“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,” he said.
New Zealand update
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 per cent 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 says 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 per cent 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, NZ beef export volumes in Q2 increased 14 per cent year on year.
“This increase has been underpinned by a 7 per cent lift in beef production year on year. Equal volumes were exported to China and the US - each taking 40 per cent of New Zealand’s total exports,” he said.
“While volumes are higher, weaker economic settings in China have negatively impacted prices and export earnings were back 13 per cent year on year for the quarter.
“Export volumes to Japan have also been impacted by softer demand, with volumes back 49 per cent year on year for Q2.”
Sustainability
The report says 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.”
