Friday, March 29, 2024

Meat forecast raises questions

Neal Wallace
Forecasts that this year’s export lamb crop could be below 18 million for the first time has observers questioning what the impact will be.
Reading Time: 3 minutes

Beef + Lamb NZ’s (B+LNZ) new season outlook is forecasting the value of meat exports to fall $1 billion to $7.4bn in the coming year due to market uncertainty from the covid-19 pandemic and increased competition for beef markets.

The report forecasts a lamb crop of 22.3 million, of which 17.4m will be processed for export.

Last year the crop was 23.3m, of which 18.7m were processed.

AgriHQ senior analyst Mel Croad says new season tailing figures will be released next month, but if they are consistent with this forecast, then it takes the sector to a new level.

“It raises questions about how we manage it,” she said.

“Are lower supplies going to push up prices or have they reached a point where they will not have that impact?

“What is the tipping point?”

Croad says an expected average lamb weight of 19kg will help compensate for fewer lambs, but the forecast also raises questions about how meat companies will react to the smaller pool of lambs.

“It is quite scary when you see breeding stock numbers are stable, but there are less hoggets and lamb numbers have dropped by one million and slaughter numbers have fallen below 18 million,” she said.

B+LNZ is forecasting a 26% decline in the average pre-tax profit on sheep and beef farms in the coming year, with export lamb receipts falling 15% compared to last year, co-products 8% and revenue from beef and veal exports by 9%.

Chief economist Andrew Burtt is forecasting the average sheep and beef farm will make a pre-tax profit of $115,100 this season, 26% lower than last year.

For an average North Island farmer, the pre-tax profit is 25% lower at $111,700.

The effect is more pronounced for those on the East Coast due to drought where the decline is 45%.

The average pre-tax profit for South Island farmers is picked to fall 27% to $119,400 due to falling sheep revenue.

Burtt says the forecasts also reflect the impact on prices of increased competitiveness in our main beef markets.

Despite the uncertainty, he expects average values for export red meat to be similar or slightly above five-year averages.

“China’s demand for meat protein continues to be fuelled by pork shortages that have resulted from African Swine Fever, and there is growing demand for high quality, nutritionally rich proteins,” he said.

B+LNZ’s chief insights officer Jeremy Baker says the global uncertainty reinforces the need for stable and predictable domestic rules and regulations to enable the primary sector to earn overseas income to aid NZ’s economic recovery.

Lamb export volumes are expected to be down 6.5% to 280,000 tonnes due to a smaller crop, and average returns down 9.3% to $9841 a tonne, still 3% above the five-year average.

The weighted average lamb farm gate price is forecast at between 620c/kg and 715c/kg, which is still above the five-year average.

Mutton export receipts are forecast to fall 15.6% to $605m, below the five-year average. The annual average price for the coming year is forecast at 415c/kg to 485c/kg.

Prospects for the wool clip makes grim reading with export volumes forecast to decline 2.8% with expected exports of $276m, a 36% decline on last year. 

Export beef revenue in the coming year is expected to fall 9% to $3.85bn.

The number of cattle processed is expected to be 0.9% lower than last year and export production steady at 661,000t.

Export prices are forecast at $7445/t.

At an exchange rate of USD66c, the estimated 2020-21 average annual price for P steer/heifer (270-295kg) is 515c/kg, for a M Cow (170-195kg) 364c/kg and M bull (270kg-295kg) 480c/kg.

Global trade has been marred by rising protectionism, and the report warns the impending departure of the UK from the European Union on December 31 is NZ’s most pressing trade issue.

“While the UK and EU are currently negotiating a trade deal that will apply after departure date, at the time of writing, the outcome did not look promising,” the report said.

The risk of a hard Brexit was growing in probability.

“A ‘hard Brexit’ would leave the UK with no preferential trade access to the EU. For New Zealand, the relevance of this will be the UK’s loss of free trade access to the continental EU for UK sheep meat exports,” it said.

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