September 18, 2023


Rabobank highlights diverging prices in beef market in latest report




The latest Rabobank Beef Quarterly report found diverging prices, softer global demand and a low Fonterra payout could all affect returns for beef farmers.


Beef markets around the world — other than in the US — are seeing softer consumer demand, with global cattle prices now split into two distinct groups: those in North America and Europe, and those in the rest of the world, according to the report.


The Q3 report stated declining supply and strong consumer demand in the United States are driving cattle prices higher, while lower domestic beef supply has also held up beef prices in Canada and Europe.


In most other regions, however, the opposite — increased supply and lower demand — is making prices softer.


Report lead author and Rabobank senior animal protein analyst Angus Gidley-Baird said US cattle prices had increased almost 30% during the past 12 months, whereas Australian cattle prices had dropped more than 30%.


"This price split is the largest we have seen in the past 10 years," Gidley-Baird said. "Such a separation in prices will have consequences for beef exporters' competitiveness, and we expect to see some shift in trade volumes as a result."


A consistent theme across most markets, other than the US, is softer consumer demand and full supply chains.


In some regions, particularly in Asian countries, beef purchases made through 2022 and into 2023 in anticipation of recovery from COVID have not been consumed. These are now part of growing stock levels that also include other proteins.


"Softer consumer demand is making it harder to move these volumes through the system," Gidley-Baird added.


The report said increasing volumes of Australian beef exports were creating competition for New Zealand beef in the global market and this led to the AgriHQ North Island bull prices dropping 4% in July.


"However, the slowing of the US cow kill is expected to lead to a reduction in US-produced lean trimmings, which in turn is expected to provide price support for the global lean trimmings market," Gidley-Baird said. "But the needle hasn't shifted yet. Weak Chinese demand and high volumes of Australian beef have seen Australian and New Zealand lean trimmings export prices drop while US-produced lean trimmings remain strong, leading to the widest spread since 2020."


New Zealand's largest milk processor, Fonterra, announced in August a downward revision of the farmgate milk price from a mid-point of $8/kgMS to $6.75/kgMS.


The report said this significant decrease in returns is expected to cause margin pressure for many businesses and is likely to result in an increase in dairy cow culling.


"The number of cows processed in Q2 2023 is up 4.8% compared to last year and, in addition to this, Fonterra has mandated that all calves must enter a value stream from this season onwards," Gidley-Baird said.


"And this could result in several hundred thousand additional calves being sent to processors within a six-week window that is already stretched."


He said even though much of the heat had come off the global beef market and returns had eased considerably, New Zealand's beef export volumes in Q2 increased 14% year-on-year.


"This increase has been underpinned by a 7% lift in beef production year-on-year. Equal volumes were exported to China and the US - each taking 40% of New Zealand's total exports," Gidley-Baird said. "While volumes are higher, weaker economic settings in China have negatively impacted prices and export earnings were back 13% year-on-year for the quarter.


"Export volumes to Japan have also been impacted by softer demand, with volumes back 49% year-on-year for Q2."


The report stated that for some time, the sustainability discussion around beef focused mainly on greenhouse gas emissions. However, over the past year, nature and biodiversity have become more prominent issues in beef sustainability discussions, and these topics will be even more relevant over the coming year.


According to Gidley-Baird, globally, fewer companies in the beef supply chain had made voluntary commitments around nature and biodiversity than those that had made emissions-reduction commitments.


"But the set of drivers for both issues is similar, which can create synergies in how beef supply chain participants respond to both issues and reinforce the action being taken," he said. "Forces driving the new focus on nature and biodiversity include intergovernmental agreements and regulation, financial services undertakings and voluntary commitments from the supply chain."

- NZ Herald

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