July 10, 2013

 

 

With tightening supplies due to higher, drought-induced slaughter volumes and forecasts of a wetter-than-average winter which have encouraged producers to retain stock, Rabobank expects New Zealand's beef prices to be stable for next quarter of 2013.

 

In its recently-released report, the 'Beef Quarterly', Rabobank highlights that seasonal pressures are still existent in New Zealand, but have since improved from the poor conditions of the first quarter. Most regions received good rainfall, with temperatures still warmer than average, which has enabled good pasture growth.

 

Rabobank animal proteins analyst, Matt Costello, said improved seasonal conditions during May and tightening of supply allowed prices to recover for most categories during April and May.

 

"At the beginning of June, the North Island bull price averaged NZD3.95 (US$3.11) per kilogramme, slightly higher than the corresponding week last year," Costello said. Nonetheless, Costello said while some areas have improved, there will be tight feed and water supplies through winter in other regions.

 

"Total beef slaughter for the New Zealand beef processing season, October to April, remains 20% higher than the same period last year, at 1.529 million head," he said.

 

"Following the same trend as the first quarter, the majority of the additional numbers processed have been cows, with more than 600,000 processed during the seven months to April. This represents a 56% or 216,791 head increase on-year, although this compares to a low base year due to a better-than-normal season in 2012, with the majority of slaughter attributed to the dairy herd."

 

After drought was officially declared across parts of the North Island in February, with extremely dry conditions throughout most of the country, the Rabobank report shows slaughter volumes have continued to track well above year-ago-levels.

 

"As a result of the higher production, export volumes throughout 2013 have tracked well above last year, but are expected to slow heading into winter and spring," Costello said.

 

Overall New Zealand exports, from January to April, have increased 21% on-year, to 163,382 tonnes shipped weight, underpinned by strong demand for lean manufacturing beef. While the US accounts for more than half of New Zealand exports, shipments to China have certainly been "a bright spot" so far in 2013, Costello said.

 

"Exports reached 20,178 tonnes shipped weight, which is well ahead of the 1,211 tonnes sent last year."

 

Tightening of 'grey channel' trade, lower domestic Chinese production and stronger demand for New Zealand product has driven this growth, with the Chinese market firmly establishing itself as New Zealand's second-largest export market. While the higher production has encouraged higher export volumes, average export values have been tracking slightly lower than the same time last year.

 

"It will be interesting to see how demand - particularly from the US - tracks if New Zealand supplies tighten and importers are required to pay higher prices," Costello said.

 

"Feedlots are still being hit by the continuation of strong feed grain prices and an insufficient decline in feeder cattle costs," Costello said. He also said, total US production year-to-date is larger than expected, mostly attributable to escalated cow slaughter.

 

In the EU, prices continued to increase as a result of a combination of the higher price demand for beef - as many players have had to replace horsemeat with 'real beef' - and tight supply. Chinese imports continue to grow, driven by the imbalance between expanding consumption and stagnant production, and the tightening of the 'grey channel'. Imports have mainly originated from Australia, Uruguay and New Zealand.

 

Rabobank maintains the view that global beef supplies will remain near 2012 levels, with an inclination towards a minor increase driven by the Southern hemisphere - led mainly by Brazil, Australia, Argentina, Uruguay and New Zealand - coupled with continued liquidation in US beef supply given the on-going drought induced cow-herd liquidation. In addition, exports from India have moderated considerably.