ANZCO Foods Market Update - October 2024

There have been some good news stories over the past month that at the very least have an indirect impact on our markets for beef and lamb.

In Europe it was a relief to see that common sense has prevailed and the proposed deforestation regulations that were intended to be implemented at the end of this year have now been delayed by at least another 12 months. These rules were very confusing and extremely difficult to implement, and there was a great deal of concern within our industry and our customer base in Europe about what was actually going to happen post 31 December in relation to our ability to access this important market. Work on finding a solution was well underway however, and this issue actually created a great opportunity for industry collaboration. The important point to note is that all the Europeans have done is given us a stay of execution. It is important that the solution being worked on continues to be driven to a successful conclusion as quickly as possible and we leverage the delay to test this tool properly and ensure we are in the best position possible to meet the European requirements come 2026. The deforestation regulations are just one example of the sort of environmental based non-tariff barriers to trade that the New Zealand red meat industry will continue to face in the future. It's important we take it seriously and think proactively and collaboratively about finding solutions and providing governments and customers with information before they force unworkable rules and requirements upon us.

Another good piece of news of late were the abbreviated port strikes in the US. This had the possibility of becoming a massive issue for supply chains going in and out of the US and it would not have taken long before we would have felt that impact here in New Zealand, creating real headaches for us over the last three months of the year, which will be an important window of opportunity as new season production comes on line and we look to take advantage of a strong beef market in North America. While a crisis was averted in this instance, this once again highlights how fragile our global supply chains are and how reliant we are here in New Zealand on our ability to operate within that global environment. Whether it be COVID-19, terrorist attacks on ships in the Red Sea, or port strikes in key markets, supply chain reliability has become more of an exception than the rule over recent years, and it will no doubt be an ongoing challenge for us in 2025.

In China, it has been interesting to watch how the government is suddenly looking to boost the local economy through stimulus packages. In my last report I noted how the Chinese economy continues to struggle and that it would be a slow burn towards a meaningful and sustainable recovery with implications for our business in 2025. The announcements from the Chinese government certainly provides the possibility of an acceleration in that recovery, and it will be interesting to watch how this plays out, how our customers react, and if we see a spike in consumption across both retail and foodservice channels. All eyes are now on Chinese New Year in late January to see how this crucial holiday season and consumption period goes. Our customers are certainly looking to increase their purchases in the hope of a positive outcome, however pricing generally remains behind other options around the world, which means volumes are unlikely to be at the level that we have come to expect over recent years. One positive sign is the level of beef inventories in-market, which continues to decline as South American volumes redirect towards North America and domestic dairy cow cull rates slow. While that might not necessarily help drag prices up to where they need to be in the short term, it does bode well for another positive sign heading into 2025.

In general, markets have been steady over the past month and we expect that trend to continue over the balance of the year, both on beef and lamb. As reported last month, the US frozen beef market seems to be very much in a holding pattern. Domestic production of beef actually remains relatively stable considering the reduction in cattle numbers across the industry. This comes back to carcass weights, which are reported to be well up on historical averages. Regardless, dairy cow slaughter numbers are down 15% year on year, and this is a key determinant for how we will fare, given that we are focused on that lean end of the market. As noted last month, it is all about patience, and I remain positive about the value we will get out of the US market in 2025. In the mean time, our premium chilled beef market in the US continues to go from strength to strength. Lamb sales have also been generally positive, although high inventories of racks continue to present immediate challenges as we look ahead to the beginning of the new production season.

I referenced our negotiations with UK retailers for their lamb demand heading into the first quarter of 2025 in my last report. We have certainly been able to secure good prices relative to where we were this time last year, or even three months ago. There is still plenty of work to do to get value back to where we were two or three years ago, but it is nice to see a return to what I would consider fair value for our quality product.

There has been very little change in Japan over the past month. Like China, the wider economic environment is hurting consumption, but unlike China, we do not expect massive government intervention to try and stimulate domestic economic activity. Beef inventory levels have started to rise once again, which is a concern, and they are now up 27% since March, so our sales team in Tokyo is having to work hard to ensure we do everything possible to keep our product on shelf and keep our prices as high as possible

Finally, one last piece of good news this month was ANZCO’s strong showing at the 2024 World Steak Challenge, with seven medals awarded. While ANZCO Foods gets its name in lights as a result of our medal haul, realistically the recognition belongs to our farmers who supply the high-quality beef that ultimately gets labelled with the Greenstone Creek, Ocean Beef or Stony River Black Angus brand. Thanks for your hard work to make this result possible.