Meat outlook better than expected

The best news since Christmas was Meat & Wool Economic Service’s (MWES) forecast of strong increases for lamb and beef this season which reinforces what exporters have cautiously been saying about the market outlook.


Lamb prices are currently more than $1 per kilo above last year and MWES is predicting an average price of $80 for the season, $22 more than last year’s low. Beef prices are running between 40c/kg for manufacturing cow and bull and 22c/kg for prime above last year which is mostly due to the lower exchange rate, whereas lamb’s improvement is the result of an increase in demand from our main markets, our dollar’s weakness against the Euro and less lambs available from Australia and EU.


With the uncertainty of the world’s economic situation it’s hard to predict consumer buying patterns across all markets with great confidence, but the immediate impact of the credit crunch – where customers were reluctant to buy or commit forward – appears to have passed. The world hasn’t come to an end, people haven’t stopped eating, but habits and buying patterns have changed. The most obvious impacts of recession are job losses, consumers buying less expensive cuts of meat, eating at home instead of going out to a restaurant, and eating takeaways. The top end restaurants and fast food outlets tend to survive, but those in the middle find it very difficult.


The outcome of all this will vary considerably by product and market, emphasising the complete contrast between lamb and beef. Lamb for the most part is a high end product which will be affected by consumers deciding to trade down to cheaper meats, but will retain its premium position in main markets. The reduction in lamb numbers here and in other countries is good news under these circumstances.


Our main lamb markets recognise the potential shortage of product with 6.2 million less export lambs forecast for this season and, despite all being in recession, are still buying. This is good news for chilled as a proportion of the total kill which inevitably pushes the average price up. Some by-products, like meals and casings, are also positive, but pelts and wool remain depressed because consumer demand for leather clothing and wool carpet is inevitably low.


Beef is a story of contrasts because more than two thirds goes into high volume, fast food and manufacturing end uses. There is strong demand from the USA for manufacturing beef driven by the strength of fast food, while Asia, our main export market for prime beef, remains quiet because of uncertainty and lack of confidence. Furthermore the return of US Beef to Korea, Taiwan and to some extent Japan has reduced New Zealand’s market share, particularly into Korea.


This underlines the importance of our domestic market which is our second biggest prime beef market overall and the biggest consumer of high value prime cuts. Having said that, the domestic price will tend to follow the export price rather than setting a new, higher benchmark. However the drop in steer and heifer slaughter volumes, forecast to be down by 9% and 17.5% respectively because of drought and herd rebuilding, is likely to mean prime cattle are harder to procure. This won’t necessarily mean higher prices, because exporters will concentrate on the increased number of cull cows available for slaughter.


Perhaps I’m being naïve, but I’m optimistic this year will not see a procurement war between processors for several reasons: nobody will want to destroy their carefully rebuilt balance sheets, all processors have mostly upgraded their facilities and should be roughly equal in efficiency, livestock volume reductions will have been factored into budgets, and the message from last year is suppliers are largely fed up with exporters foolishly competing away profit in the market place. This should mean suppliers can commit with confidence to whichever livestock sale option best suits their farming practice.


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