Mild confidence boost in NZ beef sector – Rabobank

Media Release October 4, 2013

Mild confidence boost in NZ beef sector – Rabobank

Much improved climatic conditions throughout the winter and a favourable weather outlook for spring have certainly boosted confidence across the New Zealand beef industry, particularly after the challenging drought conditions of summer and autumn, according to agribusiness specialist, Rabobank.

Rabobank’s Beef Quarterly report says that, in line with the seasonal low point in beef supply – which occurs towards the end of winter and into spring – farmgate prices have improved, while average export returns have also seen some encouraging upwards movement.

Rabobank animal proteins analyst Matthew Costello says the decline in the New Zealand dollar against the US dollar, which has eased around seven per cent between April and the end of August, was also helpful in boosting confidence in the Kiwi beef sector. Unfortunately, the currency has since rebounded to the highest level since May, putting downward pressure on schedules and challenging New Zealand’s price competitiveness in the export markets.

Farmgate prices remained relatively stable throughout June and July, just below NZD 400c/kg cwt, but have gradually improved throughout August and into September. The North Island bull price at the beginning of September averaged NZD 407c/kg cwt, three per cent higher than the corresponding week last year. Prices have now eased slightly and are currently averaging NZD 403c/kg as at the end of September.

Mr Costello says prices are likely to remain around current levels, with some potential upside over the next few months as supplies tighten.

“We need to acknowledge that prices at the current level are the highest received since the start of 2012, which is encouraging for producers, although the high currency continues to provide a stiff headwind,” he says.

Total cattle slaughter reached 2.15 million head for the New Zealand processing season (October to July) and still remains 12 per cent above the same 10-month period last year due to the high slaughter earlier in 2013. However, supplies have tightened in recent months.

Total beef slaughter during May, June and July declined five per cent year-on-year to 624,335 head, with cow processing volumes also declining five per cent year-on-year to 274,589 head. Supplies are expected to further tighten during September and October, supported by expected favourable feed and climatic conditions as well as the usual seasonal downswing in supplies.

In line with tightening supplies, the Rabobank report shows total exports in May (35,500 tonnes swt), June (36,842 tonnes swt) and July (28,411 tonnes swt) declined, falling 18 per cent, six per cent and 12 per cent respectively. However exports from January to

July still remain six per cent higher year-on-year, at 264,135 tonnes swt, despite the fact that exports to most markets have declined in comparison to the same period last year.

Offsetting these declines and driving overall growth has been increased shipment to US (128,527 tonnes swt) and China (29,970 tonne swt) which have increased five per cent and 722 per cent respectively year-on-year. China is now firmly established as New Zealand’s second largest export market with average export returns now on par with the US, averaging NZD 5.27/kg FOB across the first seven months of 2013.

Globally, Rabobank expects international beef markets to remain strong on the demand side, with the world economy slowly recovering and continuous growth in the buoyant markets in Asia, especially China.

“In the coming months, Chinese imports are predicted to increase due to the rapidly approaching festivity season toward Chinese New Year in February,” Mr Costello says.

ENDS

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