trade is projected to fall by 2 percent to 676 300 tonnes in 1999. Slightly lower import demand from the world's largest importer, the EC, is expected in 1999 as domestic output increases. World import growth will be further curtailed by smaller purchases by the United States, following the country's unilateral decision to impose tariffs on lamb from Australia and New Zealand, putting downward pressure on lamb prices. That measure is likely to contribute to a fall in Australian shipments in 1999, while lower exports of New Zealand sheep and goat will also reflect reduced supply availabilities.

Pig meat supplies continue to be abundant, trade remains strong

Low pigmeat prices during 1998 and early 1999 were expected to gradually translate into smaller breeding herds and lower farrowings in Europe and the United States. Declining feed prices, however, have been a key factor in delaying the industry contraction. Above average crop prospects in the United States are likely to keep feed prices under downward pressure, implying that pig meat output declines are unlikely to materialise until late in the year. Constrained growth in the United States, the EC and China - together accounting for nearly three-quarter of global output - is projected to dampen the nearly 5 percent global expansion recorded in 1998 to a more modest 2 percent in 1999, with total pigmeat output forecast at 86.6 million tonnes.

Despite a forecast cut-back in production later in 1999, international trade in pig meat is forecast to rise by nearly 2 percent to 2.9 million tonnes in 1999 mostly due to higher demand in Asia. Strong growth in Asian import demand in 1999, supported by stepped up deliveries to the Republic of Korea and strong Japanese demand for frozen pork, is expected to offset lower Russian imports and constrained import demand by many Central European countries which raised tariffs on low-priced, subsidised EC pigmeat. Despite the use of high export subsidies by the EC to move products to the Russian Federation in the first part of 1999, as well as continued movement of food aid shipments, pigmeat imports by the Russian Federation are expected to register a double-digit decline.

Propelled by the strong pace of shipments in the first half of the year, EC pig meat exports in 1999 are projected to rise substantially while those by the United States are expected to rise more modestly. The EC's decision to roll-over unused subsidy allocations for pig meat (agreed under the WTO negotiations) played a key role in maintaining a strong export pace in early 1999. This pace, however, is likely to be compromised by rising prices and the Commission's recent decision to lower export restitution levels to the Russian Federation. Disease concerns in both the Republic of Korea and China are likely to lower exports in 1999, while increased investment in Canadian hog processing industry and favourable exchange rate conditions will likely maintain Canadian export growth at double-digit levels.

Favourable margins prompt poultry meat output gains despite gloomy trade outlook

Buoyed by low feed grain prices, global poultry meat output in 1999 is expected to jump almost 4 percent to 63 million tonnes. Despite low leg-quarter prices, output in the United States is expected to rebound in 1999 as the occurrence of Leukosis, a disease inducing higher bird mortality, wanes and feed prices continue their decline. Economic uncertainties in China are likely to constrain overall meat consumption, dampening prices and slowing poultry meat output growth to a relatively modest level of 3 percent. However, consumer concerns regarding recent disease outbreaks affecting red meat could encourage a shift in consumer demand towards poultry meat, inducing an even larger production outcome than is currently foreseen. Meanwhile rebounding production is expected in the Republic of Korea, Indonesia, Malaysia, and the Philippines. Low pork prices in the EC, combined with declining export subsidy ceilings for poultry meat, are forecast to constrain EC output gains below the long term average of 3 percent. Meanwhile, output is anticipated to increase in Brazil and Thailand as currency adjustments in Brazil and improved economic stability in Thailand induce stronger demand for poultry meat.

Strong poultry meat sales during the months prior to the August 1998 financial crisis in the Russian Federation allowed global trade in 1998 to remain close to the 5.9 million tonnes shipped in 1997. However, the progressive contraction in imports by the Russian Federation is likely to result in a 4-percent drop in global poultry meat trade in 1999. Despite lower world prices, uncertain economic growth prospects are likely to slow product movement into China, Japan, and South Africa. The strong pace of shipments to the Islamic Republic of Iran, which skyrocketed in 1998, is expected to continue into 1999 while stronger output gains in Saudi Arabia and Mexico due to increased production capacity are likely to constrain import demand in 1999. Poor demand prospects in the Russian Federation are dampening export opportunities for US shippers, while the improved competitiveness of Brazilian exports in 1999 might well erode those of Thailand to the EC and Japan. Meanwhile, EC poultry meat will be under pressure to compete against Brazilian whole birds in the Middle East, an import market which is expected to remain stable in the context of rising domestic production.

INTERNATIONAL MEAT PRICES

Considerable price uncertainty expected in the short-term outlook

International prices for most meats appear to be strengthening in 1999; however, delays in the expected production cutbacks in both the pigmeat and cattle sectors might limit the scope for a price recovery. Production prospects in many of the beef exporting countries continue to be revised upward despite expectations for herd rebuilding. Expectations of lower pork output has been mitigated by continued low grain prices and the on-going expansion of the large, vertically coordinated operations in the United States.

Currently, world prices for bovine meat are strengthening as cattle liquidation in many exporting countries slows, such as in the United States where it is propelling imported grinding beef prices to their highest level since 1995. Recent falls in Australian and New Zealand cow kills are likely to lend support to higher prices. Selective buying of lower-quality beef cuts by the Japanese, however, is dampening corresponding gains for US beef exports. Per unit export prices of US product to Japan over the first 5 months of 1999 registered a 5 percent decline.

The collapse in the skin market is still weighing on prices for lamb and sheep. International prices, however, may rise in upcoming months due to the declining volume of supplies from New Zealand. Higher producer prices for hog in both Europe and the United States, are only gradually reflected in slightly higher international pigmeat prices. Per unit export prices for US pigmeat plummeted nearly 20 percent in 1998 due to ample supplies and subdued import demand, and only since April/May 1999 have been edging up. International poultry prices, as reflected by May per unit export value of US chicken cuts, are still 21 percent lower that last year as the Russian Federation stays on the sidelines of the global poultry market.

In 1999 exporter programmes and policies, more so than price considerations, are likely to play a critical role in dictating the direction of international meat trade. Considerable support to the trade outlook is provided by the granting of food aid to the Russian Federation which includes the delivery of 270 000 tonnes of beef and 200 00 tonnes of pigmeat from the United States and EC, as well as the shipments of 50 000 tonnes of United States poultry meat under the "Food for Peace" program. Delayed tenders for beef in the United States, questions about pricing of imported EC beef in the Russian market and the only recent reopening of tenders for pork shipments from the EC in response to the dioxin food scare raise questions as to whether all this product will move in 1999.