By Allan Barber*
Rabobank’s quarterly report on the global beef market maintains South American beef producers, particularly Brazil, will be the major influence on the beef trade in 2016.
The most notable features are expected to be an increase in China’s official imports which rose sharply by 60% last year, a decline in US imports and lower than usual Australian beef production. New Zealand’s cattle kill is forecast to be earlier and lower than 2015 because of the earlier dairy cull. Although the American beef kill is still at 20 year lows, high stocks of frozen product will continue to put a dampener on both prices and import volumes.
Therefore South American beef producing countries are expected to be the only major producers demonstrating growth during 2016. Brazil, Argentina and Uruguay are the most notable South American beef exporters and are already benefiting from weaker exchange rates.
Brazil’s economy and political situation are pretty dire with high unemployment and a declining GDP leading to lower domestic consumption. However this combination means more volume available for export at market prices that incentivise cattle farmers to maintain their cow herds. This will result in a rebuilding of the beef herd going into 2017. Meanwhile Brazil is expected to be granted access to a share of the US duty free annual imports during the first half of 2016.
If the Brazilian exchange rate remains favourable, it may also be possible to export beef at the standard duty rate for out of quota product. It has previously been excluded from the USA for several years because of FMD. Access to the US market may also enable Brazil to negotiate access agreements with other countries from which it is currently excluded.
Brazil is expected to export 200,000 tonnes of beef to China in 2016 which is twice the amount shipped in 2015 and would make it the largest supplier to China. This compares with New Zealand’s export tonnage of 74,500 in 2015. A significant proportion of Brazil’s exports to China will be a transfer from the grey parallel market to the official market, as Chinese authorities tighten controls on the grey market. Furthermore 16 Brazilian beef plants are now licensed to export to China with five being added recently.
Argentina’s beef production has been restricted since the introduction of the 15% tax on exports in 2003, but this was removed at the end of last year. Although it will take at least two years for herd rebuilding to take effect, exports are expected to replace domestic consumption. Exports to all markets in 2016 are forecast to reach 300,000 tonnes, a 30% increase on 2015 (New Zealand’s are 450,000 tonnes).
Uruguay already holds 20,000 tonnes of quota for access to the US market and is expected to export more than twice that amount in 2016.
There are two major implications for New Zealand from these various global beef trade developments. The first is how soon US demand and prices will recover and what effect, if any, higher imports of South American product will have, although lower availability of Australian beef will have a favourable impact. The second is the effect of Brazilian exports to China, the level of Chinese demand and the impact of grey market imports as distinct from official imports. While Brazilian exports to China have traditionally gone via the grey market, most Indian buffalo exports have also taken the same route.
Rabobank’s report predicts New Zealand will see a slow improvement in demand from the USA, aided by reduced inventories and lower Australian production. But the report suggests the challenge in future will be to remain competitive in key markets when production in other countries picks up, by ensuring product differentiation through quality, food safety and traceability.
To subscribe to our weekly Rural email, enter your email address here.
Farms For Sale: the most up-to-date and comprehensive listing of working farms in New Zealand, here »
Here are some links for updated prices for
- lamb
- beef
- deer
- wool
M2 Bull
Select chart tabs
*Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country. He is chairman of the Warkworth A&P Show Committee. You can contact him by email at allan@barberstrategic.co.nz or read his blog here ». This article first appeared in Farmers Weekly and is here with permission.
23 Comments
I was reading an article that said many cattle develop hoof rot in the U S because they spend so much time in feed lots where the floors are covered in cattle dung.Ipresume that South American farmer don't use feedlots on the same scale that the Americans do,hopefully.
The beef price just has to collapse , it's a perfect storm of a high dairy cow kill, huge cattle numbers, large cattle herd rebuild coming to an end and cheap grain prices making pork and poultry super competitive and cattle on feed heavier, it's hard to even sell Alfa alfa in California at present as all the feedlots and dairy's can get grain so cheap.
>>
This is different from what is happening in South America, where Brazil, Argentina and Uruguay are all quickly rebuilding their herds. Consider these numbers. At this point we do know the US cattle inventory as of January 1 was 91.988 million head (+2.8 MM) and the Canadian January 1 inventory was 11.960 million head (+40k).
USDA estimates the Mexican January 1 cattle inventory at 16.450 million, down 670,000 head.
The combined North American cattle inventory on January 1 thus is estimated at 120.4 MM head, 2.2 million head (+1.9 per cent) higher than a year ago but still 13.8 million head (-10.3 per cent) from what it was in 2005.
Now consider the January 1 inventories in Brazil, Argentina and Uruguay. These are the equivalent of our July inventories but we are looking at the trend here. According to USDA, their combined inventory as of January 1 was 283.2 million head, 6.5 million head (+2.4 per cent from a year ago). Since 2005, their inventory has increased by 47.3 million head (+20 per cent). If we were to also add the Indian buffalo growth, the numbers become staggering. And ultimately that is what is driving the retreat in global beef prices.
http://www.thebeefsite.com/news/49388/cme-us-cattle-numbers-continue-to…
http://www.beefcentral.com/trade/us-grinding-beef-market-hits-20-month-…
http://beef2live.com/story-world-cattle-inventory-ranking-countries-0-1…
http://www.beefcentral.com/trade/us-trade-subdued-as-march-beef-exports…
Anyone who doesn't think all and sundry will increase production at these prices, is niave. It's a matter of when prices do a WMP, you can't change that, and it's not easy to prepare for the inevitable, but I wouldn't be making long term descisions based on the expectation that these prices are permanent. Though I have heard some saying exactly like they said with dairy, that prices are going to $10 lol
all cattle have trimmings, Sth American beef competes more with our lean beef. Deer have a lot of poor quality cuts and from memory only about %20 prime cuts but they may have got better at that. At the end of the day we are in the Protein business. Like the dairy industry our futures are now tied to China's.
>>
The Chinese market is opening up to Brazil, with five more plants opening access recently which brings the total approved plants to 16.
Brazil is expected to double its export volume in 2016 to China, shipping about 200,000 tonnes. This increase would rank Brazil as the top beef exporter to China in 2016.
"Meanwhile, the possible first fresh beef shipment to the US during the first half of 2016 is likely to support an even higher growth rate for Brazilian beef exports in the second half of 2016."
http://www.thecattlesite.com/news/49504/brazils-beef-exports-to-rise-as…
http://modernfarmer.com/2014/03/tail-curling-facts-chinese-pork/
http://beef2live.com/story-world-meat-production-1960-present-0-111818
I dare say there is no realistic price point for a conversion back to beef. You cant turn a debt ridden dairy unit into a profitable beef farm. That is a simplification and you want numbers but beef just doesnt stack up against debt. NZ is in a hole of its own making. All the pollies the banksters and the dairy converters should hang their heads in shame. We now have low beef numbers on a dropping schedule. You cant magically find a million cattle to farm. And only bulls will you kill quick smart to get a return worth talking about in 18 months. If the dairy units cant survive now with constant income how would they solve the hardship involved in waiting 18 months from this august.
You cant turn a debt ridden dairy unit into a profitable beef farm
You can if you buy it at the right price at a mortgagee sale. I am trying to understand the residual value of failed marginal diary conversions. Not interested in the politics of why or how, just where the bid is going to be on this land. All land has some value to someone.
That would be between you and a bank I guess. Remembering the age problem facing rural NZ, 2/3rd's of farmers will retire in the next 12 years, very few children interested, in sheep and beef not so sure about dairy. Lots of old farmers around here, Crazy regulations, H&Safety and local body costs. I'm not even sure that NZ is the right place to invest in farming anymore. When it's like when I was young, the banks were so hard to get money from and you needed over %60 plus livestock money, then we will find out what farms are really worth.
I look at the dairy conversions around here and they have to drop a mile, till I would be interested. Way more than the banks will allow.
The problem is we are small producers just a rounding error for the big guy's. Brazil and the countries to the south are just touching on their potential and money is flowing into their agriculture from big funds. I read somewhere that Brazil still has a mountain of potential farm land to develop.
With our traditional market shrinking so does the demand for food we used to produce and we change to things like squash but a lot of our hill country is not so versatile and really needs low costs, especially fertiliser. Where does our sheep industry fit into this?
There must be a huge deficit in capital spending happening in much of rural NZ. I don't hear the topdressing plane very often.
It's the downside of the bright side of globalisation.
http://en.mercopress.com/2012/10/17/is-brazil-the-reservoir-of-future-a…
IT Guy what is your planned method of beef production? I have been watching realestate.co.nz pretty closely lately and there is certainly plenty of farmland up for sale. But the pricing if there is any is horrendous. But if you can pay cash you would do alright. Entering the beef market at this moment would probably b like buying a good dairy herd when the payout hit $8. A lot of folk are going to be lucky to clear $300 an animal after havjng farmed them for 12 months. But who knows, I am siding with Aj though and picking a slide. Backing that up by not buying my usual bunch of heifers to fatten over winter. Paying $1000 now to kill them in september for $1100 ...if I am lucky ...seems a waste of a good winter. I am sitting tight with a few lambs ewes and weaner bulls and waiting to see how it all pans out.
iTGUY
Have you wondered why there is not a string of receiverships and virtually no mortgagee sales in the dairy sector ?
Farm working cost are coming down very fast as is the interest rates on those debt ridden farms that you talk about
Yes times will be tough on dairy farms but don't underestimate farmers ability to take cost out
IT GUY you may have a long wait for that cheap farm
But we now are facing real competition, it's no longer the old boy club of years gone by, Asian countries won't play by the rules of the old empire. There will not be special access quota's for our products because we speak english.
On top of that, cheap and abundant finance has poured into developing countries and their production has soared, their costs are a lot lower than ours even in the UK, farm diesel is only .25p a litre. Unless we can correct our cost structure, which will be reflected in land prices soon, free up enough capital for young people to return to the industry, farming is going to be facing some interesting times, especially as it's what the Politicians thought we could use to leverage borrowing against unproductive assets, which lets face it has got a bit out of control.
So while traditional dairy farms on good land with low debts will be fine, large corporate farms on marginal land, carrying most of the debt will not. Land values will eventually have to reflect the lower payouts.
Yes the OCR reductions are helping and eventually you would think that this would reflect in a lower NZD that should help balance things out. However, unlike rental houses that can simply be locked up and wait for a better offer, farms are going to require maintenance, interesting re the number of farmers that are near retirement age, demographics indeed.
Whats stopping what Russia has done to the wheat industry happening to all the other Agriculture exports? Helped by new technology like sex selection.
In 1989 the USSR was staving and running out of wheat for bread, today 25 years later it's the biggest exporter in the world and leaving farmers in the Mid west trying to figure what crop they can grow so they lose the least amount of money.
http://www.newsmax.com/Newsfront/farmers-money-government-crop/2016/02/…
Big farmers losing a ton of money this year
http://www.motherjones.com/tom-philpott/2014/10/farmers-are-losing-225-…
http://www.jsonline.com/business/demand-for-farm-loans-surges-amid-low-…
Wheat Glut Erodes U.S. Exports as Cheap Russia Grain Wins Buyers
http://www.bloomberg.com/news/articles/2015-09-03/wheat-glut-erodes-u-s…
Russia could become the world's largest supplier of ecologically clean and high-quality organic food, said President Vladimir Putin on Thursday. He also called on the country to become completely self-sufficient in food production by 2020.
https://www.rt.com/business/324605-russia-putin-healthy-food/
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.