by Iain Macdonald, Market Intelligence Manager at Quality Meat Scotland
As we move towards the end of 2023, there is a sense that markets have begun to settle down after the volatility of recent years. However, as always seems to be the case in the red meat sector, there have been numerous challenging events for businesses to deal with in 2023.
Fortunately, many global commodity prices have fallen back from the highs of 2022, signalling a decline in the cost of production. However, the impact on production costs often depends on lags in contract pricing, leading to a cloudier picture than indicated by headline price movements, and energy prices have remained well above pre-2022 levels. In addition, labour costs have continued to rise sharply, while higher interest rates have pushed up financing costs.
Other challenges have included this year’s weather extremes, with drought at the beginning of summer and autumn floods. Meanwhile, uncertainty over future agricultural support will have continued to have an impact on confidence levels.
In the beef market, after volatility in the spring and summer, prime cattle prices were remarkably stable from late-September to early-December, with R4L steers holding close to the £5/kg dwt mark at Scottish abattoirs. Though slightly below the highs reached in May 2023, prices consistently showed year-on-year increases of 8-10%, while running around 25% above the five-year average. You have to go all the way back to May 2020 to find a time when prices were lower than a year earlier, and prime cattle prices have been 44% higher in the run up to Christmas 2023 than Christmas 2019.
If 2022 was a year of beef price convergence, where cull cow prices were much closer to prime cattle than usual and cattle prices were much closer together globally, 2023 has been a year of price divergence. Indeed, the gap between prime and cow prices has returned to more normal levels in autumn 2023, Scottish and Irish prices have been further apart than in 2022, and Australian and South American beef have become much more competitive on the global market.
For lamb, a large carryover of hoggs into 2023 led to a soft start, with prices at a four-year low for the time of year in January and February. However, this quickly changed in March when domestic and export demand surged ahead of Ramadan and Easter. A strong start to new season pricing then followed, as a smaller lamb crop reached the market at a slower pace, with dry weather slowing growth rates. After a wet second half to the summer, conditions changed moving into the autumn and lamb slaughter rebounded above 2022 levels. Despite this, and additional supply side pressure from increased imports from Australia, improved retail sales and strong export demand ensured that market conditions remained tight overall, supporting prices, which averaged around 10% higher than in autumn 2022 and more than 20% above the five-year average. In the second week of December, lambs sold for an average of 263p/kg lwt at Scottish auctions.
The pig market continued to adjust to the financial crisis of 2021/22 in 2023, with slaughter numbers falling back sharply following the previous year’s contraction in the sow herd. A tightly supplied market saw farmgate prices continue to rebalance higher in the first half of the year. While the market has returned to a traditional seasonal downwards trend in the second half, at 215p/kg dwt, the GB Standard Pig Price (SPP) was still up 8% year-on-year and by 36% on the five-year average in the first week of December. Given estimated production costs of around 200p/kg, there is likely to have been some recovery in producer finances this year after a prolonged period of losses.
Looking ahead to 2024, prime cattle supply is expected to be similar to 2023 in the year as a whole. However, supplies could be stronger in the first half of the year in Scotland before tightening in the second half. Indeed, as the outflow of store cattle to England fell back in 2023 from the highs of 2022, this is likely to provide some short-term support to supply before the reduced spring calf crop of 2023 begins to reach the market.
In the sheep sector, a smaller 2023 lamb crop across GB appears to have reached the market more quickly this season, signalling the potential for a reduced carryover of hoggs into 2024. Although there is significant concern around the potential for increased imports from the Southern Hemisphere in the run up to Easter, firm demand for Ramadan, which moves forward to early-March in 2024, should provide some offsetting support, while a tight EU sheepmeat market could continue to underpin export demand.
For pork, the outlook is likely to depend on how quickly and to what extent production recovers. In the first eleven months of 2023, prime pig slaughter at GB abattoirs was down by 10% year-on-year, and while the rate of decline slowed in the autumn, numbers still trailed 2022 by 7.6% between September and November, signalling that it has been a slow process. However, ScotEID figures point to a similar number of pigs leaving Scottish farms destined for abattoirs in autumn 2023 as had been the case in 2022, so the recovery may be more advanced in Scotland than south of the border. Looking abroad, the EU Commission is forecasting some slight recovery in EU pork production next year, although it would still fall more than 10% short of the 2021 high.
Thinking more generally about domestic demand for red meat, there are definitely some positives going into 2024. While wage growth may have slowed from its peak, the Bank of England is still expecting it to hold above 5% next year, and this should help continue to underpin consumer spending. At the same time, as we move further away from the commodity price shocks of 2021 and 2022, inflation has been slowing and consumer confidence, though still soft, is much higher than it had been going into 2023. Households have been willing to reallocate funds towards food from non-food during the cost of living crisis, and rising spending on red meat points to strong underlying demand. In the second half of 2023, meat retail prices have shown some signs of beginning to stabilise, or at least rise more slowly, and this trend could begin to support sales volumes in 2024