European Beef Prices to Remain High Through 2023 as Production Continues to Decline

Published 2023년 3월 21일

EU 27 beef carcass prices started March 2023 on the rise, practically at the same level around the record high seen in early February this year. Behind the increase are expectations of lower domestic production ahead, as the EU 27 faces high input costs and uncertainty over new environmental restrictions which will likely put pressure on its cattle herd.

According to European Commission (EC) data, EU 27 beef carcass prices (adult male, indicative) started March on the rise, increasing to a fresh one-month high of EUR 5.14/kg, up 0.7% week-over-week (WoW) and 9% year-over-year (YoY). In month-over-month terms, prices fell 0.5%, but that is because prices had risen to a record high of EUR 5.17/kg in the first week of February. During the first 10 weeks of the year, European prices are averaging levels 14% higher than the same period in 2022.

Source: Tridge and European Commission

One of the main reasons behind the price increase is lower domestic production and expectations of further declines. In 2022, according to the EC, beef production in the EU 27 dropped 2.3% YoY to 6.6 million mt. This was the fourth consecutive annual production decline in the area. Production experienced YoY growth only in Greece, Ireland, Spain, and Portugal. All other beef-producing members, including the largest ones, France and Germany, reported a decrease in production. According to the USDA, 2023 will mark the fifth consecutive annual decline in production. The American agency, in its latest semi-annual Livestock and Products report for the European Union, predicted that European beef production in 2023 will decline by 0.4% year-over-year, as cattle slaughter is expected to decline by 0.6% in annual terms, as well. In 2023, it is expected that lower slaughter will be the main reason behind the decline, in contrast to the previous year, when a lower average carcass weight -due to high feed prices incentivizing slaughter before weight increased further- was the main cause. This year, as feed becomes increasingly available, the average weight is expected to increase, but will disincentivize slaughter, rendering lower production. However, high input costs remain one of the main causes behind the general decline in the industry in the EU 27. Adding to that, there is ongoing uncertainty over the implementation of the new environmental restrictions, which are likely to further disincentivize cattle herd growth.

The decline in herd numbers has been more pronounced in particular continental countries, leading to increased imports from Ireland. From the beginning of the year up to the week ending on February 25th, Bord Bia reported that Irish live cattle exports totaled 41.3 thousand head, 35% higher compared to the same period in 2022, with the main markets being the Netherlands and Spain. Meanwhile, according to the same organization, the value of beef exports during 2022 was estimated at EUR 2.52 billion, which represents an increase of 18% YoY. In terms of volume, Ireland's 2022 exports were estimated at 512 thousand mt, up by 9% year-over-year, as throughput rose over 7% year-over-year. The UK represented 43% of total exports, while continental Europe represented 50%. Lower herd numbers are also expected for 2023 in Ireland. The USDA expects that total cattle supply in the EU will be reduced by 1% year-over-year to 99 million head. This follows consecutive YoY declines in 2020, 2021, and 2022 of roughly the same percentage.

Implications: Total EU 27 imports are expected to rise in 2023. According to EC data, total imports from Extra EU countries, including the UK, during Jan-Nov 2022 totaled 356 thousand mt, an increase of 26% YoY. For 2023, imports are expected to continue rising in order to offset the decline in domestic production, as domestic consumption is expected to remain practically unchanged. The bulk of beef imports come from the UK, which is expected to see a small rise in production. Higher imports from the UK are bullish for European prices, which are typically lower than in the former. With the conjecture of lower domestic production and imports with a higher cost, prices are expected to remain considerably high compared to pre-pandemic levels during 2023. However, Europe could also import more from other destinations with a lower FOB price such as Brazil, Argentina, and Uruguay, which were the other three major origins in European imports during 2022. There is also another downside risk to prices which involves European demand falling compared to 2022. High beef prices in 2022 led to a substitution effect in which consumers opted for more affordable protein substitutes. This helped to lower the price from the previous highs in mid-2022. Ongoing price increases might lead to the same effect this year.