AgriHQ pegs the US imported 95CL bull at US$2.62/lb, about 45c/lb above this time last year. It’s difficult to draw many conclusions from this – covid-19 lockdowns last year were impacting global trade and depressing prices. However, compared to long-term trends, current prices are close to 40c/lb above normal. Interestingly, farm gate bull prices are at similar to year-ago levels, causing frustration for those with bulls to slaughter.
Heated market conditions in the US market are only part of the equation – the NZD is also sitting US11c higher than this time last year, almost completely negating any advantage of the stronger US market.
Previous spikes in the US imported beef scene have been limited. Last year prices peaked in May at US$2.65/lb, following a 40% drop in US beef production as covid-19 swept through processing plants. In late 2019, African swine fever and the subsequent rally in Chinese demand pushed US imported beef prices well over US$3.00/lb. Both spikes were short-lived.
To find a comparable season, when US imported beef prices experienced sustained upside, we must return to 2015. Back then the market was driven by herd rebuilding in the US post-drought. At that time, NZ capitalised on tighter supplies within the US. Then US imported prices hit mid US$2.60 in April, dipped as our own cull cow supply came on, and then soared as NZ and Australian supplies fell again through that spring.
This year, the US imported beef market has a very familiar feel to it. An optimist would comment that market dynamics are even stronger than six years ago. The US is heading into their busiest demand months, coinciding with the lifting of covid-19 restrictions and the return of the foodservice sector.
While US supplies are sufficient this time around, their demand picture is significantly stronger, absorbing any extra production with ease. On the imported side of the ledger, the shortfalls in supply are well recognised. Australia is basically out of the running as their herd rebuild is under way. They simply don’t have the ability to service this market. There is little incentive for South American markets to up their volumes to the US either. This leaves NZ in the box seat, but even so, we are not yet in a strong position to capitalise on this growing demand.
The impending NZ autumn cow kill is dragging its heels, but at some point before June cow slaughter rates will increase. While it’s unlikely to pressure capacity like it did last year when covid-19 processing restrictions were in place, processors are still concerned. Any surge could create backlogs, more so when weather conditions in some regions are forcing extra stock into processing plants.
It is becoming all too common that external factors are influencing market conditions, rather than simply supply and demand dynamics. Global shipping issues, that have been discussed at length in recent months, are still being cited as a major restriction to exporting. Based on data from the last two months, these issues have yet to impede on export volumes. However, if they intensify, that could impact our ability to capitalise on this strong US market. It is hoped exporters can work through these short-term issues. Market fundamentals over the medium-term are shaping up for a strong recovery as covid-19 becomes a less dominant driver in our overseas markets. The key, however, is for this to translate back to improved farm gate prices.
