Outlook cloudy for 2013

As we head into the New Year, the Christmas break has provided an opportunity to consider how the meat industry is likely to pan out during 2013. But literally as I write this speculative opinion piece, the fate of the American economy is still uncertain – although the Senate approved a restructured deal on taxes and expenditure yesterday, Republican dominated Congress has yet again balked at reaching an acceptable conclusion.

 

By the time you read this, the situation will no doubt have changed again for the better or the worse, but it isn’t easy to predict which.

 

Unless the USA gets its act together, the first probability is that the US dollar will remain weak and consequently our dollar will stay higher than exporters of any sort would want. The meat industry is no exception. It is subject to demand from its markets and two things are certain: one, demand from the USA and those countries which export there (all of our main markets) will be weaker than would otherwise be the case; and two, the prices our exporters receive will not increase to compensate for currency movements.

 

New Zealand’s domestic consumers will continue to enjoy plenty of cheap meat which should have found its way overseas, but which export market demand is unwilling to digest.

 

Because of the disproportionate amount of our beef destined for the grinding also known as hamburger beef market which is shipped frozen, the effect on beef will not be as bad as it is likely to be on sheepmeat, particularly lamb. Bull and prime beef has been hovering above $4 a kilo which is fairly consistent year on year, and although an increase is not likely, there is less downside than with sheepmeat.

 

There remains demand for chilled lamb from UK and EU retailers, even at reduced prices, but frozen product has been under serious price pressure during 2012 and this appears set to continue this year. This will become especially the case through the peak kill period of April and May with 1 million more lambs expected to be available this season.

 

Unlike beef which enjoys ready demand, particularly for fast food, lamb is more subject to specialised, higher price demand, like restaurants, butchers and supermarkets. The lamb price which exceeded $8 a kilo or the magic figure of $150 just over 12 months ago has now gone below $90 and, at present exchange rates and levels of demand, won’t come up again any time soon.

 

On a brighter note, the fiscal cliff impasse may be averted which would permit the signs of American economic improvement to continue to emerge. This in turn would allow China’s recovery to occur, while allowing Europe to move further back from its own economic disaster. In turn New Zealand and Australia at the extremes of the South Pacific would be able to avoid the worst impact of an extended downturn or slowdown in their main markets.

 

As inevitably happens when prices are insufficient to reward everybody as they would like, the meat industry seems likely to retreat further into the two traditional camps of farmer and processor/exporter. A year ago farmers were ecstatically happy, while meat companies were busy losing millions and millions of dollars.

 

At the moment, I can’t see either party making much money, but there’s no doubt capacity reduction in the deep south will ensure farmers can’t control the procurement price for lambs. Beef capacity in the North Island still provides farmers with options, although meat companies are most unlikely to allow themselves to be dragged into a procurement war.

 

So the big questions for 2013 are whether all meat companies will survive the year and equally whether the tentative steps towards use of on farm data, boosted by online livestock recording systems, will assist the process of cooperation between farmer and meat company. In the long term, a combination of capacity rationalisation and forward commitment are the factors which will get the industry back into balance on a more secure footing.

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2 Responses to “Outlook cloudy for 2013”

  1. Rural round-up « Homepaddock Says:

    [...] Outlook cloudy for 2013 – Allan Barber: [...]

  2. Outlook cloudy for 2013 | It's MeatExportNZ Says:

    [...] His “big questions” for 2013 are whether all meat companies will survive the year and whether the increasing use of farm data will assist the co-operation between farmer and meat processor. Read more … [...]

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