Market Update - August 2023

There has been very little good news coming out of the past few weeks with regard to our major beef and lamb markets around the world, and looking to the month ahead that messaging is unlikely to materially change.

China’s general economic woes remain of concern with some commentators speculating that China could head down the path of Japan if a long-term deflationary environment takes hold as consumers and businesses continue to divest and keep money in the bank. China has grown over the past twenty years on the back of an export led economy, but the golden days of that era are arguably behind them, and they need future growth to come from within – both from their businesses continuing to invest and consumers continuing to spend. Neither is happening right now, and the general sense is that this is unlikely to change in the foreseeable future. Government intervention is also unlikely to save the day as was the case following the global financial crisis back in 2008/09, with government debt already at extremely high levels and the ability to drive a new round of infrastructure spending far more difficult today than it was ten years ago. The pressure on beef and lamb markets remains, with high inventories continuing to underpin the soft market conditions. Recent reporting showed that average retail pricing for beef is now at its lowest levels since 2019, which is a reflection of the decrease in wholesale prices for imported beef coming from the likes of New Zealand, Australia and South America along with the reluctance of Chinese consumers to pull out their wallets for higher priced protein, which means consumption is stagnating. We are now entering the summer school holiday period and we are seeing some positive signs as domestic tourism kicks into gear and eating out becomes more popular. We will need this current holiday period to be a good one if there is to be any chance that our customers can rebalance their stock positions and hopefully look more optimistically towards the key shipping period for Chinese New Year 2024 in the last few weeks of this year.

The US market remains a work in progress. At a wider economic level things are looking more positive. Interest rate hikes are slowing up and inflation is reducing. However, current inflation of 3% is only a comparison with where prices were at twelve months ago, which was when US inflation was at its peak, so numbers can be deceiving. Food inflation remains a real concern and that is impacting consumption for high value proteins, which includes our beef and lamb products. As an example, average retail prices for beef are still some 30% above where they were as we entered the pandemic in early 2020, with a new record average retail price achieved in June. This is certainly not a reflection of where our pricing has trended over the course of 2023 but highlights that retailers are in control of the value chain right now, particularly when US beef processors are starting to come under real financial duress on the back of higher livestock prices. The high retail prices are having a direct impact on consumption, with retailers not peaking consumer interest through promotions or discounting. Retail sales by volume for beef are down over 4% year-on-year. Premium cuts are taking the greatest hit, but even ground beef – which is generally seen as recession proof – has not been immune, with in-store volumes down 2% over the past year. Lamb sales are faring far worse given its premium position in the general protein category. The influx of cheap Australian lamb is also keeping wholesale prices on a downward trajectory for all products aside from frenched racks, which continues to buck the general trend. It was announced this week that the US sheep industry is encouraging lawmakers and officials in Washington DC to seriously look at the current market position and assess the merits of imposing trade restrictions on imported lamb due to the rapid decrease in prices over recent months, which they argue is having a significant impact on the domestic industry. This will be one to watch, with the hope that sanity and WTO rules will prevail.

Europe and the UK are generally quiet as the dogdays of summer impact consumption and as our customers focus on their precious summer vacations rather than negotiating deals with New Zealand exporters. In general, the situation for lamb and beef in both markets continues to be of concern. UK retailers are boxing on with their sales and promotional plans as normal, which is encouraging, but foodservice and manufacturing demand is poor. Germany remains our biggest concern in Europe, with inflation still above the EU average and consumers trading down and away from the lamb category to minimise the impact on their wallets.

Likewise, Japan is struggling to work itself out of its current economic situation and we have seen very little positivity in either the retail or foodservice channels over the past month – with the exception of the popular summer holiday location of Hokkaido, where lamb demand across the restaurant trade has been good of late. We certainly hope that this will continue in the weeks ahead.

In most other locations, the general theme for lamb is around the impact the increased supply of Australian product is having on sales, while for beef, poor demand from our customers is being driven by equally poor consumer engagement in retail and foodservice channels. As noted in last month’s report, ultimately we still need to see a combination of a sharp reduction in the US kill, a rebalancing of inventories in China and across many other parts of Asia, and a fundamental shift in consumer confidence globally to kickstart our major markets. As of today, we have yet to see a meaningful change in any of these, which will mean a continuation of the current market conditions in the short term at the very least.

Rick Walker
ANZCO Foods General Manager Sales and Marketing