Sunday, July 3, 2022

Half-year report is a mixed bag

Expectations for beef prices at the farm gate remain solid. 

At the halfway mark for the year, sheep and beef farmers are searching for some clarity in terms of what the rest of the season is going to look like. But after a roller coaster couple of years, there is no blueprint to follow. 

Breaking it down, market conditions are mixed at best.

For lamb, global markets appear more comfortable with dialling down pricing expectations. 

These lower asking prices and softer demand stretch across most key markets. 

Fortunately, through May we had the exchange rate on our side, which buffered this slowdown in in-market pricing. 

To be fair, prices received for NZ lamb are still at near record levels, even though global markets are slightly wobbly.

For beef, market messages remain firm. 

There have been some jitters appear in the US market, based on their oversupply of beef. 

Key Asian markets appear more willing to accept NZ beef but shipping and container problems are still continuing to hamper the ability to supply these lucrative markets. 

Beef export values have regathered some of the momentum lost in recent months and are again surging higher.

In recent years, ignoring 2020, export demand and pricing has continued to rise without looking back from this point in the season. 

Much of this can be attributed to the seasonal slowdown in production and exports out of NZ. 

But generally, markets have been in good shape. 

Last year is a classic example of continuous upside amid concerns about supply.

March-July last year was peppered with supply contracts indicating on-going concerns about processing supplies and the ability to service commitments to customers. 

This year the potential “belt tightening” of global consumers and the uncertainty about how much stock is left to process means only a handful of contracts have been released. 

Without the clarity those contracts can give, most are simply expecting prices to follow trends set last year without factoring in the broader picture.

Store lamb prices achieved from late-May to early-June backs up these expectations. 

For store margins to be realised later in the season, farmgate lamb prices are going to have to continue to lift. 

Farmgate slaughter prices for lamb are currently 77-97c/kg ahead of this time last year, at nearly $9/kg. 

This has been achieved almost two months earlier than last year. 

Based on the position of current export values there is definitely some wriggle room for lamb slaughter prices to continue to lift, as outlined in AgriHQ’s recent Livestock Outlook pricing forecasts to November.

But weighing on just how rosy lamb prices are going to get is the bigger global picture. 

High global inflation and tighter financial conditions are currently taking the shine off expectations. 

That leads to the possibility of consumers trading down on proteins which will have more impact on lamb demand than other proteins.

Expectations for beef prices at the farm gate remain solid. 

Current bull and prime prices are 50-80c/kg above this time last year. 

With less widespread market wobbles than lamb is dealing with, AgriHQ is picking beef prices to remain on track with further upside earmarked through to spring. 

If the US can work through their current glut of beef and start looking for imported supplies, then this could give beef prices an extra boost in the last quarter of this year.

This article was written by AgriHQ analyst Mel Croad. Mel’s reports provide key insights into what makes our sheep and beef markets tick. Subscribe to AgriHQ reports here.

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