Presentation by Duncan Sinclair Senior Beef Economist with the
English Beef and Lamb Executive to The British Cattle Breeders’ Club
British Cattle Conference, 2006 - Health, Wealth and Happiness
- on 23rd - 25th January 2006 at the Hawkstone Park Hotel, Weston-under-Redcastle,
Shrewsbury in Shropshire.
After almost 10 years, and several false dawns, Monday, November
7, 2005 was a watershed for the beef industry. This was the first
day since March 20, 1996 that cattle aged over thirty months could
go into the food chain.
By late-January 28 plants had been approved to process cattle
aged over thirty months with a further three in Northern Ireland.
More are expected to gain approval in the coming months.
Cow slaughterings for the food chain have been relatively modest
since the OTM rule changed. From a total of 958 head in the first
week (w/e 12 November) they gradually increased to more than 3,300
head per week by mid-December. Numbers have recovered post Christmas
to total 3,430 head by w/e 14 January. Over the period, the Over
Thirty Month Scheme (OTMS) continued to operate and the vast majority
of cows were disposed of by this means, rather than sold back into
the food chain. In the nine weeks following the OTM rule change,
88% of cows were disposed of into the OTMS and only 12% re-entered
the food chain.
The industry is now facing a critical period as the OTMS ended
on 22 January and all cows born after July 1996 must be sold into
the food chain.
Market Impact With demand for beef strong in the run up to Christmas,
the change in the OTM rule coupled with the modest number of cows
which were slaughtered for the food chain meant little adverse
impact on prime cattle values. These remained firm throughout the
period and at 193p/kg deadweight during December were up 17p/kg
or 10% compared with December 2004.
Immediately following OTM rule change, only better quality animals
have been sold for human consumption while the OTMS has been used
for the poorer ones. Prices recorded at auction markets show a
clear differential for beef cross cows when compared to dairy breeds
. While dairy breeds have averaged 48-52p/kg liveweight beef bred
cows have averaged 55-60p/kg liveweight, an average difference
of 7-8p/kg liveweight.
Deadweight cow prices also confirm a differential according to
the quality of the animal. These have broadly ranged from 100-110p/kg
deadweight for P/-O conformation animals up to125-35p/kg deadweight
for R grade cows. This compares favourably with the OTMS compensation
rate during December of 43.7p/kg liveweight and 87.3p/kg deadweight.
Challenges ahead The immediate challenge is that with the ending
of the OTMS on 22 January there is the prospect of a significant
increase in availability of domestic cow beef. The concern is further
heightened by the fact that exporting a proportion of this beef
will not be possible at least until April and possibly May.
It is vitally important that the major retailers accept this product
into their supply chains if not for part of their retail offering
at least using it as an ingredient in their processed products
such as beef burgers or beef based ready meals. There is scope
for significant volumes of this product to be used by the major
burger manufacturers and the further processing industry.
If this can be achieved in the coming weeks and if, at the same
time, import volumes are adjusted downwards then the impact not
only on the cow price but possibly more importantly on the prime
cattle trade can be largely mitigated.
If this does not happen, the likely outcome will be for the market
to come under extreme pressure and, if it does, then the EU Commission’s
promise of the introduction of measures to support the beef market
will need to be activated swiftly.
However there are a number of factors which, if acted upon, could
reduce the potential pressure on price the industry may face in
the coming weeks:
• Cow disposals were high in December and into January
so hopefully most of the poorest quality cows born after July
1996 have been disposed of into the OTMS. Coupled with milk production
being under quota, cow slaughterings are expected to fall over
the next few weeks.
• Longer-term culling policies need to be developed - after
10 years of producing for a disposal scheme, animals now need
to be prepared for the food chain again.
• It is vital that only properly finished cows are sold
into the food chain during this period as the market place adjusts.
Producers should seek professional advice regarding feeding regimes
and find out what type of animal is being sought by abattoirs
or buyers at the auction markets.
• There is likely to be a clear preference for cows meeting
the requirements of beef farm assurance schemes. An Eblex survey
highlighted a 6.7p/kg difference between farm assured and non-farm
assured stock. If the same is replicated for cows that could be
worth up to £37 per head.
• EU hygiene rules introduced from 1 January 2006 are expected
to reduce the number of emergency slaughter animals entering
the food chain. Since diseased or lame animals will no longer
be able to enter the food chain, this could result in many of
the poorest quality cows being disposed of as fallen stock rather
than entering the food chain.
• Prime cattle producers could reduce their risk by limiting
the number of cattle they intend marketing in the next few weeks.
The extra cow beef available has the potential to reduce the
value of forequarter from prime cattle and ultimately their total
• The EU beef market is in a deficit situation and that
is likely to remain the case in the medium term. Even after the
full impact of OTM rule change takes place in the UK the forecast
net import requirement of the EU-25 is 350,000 tonnes in 2006.
Once the export restrictions are lifted there are likely to be
export opportunities for prime beef, cow beef and possibly live
Provided a number of these factors are acted upon then this should
allow enough time for the market to adjust and adapt without undermining
Under the new conditions, the move from a flat rate pricing structure
in the form of OTMS compensation to a pricing structure differentiated
by the quality of the animal produced will, on the whole, be most
beneficial for the suckler industry.
The last piece of the jigsaw needed to fall in place is the removal
of the current export restrictions.
When all the export restrictions are finally lifted can we truly
put the spectre of BSE behind us.
With access to a European market of 400 million consumers in 24
other EU member states this will present real opportunities.
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