Coronavirus, drought change NZ primary sector outlook: beef, sheepmeat prices drop

The outbreak of coronavirus in China and the onset of very dry conditions throughout much of New Zealand has suddenly changed what was shaping up to be a positive outlook for the primary sector, and sheepmeat and beef prices are already feeling the pinch.

New Zealand's biggest exporter, Fonterra, said this week the outbreak had not had an impact on its business, but it was closely monitoring the situation in China.

But in the second biggest export sector - sheepmeat and beef - prices have fallen as a result of the outbreak after a record-breaking run throughout most of 2019.

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Danny Hailes, general manager livestock and shareholder services for Alliance Group - the country's biggest sheepmeat exporter - said the outbreak was having an impact on prices paid to farmers but that the co-op's meatworks were operating normally.

However, Alliance was experiencing a higher throughput at some North Island works as farmers sent stock early off in response to drought conditions.

At this stage, there were no constraints on Alliance's cool storage facilities, he said.

China's decision to extend the Chinese New Year holidays meant a number of people were not working, which was affecting distribution in China.

In the beef trade, prices in the US, the second biggest beef export destination after China, were also falling.

Sheepmeat and beef prices shot up last year in response to the African Swine Fever, which depleted pork stocks and lifted demand for alternative protein sources.

Government intervention late last year meant sheepmeat and beef prices came off sharply, and had been declining since Christmas, but the outbreak had compounded the issue, Hailes said.

However, he told the Herald sheepmeat and beef prices were still similar to those achieved this time last year.

"There is still demand for protein, and export prices will bounce back," he said. "The questions are, low long that will take and how far will they go."

Farmers in some parts of the country, particularly in the north of the North Island, were keen to get stock off to the works as drought conditions took hold.

New Zealand's biggest meat processor, Silver Fern Farms, said congestion at ports and extensions to holidays had created further delays of product flowing into the market.

"We are working with our Chinese partners to monitor the situation on a daily basis," Silver Fern chief executive Simon Limmer said in an email to the Herald.

Bank of NZ economist Doug Steel said what had been favourable agricultural market conditions at the start of he year had suddenly changed.

"Domestic dry is affecting supply, while a coronavirus outbreak in China is causing major angst and demand disruption," he said in a commentary.

China - which takes just under a third of New Zealand's primary exports - is much more important now than it was during the 2003 SARS outbreak, when it took less than 5 per cent.

Steel said events of the past few weeks posed downside risks to its already tepid-looking GDP growth expectations, at least for the first half of 2020.

Tim Jones, Summerfruit NZ chair, said sales were strong leading into the new year, but the health scare in China exacerbated the usual post-holiday slowdown and unusually light activity prompted growers to slow down export movements.

In the seafood sector, lucrative live crayfish trade to China has stopped as authorities clamp down on people congregating.

This year is shaping up to be another strong one for most of New Zealand's export commodities, following on from what was a record year for many in 2019.

In October, the ASB Commodity Price Index broke the previous high set in March, 2011, and then proceeded to set a fresh record high each week over November.

Lamb, beef, fruit and seafood prices led the way late in the year, while forestry prices were at record highs back in March before slumping mid-year.

- Additional reporting, BusinessDesk