ANZCO Foods Market Update - May 2024

This month's report is coming to you from Heathrow airport as I wait for my flight/s back to New Zealand. I've spent much of the past three weeks offshore, specifically in China, the US, UK and Europe. These are some of the key takeaways from my travel and from meetings with ANZCO’s customers and partners, which may provide you with some useful insight into the current state of the global beef and lamb market.

China still doesn't feel like China…

Despite reports of massive domestic travel numbers during recent holiday periods, my experience in China was one where airports felt exceptionally quiet. This is perhaps a sign of the poor level of economic activity and lack of business travel as well as Chinese consumers saving their travel budgets for those specific holiday periods when they head home to see family. There is also an obvious lack of international tourism in the country which may take some time to rectify, despite the Chinese government working hard to open visa-free access to the likes of the EU in a bid to encourage high value travelers to come back.

Restaurants also felt very quiet, and many of our customers lamented the continued struggles in the foodservice sector as consumers look to save their disposable income rather than spend it on eating out. This flows through into the shopping malls in Shanghai and Beijing, many of which were deserted on weekdays. On the streets, foot traffic was hardly at a level that I would have previously associated with these two great cities. The consistent message from our customers is that the beef and lamb markets continue to be tough. While in-market inventories might be under better control than they were 12 months ago, without a spark in consumption we seem destined to be stuck in first gear for quite some time to come. I have noted some industry commentators suggesting China is on the verge of turning things around. I personally don't see it. If prices in China are to materially recover during 2024, it’s going to be led by competitive tension largely out of the US, as opposed to any internally driven growth in demand.

The US is a game of two halves…

The prospect of a massive shortage in domestic beef supplies in the US has been well reported in recent months. The clear message from my trip is that this expectation is real, and while customers have differing views on what that shortage may mean for pricing, the theme is one of general acceptance that we are heading into a prolonged period of strong prices for beef in this important market.

That's the good news. The not-so-good news is that despite the relatively strong performance of the US economy compared to virtually everywhere else in the world right now, there seemed to be universal anxiety about the state of mind of US consumers and the pressures they are feeling financially, which are flowing through to their purchasing decisions.

It was interesting to see in cities like Philadelphia that actually the downtown restaurants seemed to be very busy, which can only be taken as a positive sign, yet every foodservice distributor I met commented that while the average volume per order is in line with historical norms, the average value of that order is well down despite the fact that the cost of the raw material they are sending to their end users has gone up. Essentially, restaurants are trading down as they look to provide value on the menu for their customers.

Likewise, the retail channel is also facing challenges when it comes to managing end users. The message from our in-market partners is that retailers are constantly looking for value items to help US consumers fill their trolley as cost effectively as possible. That means more ground beef and lower value cuts, and fewer tenderloins and ribeyes. Interestingly, the average price for beef at retail is at an all-time high and the gap between wholesale and retail prices has never been larger, suggesting US retailers are not necessarily playing with a straight bat and could be doing more themselves to help the situation rather than focusing on their own margins – a situation which is not necessarily unique to the US when it comes to how retailers behave! The good news is that to me it feels like, more than ever, grass-fed beef has an opportunity to grow its market share in the US retail channel. Grass-fed beef is generally priced competitively compared to its grain-fed counterparts, and as domestic grain-fed supplies dwindle and prices increase, and as US consumers continue to focus on their wallets, it is hoped that many will take the plunge and try New Zealand grass-fed products for the first time and then come back for more. It certainly feels like retailers are looking for the sort of solutions that our product offers and consumers are more open to a grass-fed option than perhaps they have been before.

UK and European customers are caught between a rock and a hard place…

The fundamentals in this part of the world haven't necessarily changed from a consumption or demand perspective in recent months, but of late we’ve seen some positive signs in the UK and across the continent when it comes to inquiries for our beef and lamb products. Part of this is seasonal as they emerge from another long winter, but the short-term driver has really been supply and the extremely high prices, particularly for lamb, that are coming out of the UK and Irish industries, which are our largest competitors in the region. That is driving customers to pick up the phone and assess what we can do to help, and we are obviously keen to do so where that makes sense for us. Now at the end of my travels, I have unanswered questions around how long this situation will last and if it is sustainable once main season UK and Irish lamb comes online and livestock prices revert to normal season patterns. Will our customers’ recent desire to leverage New Zealand product remain? Time will tell. It would be nice to think that we have at least created a new baseline for pricing in this part of the world as we look ahead to the second-half of the year, particularly on lamb. But again, consumption is not necessarily driving a long-term recovery here, and if domestic supply rebalances, it would seem to be optimistic to think that we can keep current prices going.

So in summary, there are plenty of opportunities and challenges for us all as we look ahead to the coming few months. The key message from my travel is that I have a continuing concern around the confidence of our global consumers and their appetite to pay premiums for New Zealand beef and lamb. Supply dynamics will be the key to our success as the remainder of 2024 unfolds.