ANZCO Foods Market Update - June 2024

Global markets for beef and lamb have been showing some signs of life of late, but overall the general trend remains one that is challenging for beef and lamb exporters as we look ahead to the next three months.

Demand for lamb in the important UK and European markets has been relatively positive over the course of the past month and it has been pleasing to see values increase accordingly. This continues to be driven by supply dynamics as opposed to any real change around consumption. High local livestock prices look set to stay throughout the northern hemisphere summer and that is having a big impact on the ability of our customers to make a profit. A lot was made last month of the UK supermarket chain Morrisons decision to back away from their historic 100% British position, which was all about the cost of the product that they were putting on shelf and the realisation that it was not viable to continue based on local supply. It also highlights that many in the industry see this is not just a short-term aberration driven by weather, but a systemic issue within the industry that means that the cost of British lamb will likely be high and volatile well beyond 2024. This presents good opportunities for New Zealand exporters longer-term. Despite the upbeat environment, the increased prices for our lamb in the UK and Europe of late is of course all relative, and prices remain well behind where we were a couple of years ago when we were able to provide our farmers with much higher livestock returns.

The US lamb market has also remained in good stead over the past month, although we have seen some headwinds around Frenched racks that we hope will be short-lived. Our joint venture in the US, The Lamb Company, is doing a good job managing relationships, particularly in the retail channel, and are working hard with their partners to ensure that lamb is promoted and that consumers are encouraged to buy our product despite the underlying lack of confidence that is apparent across the US consumer base due to sticky inflation rates and cost of living challenges that remain top of mind.

The lamb market in Japan continues to be challenging. There have been some seasonal ups and downs as they head into their summer, but overall the dynamics are not positive.

And then of course there is China, which is so important to the value we can achieve across the entire lamb carcass. Here we also see continued challenges, both in terms of underlying consumption in retail and foodservice as well as on the supply side, with strong domestic production competing directly with imported raw material coming from both New Zealand and Australia. It’s hard to see a meaningful recovery in terms of pricing for lower value products that we sell there and have few other homes for around the world, at least in the coming quarter and likely for the remainder of 2024.

Beef in China is also a struggle currently. Putting to one side the continued challenges around consumption and consumer confidence, supply is a big issue. We continue to see huge amounts of South American beef coming into the Chinese market at relatively low values and this is just adding to the amount of product sitting in local supply chains. On top of this, domestic milk prices are at their lowest levels for over a decade and this is resulting in an increased volume of dairy beef being made available to our Chinese customers as dairy farmers liquidate their herds. This just adds to our headaches when it comes to achieving the pricing that we need to see.

Of course, the challenge on price in China is being accentuated due to the relatively buoyant market conditions that we’re seeing for beef in the US. On commodity manufacturing beef, prices have actually softened over recent weeks, but we remain confident that this is a short-term aberration as opposed to the start of a trend, and just over this past week we have started to see the number of inquiries pick up again and our pricing start to move in the right direction as a result. We remain confident that the US will be the highest returning market for our lean cow and bull trim for the remainder of 2024 and likely well into 2025 due to the shortage of cattle in their domestic industry. The differential between domestic lean meat prices and imported is at historically high levels, which in itself is good reason for confidence. So too is the continued strong demand for premium beef cuts in the US with inquiries at a level we have never experienced before, as retailers and foodservice operators become more open to consider imported grass-fed options to provide a cost effective and good quality offering for their end-users.

Premium beef demand in both the UK and Europe has also been trending in the right direction, and it has been particularly pleasing to see the UK Free Trade Agreement open up some excellent opportunities for us to grow a new market for our premium beef. These new opportunities in both the US and UK are welcome additions to our portfolio given the challenges in both Japan and China on chilled beef cuts, which are two markets we have relied on over recent years but which we expect to be less important for us over the balance of this year.

With production tapering off as we head into the depths of winter and as our plants shut down for important R&M, our supply to international markets of both lamb and beef will tighten. This too should help us push prices and put us in a good position as we enter the last three months of the year.

Finally, just a quick note to say how much I appreciated the chance to be part of our Chew the Cud supplier events over recent weeks. There were some tough messages sent in terms of the global trade environment, the outlook for the New Zealand economy, and ANZCO’s current market challenges, and in this environment it’s even more important that the connection between ANZCO Foods and our farmers is solid and that we understand what is going on, on both sides of the fencepost. I certainly thank you for your support and hope that some of the positive trends we are seeing in specific markets at the moment will continue to play out over the months ahead.