The United States has historically been New Zealand’s go-to market for manufacturing beef, and little has changed in recent years. China has stepped up its requirements and in doing so added a bit of competition to pricing, but the US continues to absorb most of our manufacturing beef.
This is especially so at this time of the year, when the cull cows are running and NZ is producing a heap of lean beef. Bulls also provide their share of manufacturing beef throughout the season.
Of all beef exported from NZ this season (October to April), 43% or 128,000t has been manufacturing beef. Of that total, the US has accounted for nearly 60%.
There were high hopes for the US beef market this year, on the basis that its own beef herd had contracted enough to present holes in its supply and create a greater reliance on imported beef. So far, the imported beef market has performed well, considering the low point it started from in early January.
Tighter US domestic supplies have supported the lift. Imported 95CL bull meat has lifted US60 cents/lb since January, while imported 90CL cow meat has firmed US35 cents/lb. Values have trailed last season, but in doing so they enabled demand to continue to grow, unlike last year when values peaked in March and fell from there.
May is typically a strong demand month for beef in the lead-up to the US’s Memorial Day holiday. As supplies are quickly absorbed, this demand extends to imported prices.
Yet that hasn’t been the case this year. Despite holding solid over the past month, prices, particularly at the leaner end of the market, have felt some pressure. Some of this is partly related to higher volumes of beef from NZ and Australia, but also some recent developments in the US market.
Not only have US beef cow supplies diminished, so too has the fed cattle slaughter. Numbers are down, carcase weights are lower, and ultimately the volume of fatty 50CL trimmings is tight. This has led to an explosion in 50CL values, limiting the ability for end users to pay any more for leaner beef, which is typically mixed with those fat trimmings.
If demand was strong and sales were moving freely there would be more leeway to cover the leaner requirements. However, demand at the foodservice level is soft within the lower priced fast-food category. Beef is up against cheaper competing meats such as chicken and pork once again, and no one is taking it lightly.
Slowing demand at this point of the season is unwelcome but potentially reflects economic concerns and the fact that consumers are watching their spending. Stocks of lean beef at high prices and an inability to lift current prices to offset those stocks has slowed everything down.
A correction in 50CL prices would favour import prices and potentially prevent any further retraction in prices, but that has yet to be established.
Back in NZ, the slowdown in imported beef prices combined with a lifting exchange rate may create some short-term hurdles. Current farmgate bull and cow prices are near to levels achieved this time last year. However, US imported beef returns are softer, even in NZD terms, restricting any fat in the system should this market fall even further. It’s not the solid outlook we were banking on, but fortunately we are closing in on much lower export volumes through winter.
While there might not be much further upside to imported prices based on current demand signals, what’s important for farmgate returns is where imported prices level out short term. A strong finish to May on the demand front in the US, combined with their falling domestic cow production, might just help stabilise the market towards spring and provide support for returns here.
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.