Guy Trafford looks at the varying prospects in the dairy and sheep & beef sectors, watching price signals diverge

The pricing signals coming back to farmers is a ‘tale of two sectors’. The latest GDT dairy result has, finally, turned around the ongoing falls that had afflicted products. But the rumours that lamb would stay at $9.0 per kg up until Christmas have been well and truly put to bed.

Firstly, the GDT auction results lifted by 2.4%; Westpac are giving credit for the lift to the fact that China are beginning to lift the restraints placed around their society and in particular the loosing of post travel covid quarantine times.

Personally, I think it is a bit premature to lay too much of the lift on this, as while travellers arriving in China will spend less time in quarantine under changes to sweeping anti-virus controls announced Friday to reduce disruptions to the economy and society, the announcement came as an upsurge in COVID-19 cases prompted Beijing to close parks and impose other restrictions. The country reported 10,729 new cases, and more than 5 million people were confined to their homes in the southern manufacturing hub of Guangzhou and the western megacity of Chongqing. Meanwhile, the bulk of Beijing’s 21 million people undergoing near-daily testing, another 118 new cases were recorded in the sprawling city. Many city schools switched to online classes, hospitals restricted services and some shops and restaurants were shuttered with their staff taken to quarantine. Videos on social media showed people in some areas protesting or fighting with police and health workers.

So, while the future may be more relaxed there are still tight constraints. The lower global production being currently experienced is likely to provide the stronger underpinnings for price improvements. Although that will influence China’s purchasing also. The current GDT results are below, and note it hasn’t all been upward with both butter and cheddar experiencing drops perhaps reflecting some of the uncertainty in the food service sector (everywhere).

• Butter index down 0.8%, average price US$4,829/MT
• Cheddar index down 1.3%, average price US$4,746/MT
• SMP index up 3.1%, average price US$3,057/MT
• WMP index up 3.1%, average price US$3,397/MT

Longer term, Westpac are expecting China to grow demand next year saying “we expect the Chinese economy to grow by 6% over 2023 from a soft 3.5% over 2022. This pickup in the Chinese economy and looser Covid restrictions should translate into improved Chinese dairy demand over the year ahead”.

Unfortunately, the red meat sector is not experiencing the same demand.

The rapid falls currently being experienced in most species classes are due as largely to the domestic supply and demand to get space at works as it is to the overseas conditions.

November into February (and beyond) normally show an annual decline however this year the fall for lamb at least has been steeper than usual. Talking with a couple of local farmers it appears that the scourge of Covid is still having an impact on processors and flowing through to farmers. It appears that staff illness in works is impacting upon animal throughput.

Normally this wouldn’t be such an issue as for many farms what is not done this week can be caught up with the next. However, with ‘last season’ lambs coming to the end of being able to be categorised as lamb as the adult teeth start to appear, this is putting time pressure upon farmers to get these animals off the farm and into the works.

The reduction in price going to the mutton grade is around 50% of that of lamb so a big issue for those farmers caught in this.

In the meantime, the Alliance group have announced a record profit. According to their press release “New Zealand’s only 100 per cent farmer-owned major red meat co-operative Alliance Group today announced a record profit before distribution and tax of $117.2 million for the year ending 30 September 2022. The profit result, which is a 186 per cent increase on the previous year, is based on a record turnover of $2.2 billion. The co-operative will be making an $11.3m profit distribution to its farmer shareholders, and in addition, a $10 million bonus share issue of one share per qualifying stock unit”.

Despite the current issues this should be seen as good news for the farming sector, as largely last season has proved to be a good one for both farmers and processors. Often in the past it has been one ‘wins’ at the expense of the other. Hopefully it indicates a more mature relationship between processors and farmers.

Despite the record profits changes at the top are occurring with both Chair Murray Taggart retiring (by rotation, but may be re-elected) and CEO David Surveyor is returning to Australia after 8 years in the role.