ANZCO Foods Market Update - April 2024

The US market for beef and lamb continues to lead the charge as we look ahead to the possibility of light at the end of the tunnel with regard to demand and pricing across our global markets.

The fundamentals in the US remain challenging for domestic packers and customers. Beef production is down 4% YTD and this is flowing through to record prices for domestic lean beef for manufacturing. Dry conditions have persisted in many of the key cattle and dairy regions, which means we are still seeing strong numbers of cattle moving on to feed. This would suggest the worst is yet to come from a domestic industry perspective, and with good rains forecast during April in relevant parts of the country, there is a very strong possibility that the tap will finally be turned off and cattle supply will dry up very quickly. This in turn would suggest that prices for lean manufacturing beef will continue to firm as we head into the US summer. This, of course, flows straight through into the cost of having beef on menus and on retail shelves, and we continue to see US consumers trading down or away to minimise the pain on their wallets. Notably, the price differential between beef and chicken has opened up to the point where retailers and foodservice operators are focusing their efforts on pushing poultry to offer their customers a price-effective protein option. Despite these concerns over domestic consumption, the reality for many of our customers is fast sinking in that the price for imported beef – manufacturing lean and premium cuts – will increase as the balance of 2024 plays out, and we are very conscious of the opportunity this offers us in what has been a challenging start to the year.

Conversely, demand for beef across other key markets, notably China and Japan, has yet to show any real signs of life. If that doesn’t change then ultimately we will sell less of our product into these important markets in the short term. This makes sense in terms of maximising revenues but is not ideal regarding maintaining long-term strategic relationships. It will be a balancing act during the coming months to find the right mix across our markets and customers.

The European beef market sits somewhere in the middle.  We have certainly seen an uptick in inquiries for our product in recent weeks, which bodes well for the coming European summer season. Foodservice operators appear to be reasonably optimistic about future domestic and international tourist numbers, and this is driving interest in securing forward positions. Retail remains more subdued, but the change in season certainly helps as consumers pull out their BBQs.

As many in the industry are communicating, lamb remains the more challenging category, yet the story is very similar. US demand and pricing are leading the charge, Japan is flat, and Europe and the UK have seen some positive signs of life that give us confidence heading into the second half of the year. The biggest challenge when we talk about these markets is that it’s all about legs, shoulders, and racks, which are high value and very important but represent only around half the carcass that we need to sell each and every week. This is where China becomes so critical. Unlike beef, we are heavily reliant on China to take the lower value half of the animal, and market diversification for these specific items is not really an option. As the latest export statistics show, despite slower demand, China is still taking close to 50% of New Zealand’s total sheepmeat export volumes, with the next biggest market sitting at just 10%. That’s not about exporters being lazy. It is simply the reality of consumption patterns globally. Inventory levels in China need to come back into balance with a mix of high volumes of imported sheepmeat and a growing influence of domestic sheepmeat as flock numbers increase, and consumption needs to increase driven by improved consumer confidence. However, this is going to be a slow burn given the issues in the wider property and share markets that have hit many in the middle class hard, so we are unlikely to see revenues across the whole carcass achieve the sort of levels we have enjoyed in the past.

While many of the current market challenges and opportunities noted above will be the same across the industry, each processing company will have its own strategic focus to determine how best to navigate ongoing volatility. For ANZCO that is about executing our core business as expertly as possible. That covers what happens in our processing plants, how we manage our inventory and supply chains, and how we satisfy the needs of our customers in different parts of the world. Having our offshore sales offices in the UK, Belgium, Japan, and China provides real value to how we run our sales book, and our growing healthcare and foods business, particularly our Angel Bay foodservice and retail markets, provides an important buffer against the challenge of operating within commodity cycles.