Barber’s Wire: Conditions not structures cause of red meat price drop

Allan Barber's column has a new name: Barber's Wire

Allan BarberThe pre-Christmas surge of optimism, boosted by high beef and sheepmeat prices when export volumes were low, has largely disappeared. The impact of the drought in the lower North and South Islands has seen slaughter numbers increase dramatically at the same time as a series of negative events have reared their head in world markets, writes Allan Barber.

Unfortunately nobody foresaw such an adverse combination of events coinciding at the same time, although our weakening dollar made a positive difference. Drought always pushes stock prices down because available processing capacity, even in these times of excess capacity, can’t handle the livestock numbers farmers need to get off their farms; overseas customers know they are in the driving seat and, naturally enough, pay no more than they must.

Therefore, except for supply contracted at a committed price, it makes good business sense for processors to drop the schedule. This compensates for the weeks when they must pay premiums to secure throughput. History tells us the effects of a drought only have a limited if any impact on stock numbers from one season to another; drought merely concentrates or stretches the shape of the kill like a concertina.

Market factors having an effect on the prices processors are able to pay include, in no particular order, slower growth and less demand in China, US port delays, the Western sanctions and Russia’s tit-for-tat refusal to import from most NATO member markets, disinflation in the EU and the potential for the Greek change of government to cause further Euro instability.

This set of circumstances has disrupted normal trade flows and demand patterns. It is reassuring to hear that New Zealand meat exporters are not having to stockpile inventory at present, but are successfully selling into a wide range of markets, albeit at a lower price than last year.

I always seem to find myself having to argue in favour of meat companies and their sales skills, especially in the face of rhetoric which states categorically the companies are either incompetent or profiteering at the expense of farmers. This situation can apparently only be solvedby consolidation of the cooperatives and farmer ownership of the value chain.

I have no doubt there must be an industry structure which could provide less volatile returns to farmers. But as long as the meat industry is characterised by seasonal and climatic variations in livestock farmed by individuals and converted into a huge product range, the traditional trader selling to a network of retail, wholesale and food service customers will play an essential part.

Ownership structures will not make any significant difference to this.

Allan Barber is a meat industry commentator. He has his own blog Barber’s Meaty Issues and can be contacted by emailing him at allan@barberstrategic.co.nz.

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