Beef + Lamb NZ expects US prices to stay even or fall slightly this year. The kiwi dollar’s recent rise in value will be a damper on returns if it is maintained through the next several months.
So far this year the US imported beef price, particularly 95CL, has firmed because of continuing solid demand, AgriHQ analysts said.
Given the high NZ beef kill before Christmas because of dry conditions, that indicated demand has started on similarly high note as in January last year, they said.
Significant early 2018 rain has encouraged farmers to hold cattle back to add some growth.
US production is expected to rise about 600,000 tonnes or 4.6% over last year to 12.6 million tonnes, B+LNZ senior agricultural analyst Ben Hancock said.
NZ’s annual production is about 600,000t.
The US production increase between 2016 and last year was also about the same as that, with prices supported by both domestic demand and export growth so returns to NZ remained steady.
The US is NZ’s major market, taking about half of exports.
There’s virtually a guaranteed market because the 95CL bull beef and 90CL cow beef is complementary to the higher-fat trimmings from domestic cattle used in the manufacturing process for burger patties.
The 90% or 95% lean meat content is needed to mix with the 50% lean meat/50% fat domestic product to produce the 75CL burger so popular with Americans. Because of the nature of the massive processing system, frozen stocks from NZ and Australia are required in the mix to stop it cooking during blending.
Anecdotally, this is a good cycle for NZ, Hancock said.
When there is plenty of domestic US beef it means demand for NZ beef goes up with it and when stocks are lower prices tend to move upwards.
With strong jobs growth in the US, consumer confidence is also strong. That showed up in ground beef retail demand last year, a trend expected to continue this year. Total consumption is expected to rise 4%.
A lot of the higher US production last year was exported, with exports up 12%, largely to Taiwan and Japan. US exports don’t closely compete with NZ exports to Japan but the high US tally on top of greater Australian volumes was what caused the hefty tariff increase on NZ and US frozen shipments to Japan.
This year the US is expected to import 2.2% more in volume and to have export growth of 4%, Hancock said.
B+LNZ expects NZ export returns from the US market should be helped by continued lower lean beef production in Australia as herds are rebuilt. Australia’s exports to the US lifted by 27% last year but are still below 2016 levels and as well as the large domestic market there is a greater focus on exports to Asia, especially Japan, where Australia has a significant tariff advantage.
B+LNZ records show last calendar year NZ sent 178,856 tonnes of beef to the US by December 25, just 84% of the total quota maximum of 213,397 tonnes. That is down 9% on the 196,295t sent in 2016, which was 92% of the quota.
Of total beef exports last year, 49% were to the US compared to 50% a year earlier. In both years 79% of exports to the US were grinding cuts.
The high ratio of grinding volumes lowers the average price per tonne for the US shipments, which was $6531 a tonne (FOB), up from $6452t in 2016.
That puts the US returns per tonne lower than those from some other export markets.
According to B+LNZ figures Japan offers the highest price at $8718t ($9150t previously), from the prime cuts sent there. Taiwan was at $8029t (from $8051t) from higher value cuts and China rose to $7085t from $6827t. China takes mainly secondary cuts, which are at a premium to the grinding beef sent to the US.
The overall average last year was $7121 a tonne, from $7053t in 2016.
China was the second biggest market last year with 61,700 tonnes, ahead of Taiwan at 17,600t, South Korea 15,600t, Canada 15,300t and Japan 13,300t.
B+LNZ expects a marginal reduction in NZ’s total cattle slaughter numbers this year. A slight rise in the proportion of cows in the processing mix is expected to reduce the average carcase weights by 2.4% and total beef production by 0.8%.
Australian volumes to the US fell 9% last year to 227,730t from 249,981t in 2016. Australia has a bigger quota and it was only 60% filled last year, compared to 66% in 2016.
