Tuesday, April 23, 2024

Beef supply starting to back up globally

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As Brazil and Australia ship millions of tonnes of beef across the world, the ripple effects are being felt at the farmgate in NZ.
After years of drought Australian farmers have feed to burn and production is ramping up. Photo: Nathan Dyer
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Farmgate beef prices have nudged lower in recent weeks as export sales come under pressure across New Zealand’s key markets. 

The problem stems from weaker economic activity and growing inventories in these markets, not helped by powerhouse beef producers such as Brazil and Australia running at full steam. Both are heavily reliant on exports to absorb their annual production.

Since 2016, Brazil has exported more than 1 million tonnes of beef per year. Back then its distribution was more evenly spread, shipping to direct China and through the grey channels via Hong Kong, but also going into Russia and Egypt. 

These days the focus is squarely on China. Of Brazil’s 1.9 million tonnes of beef exported in 2022, 61% went to China. The trend hasn’t stopped this year. China remains the largest market for Brazilian beef, and despite some hiccups earlier in the year, volumes to this market have rocketed ahead in the past two months.

Over that same extended timeframe, Australia suffered devastating back-to-back droughts. The consequences of this were a significant reduction in cattle numbers. At the height of the drought offload in 2019, Australia exported over 1.2 million tonnes of beef. Export volumes bottomed out last year at 855,000t. 

The reduced presence of Australia in our key markets in the past two years helped support prices received for NZ beef. But now the tables have turned, and Australian beef production is ramping back up. 

In the first six months of 2023, Australia already exported over 80,000t more beef than for the same period last year. And it doesn’t stop there. If Australian industry forecasts are on the money, then export volumes over the remainder of the year should sit somewhere around 540,000t – another 80,000t increase compared to the corresponding period last year. 

For that to happen, beef slaughter rates will have to follow seasonal trends by lifting even higher from September.

With more beef to export, Australia has pounced on opportunities in China, which had been hard to come by in recent years. This has seen exports to there catapult – up 25,000t on the same period last year. Weaker economic activity in Japan means it barely has the stamina to compete, and scarcely holds the lead from China as being Australia’s No 1 beef market.

It’s not just China where Australia is active. The United States is seeing a lot more beef heading in its direction than for the last several years. 

A solid herd rebuild at some point starts to deliver additional cull cows, and the US lean beef market is the first port of call for this type of beef from Australia. This has coincided with ample volumes of NZ beef in recent months, which has helped push imported prices down into this market.

The sheer volume that these two countries are pouring into global markets is only part of the problem. Shaky global economic conditions continue to influence consumer demand, and this is certainly the case in China. 

While the US remains staunch to the suggestion of a recession, the problem there is that they have ample supply of beef to satisfy their current needs. With supplies building, the pressure is going to remain on export prices. If supplies aren’t going to slow, demand needs to pick up – and that’s going to take some work.

Despite the North Island beef kill surging through late June and into early July, generally, NZ production should taper off now through to late October, minimising our reliance on export markets and hopefully sheltering prices from too much further downside. 

AgriHQ’s recent Livestock Outlook forecasts point to some upside in beef prices heading into spring, but expectations need to be dialled down from what they may have been a couple of months ago.

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

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