PrimeCut: New season is about value and opportunities


The new season is underway.  It seems quiet … too quiet, almost! But, there is plenty of work going on behind the scenes to make the most of any valuable emerging opportunities.

We’ve had the good news – an outlook for continuing good prospects for lamb and venison, but a relatively small fall back by 6.5 percent for beef’s export value with more supplies in market, particularly from the US and Australia’s drought conditions. However, the Ministry for Primary Industries is predicting that high farm-gate prices for beef will continue.  This is against $1.2 billion lift in revenue last season (2017-2018) for lamb, mutton and beef (but excluding veal and co-products) highlighted by Beef + Lamb NZ’s Economic Service. This stemmed in part from strong demand, lower supplies and a ‘kind’ exchange rate. So the report card’s generally reading: ‘keep up the good work’.

According to the Meat Industry Association, the meat processors’ trade organisation, the sector is as prepared as it can be for the uncertainties of the coming year, which will include the US/China trade-war, growing protectionist tendencies and change for red meat business from New Zealand’s coalition government.

Working on trade agreements by the teams at the Ministry for Foreign Affairs & Trade, supported with red meat sector expertise from B+LNZ and MIA, will continue to be key to extracting value from markets. The Comprehensive and Progressive Trans-Pacific Partnership has now been ratified by five of the minimum six countries required to kick-start the 60 day period before the trade agreement will come into effect. Canada this week joined New Zealand, Japan, Mexico and Singapore and Australia is expected to ratify soon. CPTPP has been welcomed by the red meat sector as it will open opportunities for New Zealand’s red meat exports, especially to Japan. News is also awaited on negotiations for the UK’s withdrawal from Brexit and work on various other free trade agreements, including the EU-NZ FTA.

There has also been some bad news, including set-backs, such as lamb losses, particularly in the South, during recent severe weather conditions which arrived at the wrong time. Eradication of Mycoplasma bovis, the cattle disease, has also had an impact on individual farmers, with 35 farms currently under lock-down, and on stock movement generally. Processors have been working through as required. It is very apparent, however, improvements to the National Animal Identification and Tracing (NAIT) scheme are needed and consultation is now underway.

Exporters will also be keeping a weather-eye on exchange rates, particularly for the US dollar (USD), which have a big impact on meat export revenue as most exporters are denominated in foreign currency. An interesting fact in the recent Beef + Lamb NZ Economic Service’s New Season Outlook, was that 72 percent of New Zealand’s total meat export volume was reported in the 2017-2018 season as being traded in USD-denominated contracts, nine percent in Euros (EUR) and 6.7 percent in pound sterling (GBP). This makes sense as the US was the second-largest market for red meat. However, even though the largest market became China (32 percent), nearly 90 percent of the trade with North Asia was in USD, as importers buy that currency for trade.

A five or 10 percent (fall or rise) in the exchange rate will have a significant impact on the returns achieved for New Zealand’s exports of sheepmeat, beef, and wool.

“All things being equal, a 10 percent decrease in the NZD against the USD – from 0.67 to 0.61 – and the associated cross rates against the GBP and the EUR – increases the average lamb price received by farmers by 15 percent. Alternatively, if the NZD appreciates by 10 percent – from 0.67 to 0.74 against the USD – then the farm-gate lamb price decreases by 12 percent,” B+LNZ says.

At the time of writing the Outlook, the NZD is expected to begin easing against the USD, GBP and EUR, B+LNZ says.

Farm gate prices for lamb will soon start dropping back as the last of the season’s high-value chilled lamb sets sail for EU Christmas tables and contracts are already being set for Easter contracts. However, it will be a balancing game for meat companies to keep both prices in-market and farm-gate prices at acceptable levels at either end of the chain, while achieving a reasonable margin for their own operations. Companies do seem to be better aware already of the need to avoid procurement competition this season.

With the majority of meat and wool production being sold from late November through to June, the next six months will be crucial to farmers and meat companies.

With the red meat sector’s Taste Pure Nature marketing campaign – developed by meat exporters with B+LNZ – about to kick off, we’ve got the best chance yet to make the most of the opportunities offered.




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