The deductions from the Meat Industry Association (MIA) have proved prescient, although the -20c reduction to Fonterra’s forecasted mid-range milk price forecast is another pretty good indicator.
However, with 20-20 hindsight with the latest MIA update, we proceed. Red meat prices for the February period are down -18% on the same period last year. This comes on top of the -7% drop shown for the January period.
Two big drivers have been at play; China appears to be far slower at getting into gear than was earlier predicted and the world economy, largely due to Russia’s invasion of Ukraine, is continuing to stagger along. Given China only lifted its Covid-19 restrictions in December, perhaps we have been overly optimistic (desperate?) to see an upturn as their economy warms up and another month or two may need to pass.
Reports from China indicate that consumers there are in spending mode but are being more discerning in what they spend it on.
Given the previous upward trends for red meat and dairy, it would have seemed likely these would have been in the attractive to purchase category but the evidence to date is perhaps not. The MIA report shows that prices for most products are back to around 2020 levels and these results are repeated across most regions New Zealand exports to with the exception of the US where for sheep meat volume rose by 8% and value up 9%.
Beef volumes rose +2% overall but value dropped -18% and aligned more to early 2021. Beef export volumes to China and the US were up +8% and +7% respectively.
However, the value dropped by -15% to China, to $147 million, and by -19% to the US, to $115m. The average FoB value for beef for China was $7.87/kg compared to $9.98/kg last February, and for the US it was $7.89/kg compared to $10.46/kg. Beef exports to China still remain well above pre-African Swine Fever (ASF) and pre-pandemic levels, suggesting that beef has become a more permanent part of Chinese consumers’ diets. They are just being a little more discerning in how they spend.
So, for meat a bit of a mixed bag and reflecting the economic times.
On a more positive note the UK has now reached agreement to join the CPTPP making it the twelfth member country (along with; Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, and Vietnam.). The United Kingdom’s imminent acceptance is likely to be finalised at the upcoming CPTPP ministerial meeting in Auckland in July. However, it also means that CPTPP members now face difficult decisions about the applications of five other economies—including China and Taiwan.
The CPTPP is already one of the world’s largest free trade agreements (FTA). The combined GDP of its member states (some of the largest and fastest-growing economies in the world) is $13.5 trillion. UK farmers are not so enamoured with the deal fearing that it will allow too much access into the UK from other food producing countries (including NZ) and were already concerned about the access granted to Australia and New Zealand with the earlier FTA. Despite their concerns the MIA report shows that that for sheep meat exports to the UK both volumes of New Zealand exports and value were down to below pre-pandemic levels. Volumes by -43% and values -63%.
The latest GDT auction results have predictably fallen, again, by -4.7% overall. Given that WMP has led the fall it indicates that China is still spending conservatively. Cheese bucked the trend and went up by +3.8% although on the back of some previous heavy falls.
- Butter index down -3.3%, average price US$4,595/MT
- Cheddar index up +3.8%, average price US$4,167/MT
- SMP index down -2.5%, average price US$2,579/MT
- WMP index down -5.2%, average price US$3,053/MT
This is the fourth fall on the trot and has taken the average weighted GDT price back to November 2020 as does the WMP price. This just confirms what Fonterra have already indicated in their forecasting although there are still potentially downsides to get to the Farm gate price of $7.74 of September 2021.
Fortunately, this season will have seen some better (more profitable) sales made earlier in the year. It does however start to create some questions around how firm next season's price predictions can be viewed. As usual, it all depends upon China.
2 Comments
If you are a farmer just keep doing what you are doing. Don't worry about what might happen. In all reality people will keep eating.
Politics will always interfere in markets, always have. Thing is if you look back to the beginings of civilization farmers have always been manipulated by the so called elite or rulers.
Strangely enough the food producers have always been the key ingredient to civiliztation but the worst treated and generally poorly paid.
When ever something comes up where farmers might make a dollar everyone jumps down their throat telling them how it should go.
Next time you walk in a super market, think about what you might like to eat. Produce grown by keen farmers or green slime produced in a factory.
The average age of farmers around the world is approaching 60. The up and coming are not interested.
NZ is in a unique position where we have lots of land that can be used as carbon sinks to supplement the incomes of farms through the ETS. The general population should be supporting existing farmers to use this income to keep farms producing.
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