Market Update - December 2021

As we come to the end of another year, markets remain in good stead, both for beef and sheepmeat with very little change since my last report.

Likewise, the headwinds that I flagged in last month’s report also remain as relevant as ever, with the appearance of the Omicron variant of Covid-19 being the new ripple that may create some larger waves going into the New Year.

Updated trade numbers continue to highlight China’s importance to New Zealand beef and lamb exporters, with 54% of total export volumes for beef and 41% in sheepmeat heading to that destination. The US and UK make up the minor placings for lamb at 10% and 8% of trade respectively, while the US frozen beef market remains in a position where they’re struggling to keep up with their Chinese counterparts, with 26% of total trade.

Sales into China continue to be very good, but there are definite signs of a slowdown as we look beyond Chinese New Year into February and March. High prices are hurting small businesses, particularly in the foodservice sector, and it would not be unexpected if we see some softening in values as a result, although we also expect this will be more of an incremental shift in market sentiment as opposed to a sudden correction, which has often been the case in years gone by during this post-holiday hangover period.

US prices for frozen beef have remained strong in recent weeks with the potential for some minor upside to come in the early New Year. One possible watch-out is how the China-Brazil beef dispute plays out this month with Brazilian beef trade into China at a standstill due to ongoing concerns over how the Brazilian authorities managed the reports of BSE in their herd earlier in the year. If this continues then firstly it means that China’s appetite for New Zealand beef will remain very strong, given that Brazil has been their largest source of beef over the past two years, but also we would expect Brazilian product to quickly transition to the US market in the first few months of the new year. Ultimately that may result in a two-speed market for frozen beef, and our current trade numbers into China may well move even higher as a result. This is something that each individual exporter will need to consider in relation to managing their risk profiles.

Chilled prime beef markets, as well as our chilled lamb business, remain challenging as a result of the global supply chain issues. While livestock numbers have been manageable so far due to our seasonal production curve, we’re actively looking at plans B and C for Q1 2022 when supply from farmers will materially increase. It’s going to be a challenging season on this front, but this isn’t new news to anyone based on the messaging in my previous reports and the general commentary coming out of the rest of the processing sector.

Of most interest to us in the short term is how the US market for premium chilled beef and lamb will play out in the first few months of 2022. Demand remains high and prices keep firming. As reported last month, we’re seeing some reports of consumers trading down as those high prices start to bite, but the reality is that US households are sitting on more money in their personal bank accounts and have less debt than at any stage during the past 30 years. That should serve to insulate us from any crash in demand, at least in the foreseeable future. The only watch-out to this assumption is that the US data also highlights close to 70% of that cash is in the bank accounts of just 10% of the population, so it’s clear that there is massive inequality of where that new wealth is located. Arguably, many of our premium beef and lamb consumers in the US will sit in that top 10%, so again this one to watch carefully rather than being of immediate concern to our ongoing business success.

Finally, thank you for your support of ANZCO Foods over the past year. 2022 does look like another interesting year in our global markets and across the global economy in general, and it’s hard to predict where prices and individual markets and customers will be as the year unfolds. However, our view is that the underlying fundamentals remain strong. Despite the bad news stories, beef and lamb is in great demand around the world and I would argue that our customers will be increasingly looking to New Zealand as the pressures around climate change and sustainability of the global red meat sector heighten in importance to consumers. Despite the inevitable volatility that we have to deal with as a food and fibre exporter, we’re in an enviable position so long as we continue to adapt and keep an open mind to change and new ideas.

Enjoy your Christmas with family and friends. Hopefully you will have ANZCO branded beef and lamb as well as a few packs of Angel Bay burgers in the freezer ready to get you through the festive season, and I look forward to having the opportunity to keep you up to date in the New Year.

Regards,

Rick Walker
General Manager Sales & Marketing