Friday, March 29, 2024

Beef solid but bumpy

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An expected surge in United States domestic beef supply hasn’t occurred yet but continuing drought in many important grazing states means it is still coming. Strong beef pricing has also helped the market as many farmers sent animals away for processing earlier and lighter than usual, Rabobank’s New Zealand animal proteins analyst Blake Holgate said.
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“The good pricing meant they could forgo some weight and this has helped to lower the overall volumes from where they might have been.”

US supply rose 3% during the first half of the year but had been expected to be considerably higher because of the drought impact in states housing about half the US herd. 

Strong corn production levels had taken pressure off feedlots with most of the pressure on pasture farmers. 

The reduced increase has been a positive for NZ farmers because prices have remained very solid at a time when exports have risen 8% from last October to June. The increase is largely in extra bull processing brought about by the greater dairy calving levels encouraged by the buoyant prices of the last three to four years.

Part of the supply growth is from animals culled because of Mycoplasma bovis and it is also a risk to the trend of higher dairy calf breeding because of caution about movement of stock onto properties, Holgate said. 

As at late July 32,000 cattle from infected properties had been culled under the Government programme, with indications another 152,000 could be taken out over the next two years.

Aside from that, late-winter-September is the low period for beef supply so prices remain very firm because of procurement competition between processors.

As the new export season gets under way in October and supply volumes pick-up into year-end there is the potential for prices to come under pressure as world supply affects global prices. 

If the NZ dollar continues falling in value against the US dollar it will cushion some of the in-market price impact.

The booming US economy is also boosting protein consumption with confident consumers taking up a lot of the higher production, not only of beef but also pork and poultry. 

Beef benefits as consumers move up the value chain.

Holgate said total US domestic protein consumption is about 100kg a year, up 1kg on 2011, and expected to rise another kilo next year. 

“That’s quite a lift and is soaking up a fair bit of the higher supply.”

However, the higher production means the US will need to increase exports across all the protein types and that could drive global beef prices lower.

The US trade war with China has stalled export growth into that market, even though volumes had already been quite low.

The US and Australia have been increasing shipments to Japan and South Korea as those economies improve. 

“That is soaking up a lot of beef exports and while our exports to those countries are not increasing, that trade helps us in China.”

NZ’s exports to China had been 33% higher than the previous year as demand there increased but local supply is reducing.

Holgate said Japan and South Korea are mature beef markets with higher demand because of their economic recovery.

The increased demand in China is more of a structural change as people move up the protein value chain, making better long-term gains more likely.

China is the world’s biggest pork market and the recent incidence of African swine fever there will affect domestic production and probably lead to more importing of all meat proteins. 

NZ’s very good food safety record will help beef demand. 

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