China’s demand for New Zealand’s beef, lamb and mutton is forecast to propel both sheepmeat and beef exports past the $4 billion mark for the first time.
Beef + Lamb New Zealand’s (B+LNZ) New Season Outlook 2019-20 report forecasts beef, lamb and mutton prices to lift from historically high levels, helped by continuing strong export demand and an expected weakening of the New Zealand dollar.
“We have forecast increases in farm-gate prices for beef, lamb and mutton in 2019-20, because small increases in in-market prices are expected to be further assisted by an easing of the New Zealand dollar,” says B+LNZ chief economist Andrew Burtt.
Beef and veal exports are expected to be up 5.9 percent to $4.17 billion and sheepmeat up by 4.9 percent to $4.23 billion.
This would add another $430 million in export earnings for red meat and offal following an extra $228 million and $1.23 billion in the two seasons prior – excluding fibres and other products.
This follows the exceptionally strong farm-gate prices for lamb and mutton since the 2016-17 season.
Beef prices have been steady since farm-gate prices jumped in 2014-15 but are expected to be up in 2019-20.
Burtt says the value of the New Zealand dollar has a large bearing on the sector’s outlook. The New Zealand dollar is expected to ease, partly due to the Reserve Bank of New Zealand lowering the official cash rate.
African Swine Fever (ASF) will have significant ramifications for global meat supplies and consumption. China is the world’s largest consumer of pork – making up around 63 percent of consumption.
However, New Zealand’s growth in the export value of red meat and volume began before the Chinese ASF epidemic.
“The growth in China’s red meat import demand is built on genuine demand growth as consumption has out-paced domestic production growth,” says Burtt.
“They are the end-consumer, not the manufacturer of raw product to supply other markets.”
Strong Chinese import demand for mutton and value cuts from lamb continues since strong growth began midway in the 2016-17 season.
The average farm gate lamb price is forecast to rise 3.5 percent in 2019-20 to 773 cents per kilogram and mutton is forecast to be up 4.5 percent to 473 cents per kilogram.
New Zealand and Australia dominate international trade in sheepmeat. Australia is expected to enter a period of flock rebuilding – weather permitting – driving significant declines in their production.
New Zealand’s export lamb production in 2019-20 is forecast to be steady as a minor increase in lambs available is offset by an easing average carcase weight from record weights in 2018-19.
The New Zealand lamb crop for spring 2019 is forecast down. With the breeding ewe flock stable, a smaller portion of ewe lambs will be retained making more available for processing.
Mutton export production in 2019-20 is expected to be up 8.7 percent as more ewes are available for processing, however, this was from a low base in 2018 19 and when more ewe hoggets were retained.
The farm gate price across all cattle classes is forecast to increase 4.9 percent to 517 cents per kilogram.
The growth of Chinese demand underlies this increase, creating competition particularly for New Zealand processing cuts – drawing volume away from the US.
ASF in China is most likely to benefit New Zealand’s beef processing cuts, which are a more apparent substitute for pork. Sheepmeat and other beef cuts are generally in the premium segment of the Chinese animal protein market.
New Zealand has a longer, deeper and more favourable trade relationship with China than the four larger beef trading countries – India, Brazil US and Australia.
The short to medium-term outlook for New Zealand’s beef exports is looking solid with signals that the US and Australian breeding cow herds could be entering downward phases of their production cycles.
New Zealand’s beef and dairy cattle herds are expected to be remain relatively steady and will lift total export production by two percent, largely due to a lift in steers and heifers processed.
New Zealand’s beef cattle herd grew by 2.6 percent to 3.82 million head at 30 June 2019. Trade cattle carried over balance date contributed to the rise as the number of breeding cows is estimated to have decreased slightly. Generally, the national beef cattle herd is stable after increasing in the previous two seasons.
Overall, the nominal farm profit before tax is forecast to remain unchanged at $173,000 ( 0.1 percent) for 2019-20 on average for sheep and beef farms.
Adjusting for inflation, the forecast is a decrease of 1.9 percent for 2019-20. However, this decline is from the second highest level since the 1970s.
“Farm expenditure for 2019-20 is forecast to increase overall, at a rate that is marginally greater than the increase in revenue expected due to increased farm-gate prices,” says Burtt
Part of the expenditure increase is consolidation of the farm business in a profitable season but some costs have risen such as insurance, fuel and shearing – despite wool revenue declining.
Burtt says that while there is uncertainty surrounding international trade and the threat of a slowdown – chiefly in some of New Zealand’s major markets – New Zealand’s sheepmeat and beef exports are grounded in solid demand from large economies. The production outlook and contribution to New Zealand’s economy by the sheep and beef sector remains positive.