By Neal Wallace, Hugh Stringleman and Gerald Piddock
Farmers face a financially lean few months as global animal protein markets remain stubbornly weak.
With the start of the new export season upon arriving, high global inflation is creating consumer uncertainty and the key Chinese market remains subdued, taking longer than expected to recover from the covid pandemic.
Add to that on-farm inflation of 16.3% for sheep and beef farmers and 13% for dairy, and the financial picture is grim.
AgFirst economist Phil Journeaux described the situation for dairy farmers as serious.
“The payout is dropping, we have had near-record on-farm cost inflation and interest rates have doubled.
“Most farms made a loss last year and they’re going to make an even bigger loss this year.”
It is a similar picture for sheep and beef farmers, with Rabobank noting lamb prices fell 7% in July to a five-year low.
Beef is showing some resilience and international fertiliser prices have fallen, with urea easing 15%, DAP 35% and potash 39%.
Subdued consumer activity in China is driving much of this weak demand.
A Ministry for Foreign Affairs and Trade report noted that, according to official Chinese statistics, the economy grew 6.3% in the second quarter of this year, below market expectations.
Rabobank’s Agribusiness monthly says global dairy supplies are increasing, including in China, but prices there have fallen 10% year on year.
Weak consumer confidence is behind a significant fall in last week’s Global Dairy Trade auction, which commentators said could push the farmgate milk price for the coming season into $7/kg territory.
“The price fall reinforces that global dairy market confidence remains at a low ebb, with few signs of a turnaround on the immediate horizon,” Westpac senior agri economist Nathan Penny said.
Prices in the last week’s auction fell for five of six dairy commodities, causing the GDT index to drop 4.3%, led by an 8% decline in the price for whole milk powder.
Alliance Group global sales manager Shane Kingston said the Chinese government is talking about introducing policies to stimulate consumer activity, but details and timing are unknown.
Kingston told the Farmers Weekly In Focus podcast that global meat markets are suffering under a “collision of a number of challenging factors”.
In addition to inflation, for red meat there are pressures from warm weather in the northern hemisphere and competition from Australian lamb exporters.
Kingston warned it could be six months before red meat markets recover.
“We don’t see any particular signs of improvements in the market.”
Australia exported 20,600t of sheep meat in June, twice the volume for the same month a year earlier, and he said July export volumes look similar.
Kingston said beef has proven more resilient due to its versatility.
Dave Courtney, Silver Fern Farms chief customer officer, said the macro levers of cost-of-living pressures and high inventories are affecting prices, but beef shows some promise.
“We’re hoping to see increased demand for beef out of the United States later in the year, and we’re still keeping a close eye on the recovery of consumer confidence in China, which has been slower than expected and will play an important part in the recovery of pricing.”
Both Courtney and Kingston remain confident in medium- to long-term prospects.
Meat Industry Association data shows June exports of red meat were 12% lower than a year ago at $935 million, due to lower volumes and value.
Compared to last June, the value of overall exports decreased by 21% to China (to $302m), 41% to Japan ($41m) and 23% to the United Kingdom ($34m).
Exports rose to Taiwan, Canada and the US, with beef exports to the US increasing 60% by volume and 43% by value ($200m), the highest monthly value since March 2015.
MIA chief executive Sirma Karapeeva said there was some positive news from June.
“We are also now seeing the benefits of NZ’s Free Trade Agreement with the UK, which came into force on 31 May.
“Overall, beef exports to the UK were worth $3.3 million in June. Previously, beef exports would have likely been under one of the quotas with a tariff rate of 20%, so we have already seen tariff savings of around $650,000 in the first month of the FTA.”