Beef producers’ ‘Olympic effect’ has come and gone

“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,” stated Iain Macdonald yesterday.

He added that cattle prices remained close to an historic high but eased during last month despite tight supplies and falling numbers of cattle at Scottish marts and abattoirs.

Normally, tight supplies result in some lift in price but there was a number of factors which would explain the price slippage this year.

“First of all, there is a seasonal factor at play. 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, while the Olympics may have had an effect on beef prices this season, Macdonald said it was more important to consider the impact of the wider economic environment on demand.

“With the economy back in recession, 5 per cent smaller than in 2008, many businesses have been reluctant to invest 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,” he observed.

Perhaps the principal factor restraining domestic activity had been falling disposable income, as inflation has been running well above earnings growth since April 2010. The squeeze on incomes had been exacerbated by the rising prices of items that consumers purchased most often, such as, fuel, energy and food.

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 8 July, beef consumption declined by 3 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 while, in addition, higher energy and distribution costs had to be covered.

Looking forward, Macdonald believed there was some prospect of improving beef demand towards the year-end. “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.”