Market Update - August 2022

Global markets remain in a state of flux as the macro environment and general economic conditions cloud decision-making and overall customer and consumer sentiment.

Food inflation continues to be a hot topic in the US. Retail ground beef prices were up 12% year-on-year in July, comfortably ahead of overall inflation levels and price increases within the wider protein category. This is despite the continued aggressive cull of the dairy herd across many states due to the impact of drought and rising input costs, which means there are higher than normal levels of raw material available. Prices for imported manufacturing beef continued to soften during the past month because of that domestic supply imbalance and we expect that trend to continue during August and September. The question is, if retail prices for ground beef are up in the current environment, what happens when the supply of domestic cattle effectively runs dry? It is widely expected that 2023 will see a significant shortfall in domestic beef supply, which bodes well for a strong recovery in pricing for New Zealand manufacturing beef, suggesting inflationary pressure on retail products such as ground beef will only increase. While the US is now technically in a recession, the latest data shows that unemployment is very low and the job market has never been tighter. Likewise, US consumer spending in July was at near-record levels, suggesting that despite a decrease in consumer confidence, there is still plenty of money in people’s pockets as they enjoy their summer vacations and make the most of their current financial strength. An illustration of this is the high prices we are still seeing for lamb racks, which is often one of the first products to fall off menus as the impact of a recession takes hold. It will be interesting to see how this all plays out for the balance of 2022, but we remain cautiously optimistic around our overall position in North America moving forward.

China also remains an essential element in determining a forward view of global markets for beef and sheepmeat. June data shows that 45% of lamb exported from New Zealand and 44% of beef exports ended up in China, which is another data point in a long-term trend that highlights the importance of this market. Of greater interest was the July data that showed imports of Brazilian beef from China were in line with all-time record highs, despite the pressure points that have become apparent in the Chinese market related to the ongoing Covid-19 policies, regional lockdowns, pressure on foodservice operators, and a general nervousness across consumers as economic indicators all start heading in the wrong direction. The positive spin on the Brazilian import numbers – by far the largest source of beef entering the Chinese market month-in-month-out – is that it simply highlights China’s never-ending appetite for beef, and that this market is able to grow regardless of external factors that in other markets would result in a slowdown in trade. The counter view is that this sort of volume is a concerning development in a market that already is sitting on usually high in-market inventories, and which we may all feel the impact of as we head into 2023.  We will likely gain clarity on which view is valid as we enter Q4 and the high demand period related to Chinese New Year begins.  I remain hopeful that scenario one will win the day, but we are keeping a close eye on developments and working closely with customers to gain as much insight as possible around market dynamics, all of which is made that bit harder because of our inability to spend time on the ground there. While the lack of travel is nothing new thanks to Covid-19, it is a barrier that becomes more obstructive when market conditions are as fluid as they currently are.

Elsewhere in the world, very little has changed since my report in July. The UK and Europe are in the midst of their summer vacation period with very little sales activity as a result. The same issues underpin both markets, with high inflation and declining consumer confidence hitting retail and foodservice demand, but realistically it won’t be until everyone gets back behind their desks in September and they look at their forward positions, before we get a better sense for how these markets will play out for the remainder of 2022.

Likewise, Japan remains in a state of flux with a rapid rise in Covid-19 cases only adding fuel to the fire in a market under pressure. This is flowing through to our retail and foodservice partners, with consumer nervousness around the rising cost of living and weakening economic conditions meaning less eating out and cheaper options being added to the weekly supermarket trolley.

Meanwhile, closer to home, the focus in August across our network of plants is working through bobby calves, with numbers looking very strong this season, and ensuring all our plants have had the chance to get the necessary repairs and maintenance completed and our people have had an opportunity to take a well-earned break before we start to fire up for another season. Labour remains an ongoing challenge and despite our best efforts, it is not expected that we will be running at pre-pandemic levels this coming spring and summer. Our livestock teams will be working closely with you and we will do our best to support your business and keep animals moving through the supply chain. Logistics also remains a challenge that has nearly just been accepted as ‘business as usual’, but the outlook here is no better than labour and it will also have an impact in the months ahead around how hard we can run our plants; challenges we have become reluctant experts at managing on a day-to-day basis.

Rick Walker
ANZCO Foods General Manager Sales and Marketing