Depending on how you slice it, there has been an extra 127,000-158,000 of prime cattle in the supply chain this season. This is in spite of a very high prime kill last season, which probably tidied up most of the drought-affected cattle from last spring.
A boost in supply will always negatively impact farm gate beef prices. But, this season’s oversupply coincided with a major slump in processor demand driven by the shuttering of most of the world’s restaurants and by major disruptions in international shipping. This is why farm gate beef prices were struggling to surpass last year’s lockdown prices for much of the season.
In their mid-season update, Beef + Lamb NZ had anticipated a 1.6% lift in steer slaughter rates due to previous growth in our national beef herds. B+LNZ also predicted a 4.7% reduction in the heifer kill on the basis that heifers would be retained to rebuild drought-affected herds. What has happened instead is a 19% lift in steer slaughter and a 21% increase in heifer slaughter in the season so far.
It seems very unlikely that there has been greater heifer retention this season – if anything, the case could be made for further herd liquidation. Ongoing dry weather and weak farm gate beef prices would have certainly pushed a few more heifers out the farm gate.
The ratio of steers to heifers is a little skewed towards having more heifers in the mix, but it is still within normal ranges, which means we can’t pin this oversupply exclusively on farmers axing breeding heifers.
Furthermore, MPI slaughter data shows that most of the excess heifers were listed as beef at slaughter with only an extra 5000 dairy heifers in the mix, which puts to bed some theories that this excess comes from dairy heifers that were slaughtered due to live export delays. Average carcase weights (as of the end of March) are consistent with previous seasons, which indicates that prime cattle were mostly slaughtered at usual weights, despite a challenging season for many regions.
Processors are scratching their heads trying to forecast upcoming prime supply.
Was there over 100,000 cattle unaccounted for in industry forecasts? Or is the kill running seven weeks ahead of schedule?
The latest slaughter statistics show that the weekly prime kills are still running strong, but this might be about to come to a screeching halt if we are dealing with a very advanced kill.
Some processors are hedging against a potential beef shortage by issuing minimum price contracts for spring that are pushing the $6/kg mark in both the North and South Island. If the general market can reach this level it will be a welcome development. The enduring oversupply of prime cattle, and the pressures this puts on cold storage space, are still keeping a lid on farm gate beef prices despite good export market recovery. This is particularly true for the South Island, where cattle slaughter capacity is easily overwhelmed and cattle bookings are waiting a month.
South Island beef prices have trailed the North by 55-60c/kg over recent weeks, but have begun to show some recovery as processors catch glimpses of the end of the seasonal dairy cow cull.
The big question is what is left over for winter and spring production once the usual pre-winter cattle backlogs are cleared?
With the export markets already fighting for a limited supply of beef, things have the potential to get very competitive.
