ANZCO Foods Market Update - September 2024

There has been little change during the past month. Global markets are steady but challenging.

All eyes have been on the US market in recent months. At the moment we seem to be in a holding pattern. Strong volumes of South American and Australian beef entering the market, plus our own focus on the US of late, has meant that despite growing shortages of domestic product, cold stores are relatively full, and buyers are therefore reluctant to overcommit in the short term in the hope of limiting further price increases. Despite the current hiatus, the US remains the best option for New Zealand manufacturing beef as well as premium chilled cuts, and we expect that to be the case through the balance of this year.

There are reports that large volumes of Brazilian beef are already being placed in bond in preparation for release into the market come the opening of their 2025 quota year on 1 January 2025. That 60,000MT of quota access was always expected to be filled relatively quickly in the first quarter of next year but it looks like it may happen even faster than normal. That will also make it difficult to drive higher prices in the few months of 2025, but in some respects the faster this volume moves into the market and through the supply chain the better, as it will then clear the way for New Zealand and Australian product to have a greater influence on pricing (although I would also expect Brazil to continue to export beef into the US outside of quota for the balance of 2025 given the forecast gap between US and China prices). The key message here is, despite our continued bullish view around beef prices in the US, we may have to be patient and accept that the real benefit of tightening US supply may not flow through into prices until the second half of next year.

Lamb demand in the US continues to be solid, and our joint venture partner, The Lamb Company, is seeing good engagement across both retail and foodservice customers on racks, shoulders and legs, with the Thanksgiving and Christmas holiday season just around the corner.

I have just returned from another trip to China. The general sentiment from customers is that the market seems to be returning to a better sense of balance, with domestic beef supply reducing and inventory levels of imported beef returning to more manageable levels. This bodes well for the balance of this year and for the important Chinese New Year consumption period. We are seeing some modest increases in pricing across sheepmeat and beef, but realistically our Chinese customers are struggling to match the levels we are seeing in North America as well as other markets across our global network. As such, volumes shipped to China are expected to continue to be behind historic levels for the foreseeable future. The economic outlook in China remains generally pessimistic and the recovery expected to be slow. This will continue to present challenges for us, particularly with our sheepmeat sales strategy, given the limited options we have elsewhere for mutton as well as lower value cuts, bones and offal.

We are in the middle of the negotiation season with UK retailers. Our tight supply position on lamb in New Zealand is being leveraged as much as possible to push retailers to accept higher prices, with some positive outcomes so far. Domestic UK lamb supply remains relatively tight given the time of year and remains an expensive option for retailers, so that is also helping with the argument around prices for New Zealand origin product. There is also an expectation that Christmas 2024 we'll see a more optimistic UK consumer and a return to a ‘normal’ Christmas when it comes to consumption and their appetite for lamb, which is a positive sign and may also mean that retailers will not have to push so hard with their loss-leader strategy on New Zealand lamb during this coming festive season.

Likewise, Europe is facing similar dynamics regarding lamb supply from UK, Irish and domestic sources, and we are doing our best to hold the line on price leveraging the positive signs we are seeing in the UK as well as back home here in New Zealand, with strong interest from NZ retailers to secure volumes for this Christmas. Beef demand in Europe is steady. Our team in Belgium continues to see parcels of low priced Australian and Brazilian product in the market, which is disrupting our efforts to add more value to our product range.

There continues to be very little upside or positive news from our Japanese business. Demand for lamb and beef from our retail and foodservice customers is weak and, like in China, the general sentiment is that their economic recovery will potentially be slower than we might expect in other parts of the world, where inflation is trending down and interest rates are or will be following suit, which will be key in rebuilding consumer confidence and consumption levels.

So, some positive signs across specific markets, but we are still waiting for that spark in consumer confidence that will create a more durable and sustainable recovery in value than the current dynamics, which are largely driven by tightness in global supply.