Rabobank reckons that despite rising US and Brazilian production, 2018 prices for NZ beef won't suffer. But new Chinese emphasis on domestic production does cloud prospects further out

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Rabobank animal proteins analyst Blake Holgate said stronger-than-anticipated demand for New Zealand beef in key export markets, combined with restricted domestic supplies and a weakening New Zealand dollar, resulted in a marginal increase in New Zealand slaughter prices in quarter three.

Mr Holgate said the continued strong New Zealand beef pricing was primarily down to significant lifts in the volume and value of beef exports to China and the US during the third quarter of the year.

“Surging Chinese demand for prime beef cuts resulted in a 21 per cent lift in the value of New Zealand beef exports to China during quarter three in comparison to the same period in 2016,” he said.

“Exports to the US market also increased considerably during this period with total exports up by 11 per cent on volume and nine per cent on value in comparison to last year. The US market continues to defy earlier expectations that it could weaken and is holding solid on the back of strong domestic consumer demand and restricted supplies of lean trimmings from Australia and New Zealand.”

Looking forward to early 2018, the report says New Zealand beef schedule prices are anticipated to come off current levels, but, provided consumer demand remains strong in China and the US, any fall should not be significant.

“We do expect to see New Zealand beef prices fall as domestic slaughter rates begin to increase in December and into the New Year, but solid market fundamentals should ensure that any drop over the next quarter is within the normal seasonal range,” Mr Holgate said.

US and Brazil to lead global beef production growth

The report says an estimated additional 1.3 million tonnes of beef will be produced globally in 2018 across major production areas, with the US and Brazil expected to provide the largest production increases.

Mr Holgate said increased global beef production would further shift the balance of power in favour of importers during 2018. “This shift has the potential to lead to short-term market access disruptions, and exporters will be under pressure to reinforce supply chain arrangements to maintain access in a competitive environment,” he said.

According to the report, US beef production is expected to see its third consecutive year of expansion in 2018, with a three per cent jump in production forecast.

“Domestic consumption is expected to grow in the US, however it will be outstripped by production growth and exports are forecast to grow to 12 per cent of total production,” Mr Holgate said.

Brazilian beef production is also forecast to rise significantly in 2018, Mr Holgate said, rebounding after political and corruption scandals that led to a fall in the country’s beef exports during the first half of 2017.

“Brazilian beef exports have recovered strongly during the second half of 2017 and we expect this recovery to continue into next year with a five per cent increase in exports forecast for 2018.”

Mr Holgate said Brazilian export growth would be facilitated by increased presence in existing markets and increased access to new markets. “Brazil has recently seen a significant lift in its beef exports to Egypt, while further exports into China are anticipated with 11 Brazilian beef plants in the final stages of gaining accreditation to access Chinese markets. If these accreditations are approved, Brazil would have 27 beef plants with access to the Chinese market.” he said.

One area that will be causing concern for the Brazilian industry, highlighted in the report, is the recent Russian ban that has temporarily been placed on Brazilian pork and beef products following the detection of ractopamine on shipments. “This commenced on December 1 and has come at the low point of the season, however, Russia is a significant export destination for Brazil accounting for 11 per cent of Brazilian beef exports. It’s unclear how long the ban will be in place and could lead to a significant volume of beef needing to find another export destination, potentially increasing competition in export markets common to both New Zealand and Brazil, such as China.” Mr Holgate said.

Chinese demand growth key to balancing increase in exports

The report says Chinese import demand growth will play a pivotal role in balancing the global increase in beef exports. Mr Holgate said Chinese domestic beef production had been falling in line with a gradual decline in cattle inventory

“As a result, there is a growing production gap and Chinese beef imports are expected to increase 20 per cent to 800,000 tonnes in 2018.” he said.

Mr Holgate said China’s ability to mop up increased global beef supplies beyond 2018 would to some degree depend on the impact of recently-enacted Chinese government policies to promote beef cattle farming.

“Investment into the Chinese beef and cattle sector has been limited to date in comparison with other meat sectors, however, we have seen the government initiate several recent policies to stimulate increased domestic production.”

“The impact of these policies is not yet clear and more time is needed to see if they will be successful,” he said.