Growing Chinese demand has come to the New Zealand beef market following a period of lower prices. Mel Croad reports.

Farmgate beef prices have been overshadowed by stellar lamb returns in the last 12 to 18 months. Beef prices this season have tracked well below anything achieved in the last two seasons and a for a short period even dipped below five-year average levels.

However, four months into 2019 and a wind of change appears to be blowing in beef’s direction. Market conditions have quietly but quickly improved and the outlook for farmgate prices has a more positive vibe.

Spring typically heralds the time when cattle finishers open their gates and offload market-ready cattle into the processing plants. This season was different in that feed levels for many instigated a temporary change to traditional farming practices.

China has made a solid inroad into the market for manufacturing beef. This is occurring at a time when US end users are looking to build inventories.

Larger numbers of cattle were held on to in the new year to take advantage of the unusual summer feed levels. However, when summer did show its hand, conditions dried out remarkably fast, possibly fuelled by the greater numbers of mouths still onfarm. February signalled the change and cattle slaughter rates spiked.

Processors reacted as best they do when cattle are flowing thick and fast and they pulled back procurement rates sharply, indicating little need to compete to secure cattle. What had gone unnoticed through this period was the changing export landscape, with China demanding more of our beef than in previous seasons.

US and China battle it out for supplies

It is well known that the United States has been responsible for taking close to 50% of our beef exports annually. However strong demand from China appears to be directing some beef away from the US. Six months into this season and Chinese demand has seen total NZ beef exports there climb to 81,500 tonnes, up from 48,000t over that same period last season. This accounts for 35% of our total volume this season. The US’s market share based on volume has declined to 31%.

Chinese demand for manufacturing beef appears clear, imports of this cut have lifted to 25,000t, from 8000t in that period last season. Last season China imported a total of 16,000t of manufacturing beef in the 12 months to September 2018.

Historically 75-80% of all NZ beef exported to the US is in the form of manufacturing beef. This equates to 145,000-180,000t annually. The US have enjoyed limited competition for manufacturing beef. No other country NZ exports to, comes close to demanding the volumes we annually send to the US.

However, China has made a solid inroad into the market for manufacturing beef. This is occurring at a time when US end users are looking to build inventories. In recent years these buyers have had the market to themselves but are increasingly finding they are having to share the spoils.

After bottoming out at US1.88/lb for 95CL bull meat at the start of November last year, US imported beef prices have staged a significant recovery – most of which was unexpected. Imported 95CL bull meat prices started April US$2.35/lb for 95CL and 90CL cow meat prices had lifted to US$2.18/lb.

While there are reports Chinese buyers are not paying these levels yet, their appearance within the manufacturing beef market has been enough to tighten supplies heading to the US. It has also underpinned US imported prices as buyers scramble to secure supplies for peak grilling demand from May to early July.

A stable to easing NZ dollar is also providing support to this market with bull beef returns closing in on a three-year high. For the NZ beef farmer this is encouraging news, particularly if market conditions remain.

This demand from China remains in its infancy meaning little historical data to rely on. However there seems to be two key factors at play here driving Chinese beef imports higher. Within China the “grey trading channels” have been shut down meaning beef imports need to arrive directly into China, not coming across the border from Vietnam or Hong Kong.

A shift in supply and demand from the African Swine Fever in pigs is also encouraging greater demand for beef. With China unable to increase productivity within its own beef herd, they are increasingly looking to imported beef.

Australian beef exports set to tighten

It was expected that Australian beef production and exports would have been tighter this year as farmers looked to rebuild drought depleted herds. However, until early April, Australian weekly beef slaughter rates continued to punch well above previous years’ tallies as the drought continued to bite. Unfortunately, female cattle made up to 50% of the weekly kill indicating herd liquidation was well underway.

With autumn rain providing more beneficial, slaughter rates are starting to return to historical levels. At some point it is expected slaughter rates will drop even further, limiting production and exports into key markets. This will provide some opportunity for NZ beef exports in those markets where NZ and Australia compete, particularly Japan, China and the US.

On the home front, while export market prices are starting to again move in the right direction, store values have consolidated at lower levels than we have been accustomed to. They have yet to show much upside now farmgate slaughter prices look to have bottomed out.

The focus through every autumn is the weaner fairs or calf sales (depending on which island you live in). Prices this year to date have been somewhat disappointing for the vendor but more realistic for the purchaser. The heady highs of the market through 2017 and the early 2018 sales weren’t sustainable, however outside influences appear to have reduced demand for weaners this season.

Weather conditions through late summer and early autumn haven’t been as favourable as the last two years, this hasn’t given buyers the confidence to step into the market and compete as strongly as previous years. However, some buyers, more so in the North Island, are sensing that weaners do now provide a good pricing point, and this is encouraging some stability in pricing levels.

It would be a big jump to the conclusion that weaker weaner prices are a sign of falling confidence within the industry. With only one in-calf cow and heifer fair completed at the time of writing, it’s hard to gauge market direction but much like the weaner/calf fairs to date, prices appear to be dictated by a lack of feed in some areas and softer farmgate slaughter prices compared to year-ago levels.

It is clear farmgate prices have come under pressure in the last 12 months as global markets work though larger supplies, however we have seen how quickly the global scene can change with surges in demand absorbing supplies and as a result key in-market prices are lifting.

NZ beef looks well placed to take advantage of the opportunities that exist within key markets over the next 12 months and beyond.