Jan 3 2012 --- Rabobank believes that the outlook for the EU meat industry in 2012 will be positive for most players, although significant differences exist between the sectors and the various positions along the value chain. Supply discipline will be the key success factor for the EU meat industry’s performance.

Rabobank reported that generally the meat industry is expected to benefit from slightly improved market conditions in both poultry and pork in 2012 and an ongoing favorable market situation for the beef sector. Although differences exist between the sectors and between the players positions in the value chain, a stable to slightly declining trend in global grain and oilseed prices compared to Q3 2011 levels will be positive for all sectors.

At the primary level, the improved outlook will relieve some cost-price pressure, although average prices need to remain high to cover the feed prices, which are historically high. Whether or not the industry has enough discipline to keep supply in balance will be key, according to Rabobank. Sufficient discipline would better prepare the industry to deal with unexpected market developments, such as cost-price increases or market changes caused the by economic situation, which could easily occur in the current fragile market situation.

At the processing level, the increasing overcapacity in pork and beef will sharpen the fight for raw materials. Market position, sufficient sourcing, efficiency and client dependency will be key to each company’s success. In the poultry sector, the integrated structure and opportunities to easily adjust production will support 2012 margins, the report predicts.

Key points:
 
•    In the beef sector, farmers are best positioned to benefit from the tight market situation. Processors will need to fight for limited supply, which could affect their margin positions.
•    In the pork sector, farmers may see margins improve as supply reductions start paying off. Processing overcapacity will further sharpen competition for sufficient animals for slaughter and meat for further processing, which could keep margins relatively low.
•    In the vertically integrated poultry sector, margins are expected to improve slightly for farmers and processors alike.
•    However, current market conditions are fragile: feed prices, the economy, export markets and exchange rates could easily shift in 2012, posing significant risk to the industry’s margins at both the primary and processing levels.
 
Meanwhile another new Rabobank report notes that while Brazil is a strong candidate for providing more corn to the international market over the coming years, the ongoing fast-paced development of Brazil’s meat industry may hinder such prospects. By 2015, Brazil's corn supply surplus could be as low as 2 million tonnes. Strong incentives must therefore be in place for Brazilian farmers to boost corn production to levels that allow for growth in exports, Rabobank warned.

Source: Rabobank