Bloomberg News

EU Meat Prices May Fall as Schmallenberg Reduces Exports

March 12, 2012

EU beef prices at a record may fall along with lamb and pork on reduced demand if countries react to the Schmallenberg virus by banning European meat, according to Rabobank International.

European Union beef prices jumped 20 percent to 3.92 euros a kilogram, or $2.34 a pound, in the first two months of the year compared with a year earlier, pork prices gained 11 percent to 1.57 euros and lamb rose 10 percent to 5.93 euros a kilogram as animal herds shrunk amid rising feed costs, Albert Vernooij, a Utrecht, Netherlands-based Rabobank analyst, said by e-mail. Russia has said it will ban shipments of Europe’s cattle and hogs from March 20 because of the infection.

The virus, which causes stillbirths and deformities in offspring, has been found on 923 farms in Germany, 670 in France and 158 in the U.K., data from the countries show. If other countries follow suit or Russia expands its ban, the price of meat in Europe will fall, said Vernooij, who correctly forecast rising prices last year. Russia was the leading destination for EU beef and pork in 2011, Rabobank data show.

“Russia has announced that it may expand the ban, applying it not only to the import of all live cattle, pigs and sheep, but more importantly, to beef, pork and sheepmeat from the whole EU,” Vernooij said. “While the impact of the first ban on meat prices will be limited because live exports of slaughter-ready animals to Russia are already minimal, the possible ban on meat exports would have a negative impact on EU meat prices.”

Gareth Barlow, a producer in North Yorkshire, England, who supplies high-end restaurants with lamb from a rare breed known as Hebrideans, said so far he’s not been affected by the virus. The virus, first found in Germany in November, is spread by midges and was detected after sheep suffered from neonatal malformations, according to the European Commission.

Cure Mileage

The only way to stop it is to find a cure and because of Schmallenberg’s scope, “health companies can see good mileage in getting one produced as quickly as possible,” Barlow said.

“It is a waiting game,” he said. “As the virus’s vector is the midge, the presence of the virus is inevitable. It seems that it will be hard to mitigate against it, and to try and minimize any losses of lambs will be tricky as well.”

Meat prices may increase if countries don’t implement bans on EU meat, Vernooij said. Demand rises in the summer during barbecue season and, if a cure for the virus is found or it doesn’t spread, prices may gain further after beef rose 18 percent in 2011, said Rachel Bush, a consultant for Bidwells Agribusiness in Cambridge, England.

Shrinking Dairy Sector

“We’re hoping it’s a minor blip for lamb,” Bush said by phone. “We have seen supply shrink, the prime cattle herd, the best you can get, shrunk 5 percent and that led to prices rising. Also there’s a shrinking dairy sector across Europe that’s led to less cattle and less beef.”

Global food prices rose for a second consecutive month in February, the Food and Agriculture Organization of the United Nations said on March 8. Food prices may stay at current levels this year because of rising demand, said Abdolreza Abbassian, a senior economist at the FAO. The FAO Meat Price Index gained 0.3 percent in February from a month earlier.

U.S. cattle futures on Feb. 22 reached a record $1.3150 a pound on the Chicago Mercantile Exchange and feeder cattle, animals that graze on grass before being sent to feedlots, touched the highest price ever on March 2 as the size of the U.S. beef-cow herd shrunk to the smallest since 1962.

The U.K. cattle herd on Dec. 1 fell to 9.7 million head, the lowest for the time of year since 2005, the Department for Environment, Food and Rural Affairs said on March 8.

Russian Reaction

Still, slack demand may curb prices for meat in Europe if exports fall, Vernooij said. How long any bans may last isn’t known and that makes estimating how far meat prices will decline difficult, he said.

“If other countries mimic Russia’s reaction to the disease, it could worsen the situation in the EU,” Vernooij said. “Another complicating factor is that the duration of a possible meat import ban remains unclear, rendering it virtually impossible to forecast the real impact on EU meat prices.”

To contact the reporter on this story: Tony C. Dreibus in London at tdreibus@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


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