Beef price stays steady in uncertain market

Prices are set to remain stable for most of this year. Photo / Stephen Jaquiery

While it might feel like an upper range is nearing for many of New Zealand's main commodities, a substantial pull-back does not seem imminent either, ANZ economists say.

The bank's latest Agri-Focus report features a farm-gate price outlook for 2017-18, saying generally the outlook was positive, despite a challenging global backdrop.

Key global uncertainties included China and political uncertainty. A major potential game-changer remained United States trade and tax policies.

The operating environment looked positive for the key livestock sectors. The bank was most cautious on beef with a large supply increase expected from the US and Brazil.

In dairy, current market indicators suggested a high-$5kg to high-$6kg ms range for the milk price.

The bank was biased towards the upper end. Demand was expected to absorb the anticipated increased supply at reasonable prices.

Chinese and Middle East demand was expected to absorb the anticipated increase in New Zealand supply, especially with buyers reportedly buying hand-to-mouth.

Beef bull prices were expected to hold around the mid-$4kg mark into late 2017 before adjusting down into the low-$4kg (net of levies and GST) range.

The supply of beef from both the US and Brazil was forecast to rise more aggressively into 2018.

While demand indicators looked robust across a range of markets, the size of the increase and Australasian supply biased higher left the bank cautious for 2018.

It expected prime steer prices to hold around the $5kg mark into late 2017 before adjusting down to the low to mid-$4kg mark.

Tight New Zealand venison production and low inventory levels were expected to support farm-gate returns moving towards all time highs in 2017-18, with expectations of at least mid-$9kg during the chilled/game season peak, with a stronger EUR/GBP. Beyond that, prices were expected to settle back towards low to mid $8kg.

Farm-gate lamb prices were expected to push towards mid-$6kg in the winter period and hold through to the start of the new season. Beyond that, prices were expected to moderate back towards the low to mid-$5kg mark as peak seasonal flows were processed.

An improvement in Australasian lamb supplies was expected later in 2017. That said, with an overall steady demand backdrop, low frozen inventory levels, and the fact the increase was off near all time lows in New Zealand, the market was expected to absorb the increase relatively easily.

More relief for farm-gate returns looked set to be provided by an improved outlook for the GBP and euro.

While Brexit impacts would continue to be felt, the currency impact was not expected to be so acute in 2017-18.

A continued positive performance from China, the Middle East and US markets was also expected to support demand and prices.

Both Australian and New Zealand supply was expected to remain tight into the new season period supporting both in-market and farm-gate prices.

New Zealand sheepmeat supplies were likely to challenge the multi-decade low set in 2011-12. Current industry expectations were for export supply of 22.78million head (down 4% year-on-year), split between a reduction in lamb supply to 19.16million head (down 3.6%) and a fall in mutton to 3.62million head (down 5.6%).

While it was still early days, an improvement in lamb supply in the 2017-18 season could be expected, but mutton production was likely to hit multi-decade lows with an overall smaller flock and some rebuilding.

Tupping conditions were substantially better in the main breeding regions this autumn, suggesting higher scanning rates than last year, which could deliver a record-high lambing percentage.

Overall early expectations were the number of lambs tailed in 2017 could be 500,000 to 800,000 head higher, an increase of 2.2% to 3.4% on 2016.

That could push export supply back towards the 19.5million head mark, depending on hogget retentions.

From an overall sheepmeat perspective, that would be somewhat offset by lower mutton production. Industry expectations were for production between 3.3 and 3.4million head in 2017-18.

Australian lamb supply was expected to contract to 21.5million head in 2017, down 6% - the first drop below 22million head since 2013.

Mutton production was also expected to fall 17% to 5.8million head, the second-lowest on record.

The decline was being driven by high farm-gate returns for lamb and fine wool leading to higher retentions of ewes and merino wethers for wool production.

Overall Australian sheepmeat exports were expected to decline 11% to 327,000 tonnes in 2017.

From the recent peak in 2014, that was a decline of 96,000 tonnes which was equivalent to around a fifth of New Zealand's current exports.

Higher retentions of breeding ewes would lead to extra supply in future years.

Overall lamb supply was expected to lift back towards 22million head in 2018.

Combined with normalising ewe/hogget retentions, that was expected to push total sheepmeat supply up 3.4% to 641,000 tonnes in 2018. An even larger increase of 8.3% was expected in 2019.

The domestic market was expected to soak up some of the increase in 2018 but, beyond that, their industry was projecting larger increases in exports once more.