Market Update - July 2023

Beef and sheepmeat markets continue to be generally weak as we head into the second half of the year.

There has been no let-up in China, with lacklustre demand being driven by high in-market inventory levels and a generally poor level of consumer confidence. The key is the sheer volume of product that our customers still need to work through, while sheepmeat is not in a great position the situation for beef is worse, with Brazil continuing to push significant volumes into China with seemingly no issue around price to achieve their targets. Existing contracts are becoming exposed as importers look to renegotiate and, in some case, back out of previous obligations. This increases the pressure on exporters from all origins to get orders loaded and on ships as quickly as possible to avoid giving customers any excuse to argue. It remains unclear when this situation will improve, but improvement is exactly what is needed to get prices back on track and global demand back into balance.

The US has also not changed since last month’s report; however, all of the signs suggest that it is only a question of time before we see demand and price pick up. All indicators continue to show a reduction in the number of cattle moving through the US supply chain. As a result, US steer pricing hit yet another record price this month which is adversely impacting processor margins. Beef exports are also being hit, with exported volumes in June down 15% year-on-year. Frozen beef inventory levels continue to tighten, down 20% year-on-year, and US wholesale and retail pricing is trending higher. Of most relevance to New Zealand beef exporters, pricing for US domestic 90’s is starting to firm, which bodes well for increased demand and pricing for imported lean beef moving forward. Finally, there have been solid summer rains across key states, which has come at a very good time for the corn crop. This has seen corn futures drop and the prospect of cheaper feed for the cattle industry, which should also facilitate the widely anticipated herd rebuild that will further tighten many of the indicators noted above. The immediate market situation however is still slow across all of our major product groups – chilled and frozen lamb, premium chilled beef and frozen manufacturing trim – although prices are generally still ahead of most other market options.

The rest of the world remains in the doldrums. UK retail demand remains solid but foodservice and food manufacturing demand for frozen lamb is very poor. Across the Channel, European demand for both lamb and beef is again poor, with the key market of Germany of particular concern. SEA markets are oversupplied with cheaper Australian product which is limiting opportunities for New Zealand exporters. Japan is also still caught up in the global economic malaise, with demand for both beef and lamb soft across both retail and foodservice channels.

It is unfortunately a tough time to be exporting beef and lamb, which is being reflected in livestock prices. The hope is that we will see some signs of meaningful change in market conditions as we head into the final quarter of the year, but this is premised on a number of assumptions coming to pass as opposed to having any objective data that indicates this will be so. Ultimately, we need a combination of a sharp reduction in the US kill, a rebalancing of inventories in China and across many other parts of Aisa, and a fundamental shift in consumer confidence globally to kickstart our major markets. These three factors are not easy to deliver on in a matter of weeks and even harder to achieve simultaneously, and so the team at ANZCO Foods will stay focused on continuing to work every opportunity to find the best options for our product, maximising the value on offer. It is also in this environment where our healthcare and food manufacturing businesses provide a valuable buffer to the volatility of commodity markets, and it has been heartening to see these areas of our sales portfolio performing so well of late.

Rick Walker
ANZCO Foods General Manager Sales and Marketing