THE ‘Olympics effect’ this summer may well have exacerbated the seasonal swing in beef prices by generating higher demand at the start of July followed by a more significant tail-off at the end of the month.
Cattle prices remain close to an historic high but eased during July despite tight supplies and falling numbers of cattle at Scottish auction markets and abattoirs.
Normally, tight supplies result in some lift in price but, according to Iain Macdonald, Economics Analyst with Quality Meat Scotland, there are a number of factors which may explain the price slippage this year.
“First of all, there is a seasonal factor at play,” said Mr Macdonald. “Producer prices tend to dip in late July when weekly slaughter numbers tend to be at their lowest. Demand for beef weakens significantly during this period and prices slip back as processors are better placed to cover their reduced requirements.”
However, this year it looks likely the Olympic Games may also have played a significant part in the equation.
“Demand for the beef needed to supply spectators is likely to have peaked three or four weeks prior to the commencement of the Olympic Games. If demand peaked at the beginning of July, this fits with recent price movements.
“Deadweight beef prices rose through June and reached a record high of 358.3p/kg in the first week of July, before sliding back to 353.6p/kg by the end of the month. With tight cattle supplies so far this year, increased competition between processors to supply beef to meet Olympics-related demand may well have contributed to this pick-up in price followed by the tail-off at the end of July.”
However, while the Olympics may have had an effect, he said it is also important to consider the impact of the wider economic environment on demand.
“The British economy appears to be stuck in a vicious circle that is difficult to break. With the economy back in recession, 5% smaller than in 2008, many businesses have been reluctant to invest and/or expand workforces and households have subsequently been cautious, leading to weak demand for firms’ goods and services.
“The dampening effect of a stronger Sterling and the well-documented economic problems in Europe on UK exports has proved particularly problematic given that policymakers have prescribed an export-led recovery to offset weak domestic activity,” observed Mr Macdonald.
Perhaps the principle factor restraining domestic activity has been falling household disposable income, as inflation has been running well above earnings growth since April 2010. Though consumer prices inflation has fallen back from 5.2 per cent last September, at 2.4 per cent in June, it was still well above the 1.5 per cent growth in average earnings reported for the three months to May. The squeeze on incomes has been exacerbated by the rising prices of items that consumers purchase most often, such as, fuel, energy and food. Consequently, many households have had to cut back on discretionary purchases and trade down towards cheaper items.
In this economic environment, beef consumption has suffered. Data from market research organisation, Kantar, shows that purchased volumes have been pushed lower by strong growth in retail prices.
In the 12 weeks to July 8 beef consumption declined by three per cent, year-on-year. Retail beef prices have been growing at double-digit proportions since December 2011 as the supply chain has attempted to recoup the extra cost which it has had to pay to source raw material. This was the result of a 21 per cent increase in producer prices between February and November 2011 and in addition higher energy and distribution costs have had to be covered.
“However, there is some prospect of improving beef demand towards the year-end,” said Mr Macdonald.
“Cattle supplies are expected to improve slightly in the latter part of the year, as the effects of increased calvings during late 2010 and into 2011 begin to arrive on the market. This may allow some stabilisation in retail prices which, when compared with year earlier levels, will reduce the year-on-year increase in retail price and hard pressed consumers will, hopefully, perceive better value for money.”
Mr Macdonald also pointed out that if headline rates of inflation in the UK economy continue to subside some modest recovery in overall consumer spending may be encouraged.
“That was the conclusion drawn by the Governor of the Bank of England at a recent press conference. This offers some hope for greater beef sales at UK retailers. However, the prospect of improvement in farmgate prices from historically high levels will remain limited in the short-term and may have to wait for a sustained recovery in the wider economic environment.”
Contact: Carol McLaren