ANZCO Foods Market Update - December 2023

When thinking about what to write in this month’s update I decided to look back at what I had posted in December 2022. In that report I highlighted that beef and lamb markets through the first half of 2023 were likely to be hampered by three macro issues:

1. The conflict in Ukraine
2. The ongoing uncertainty surrounding China, largely due to their late arrival to the Covid-19 party and what that might mean for the wider Chinese economy
3. The global economic downturn resulting from a combination of high inflation and interest rates, and the impact that would have on consumer confidence

I also signalled there were encouraging signs that US beef supply was drying up, which would present opportunities for New Zealand exporters later in the New Year. I noted that the UK market was ‘a mess’ and that Japan was showing signs of duress around their general economic situation. So, in summary, my 2022 pre-Christmas message was that the story for global beef and sheepmeat markets was more ‘Bah-humbug’ than ‘Deck the halls with boughs of holly’.

A year on and it seems that not a lot has changed! The Ukraine situation has somewhat gone off the radar but only because of the chaos in Gaza. Both conflicts will only add to general market volatility in 2024.

The questions related to China as to how they would bounce back from their Covid-19 experience have largely been answered, with 2023 being one to forget in many respects when it comes to the value we have achieved from this crucial beef and sheepmeat market. The outlook for China in 2024 remains uncertain. There are still many questions we don’t have answers to around the future of their economy (deflation seems to be their latest issue, which is a hard one to overcome quickly), as well as how they intend to work through high in-market inventories of beef and sheepmeat, and how consumers will behave in the lead up to Chinese New Year and beyond. It is hard to be overly optimistic about next year despite my belief that China will remain our cornerstone for long-term success once the current challenges are eventually overcome.

Amazingly, we are still talking about how US beef is going to dry up, but the latest numbers show that domestic kill numbers are actually still very strong and the amount of cattle on feed is in line with where things were a year ago; so it feels like we are in a ‘Groundhog Day’ situation, where tomorrow never arrives! The 2024 quota access for Brazilian beef that opens up in January will only slow the process in the US again, but I remain confident that come the second half of 2024 this market will provide the first real chance of a recovery for New Zealand beef exporters.

The UK is arguably less of a mess than this time last year, but everything is relative, and the demand we are seeing is largely being driven by continued low prices for our lamb as opposed to any change in consumer sentiment. The inherent issues in the UK economy are still very much front and centre as we look into the first half of 2024. Likewise in Japan, having just returned this week from a visit to that market, my sense is that demand for New Zealand beef and lamb will remain subdued for the first quarter of 2024 at least, with currency pressures adding to continued inflation and the higher cost of living that is impacting consumption across both retail and foodservice channels.

One glimmer of light at the end of the tunnel has been the well-reported period of rain on the East Coast of Australia during the past couple of weeks and the hope that this will bring an early end to the liquidation of their national flock and herd, which has become the number one issue for us on the supply side of the equation in recent months. It will be interesting to watch how this situation develops come January and February, but in the short-term we are keeping a very close eye on markets, especially for lamb, to see if we can sense a shift in sentiment and a pullback in the aggressive behaviour of Australian exporters that has become so prevalent of late.

So, in conclusion, I feel a bit like Ebenezer Scrooge for the second year running because I am not offering you much in terms of an upbeat end-of-year report as you head to the beach, lake or wherever it is that you may be taking some time out with family and friends during the coming weeks, but it is the reality that we are operating in right now. The next key milestone in terms of markets will be Chinese New Year in early February, and that may give us the chance to reconsider how 2024 is going to play out. In the interim our focus is to keep moving product through the supply chain, working on the assumption that a sale today will be better than one tomorrow and we will ensure that we are working with you to do our best to make the space at our plants that you need as summer kicks into gear and the grass stops growing. Thankfully, one of the few real positive changes since December 2022 has been the increased availability of labour across all of our processing plants, hence we feel far more confident about our ability to run the lines at full speed in the important first quarter of the New Year.

Merry Christmas.

Rick Walker