Strong beef market conditions to run to 2016, says MPI

2014 Situation and Outlook for Primary Industries Update DecemberMarket conditions for beef are likely to be strong for the next two years and meat and wool export revenue will rise in the 2014-2015 year, according to the Ministry of Primary Industries (MPI) latest mid-year Situation and Outlook for Primary Industries (SOPI) 2014 update released today.

“A combination of strong US demand and drought conditions in Australia means that we have seen record lean beef prices this year. MPI forecasts that meat and wool export revenue will rise by $518 million this year,” says Jarred Mair, MPI director of sector policy.

The strong beef market conditions and better than expected growth in other primary sectors, will partly offset the drop in dairy export revenue, according to the revised forecasts from the  MPI.

The MPI analysts note US beef prices for boneless lean beef are 40 percent higher than a year ago and are picking that New Zealand should fill its US beef quota of 213,402 tonnes for the first time since 2004.

Export revenue from meat and wool is forecast to rise to $8.6 billion in the year to end June 2015, an 6.4 percent increase of $518 million on the previous year. The forecast for 2015/2016 is that export revenue will reach $8.8 billion, a 2.4 percent increase on 2014/2015.

Current high prices will enable greater reinvestment on farms, but the lead times associated with beef production systems mean that farmers need to look through pricing cycles to make longer-term investment decisions, such as investing in improved genetics and pasture to improve quality attributes of beef, the report advises.

“Farmers ability to invest in their production will further support the sector’s investment in improving the value of its products through MPI’s Primary Growth Partnership programmes. The scale and nature of these meat sector investments show the confidence the companies have to improve the sector’s value equation.”

The Update forecasts that lamb production will drop by 0.5 percent, compared to 2013-2014, and lamb carcase weights will be lighter because of the cold start to the season. Mutton is also forecast to fall back after very high production over the past two years, driven by drought and dairy farming expansion. MPI is expecting strong prices for New Zealand sheepmeat in Europe and China to be sustained by lower export volumes of both lamb and mutton.

The SOPI update revises the forecast for total primary industry export earnings to $34.6 billion for July 2014 to July 2015, a drop of 9.5 percent from record earnings of $38.2 billion in the previous year.

The main reason for the fall is a $4.2 billion drop in dairy export revenue, due largely to reduced demand as a result of Russian trade sanctions and high inventory levels in China.

Mair also expects to see increases in export revenue from seafood, horticulture, arable, live animals, other agricultural and food products.

“We’re seeing improved demand for New Zealand’s top-earning seafoods such as rock lobster, mussels and salmon.

“Another positive is Psa disease has had less impact on the Gold3 kiwifruit cultivar than initially thought, which has pushed up export volumes,” says Mair.

Forestry sector export revenues are expected to return to growth in 2014/15 as demand for logs increases.

MPI’s SOPI 2014 full report was released in June.The full report and mid-year update are available on MPI’s website, www.mpi.govt.nz.

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