Market Update - May 2023

Before focusing on the here-and-now, it was interesting to see a report published by the UN late last month that painted a positive view of where our industry is heading over the next five to ten years. The report highlighted that despite all the negative stories about animal protein that seem to pervade mainstream mean these days, global meat consumption is expected to increase by 14% by 2030. This will be driven, not surprisingly, by a growing and increasing affluent population across primarily Asia and Africa. Conversely, global meat production is forecast to increase by just 6% over that same window, with increasing regulatory pressure on farmers around the world linked to sustainability and greenhouse gas emissions limiting how industries can grow. All of which points towards a world that will be looking for protein and willing to pay for that product, which should allow the New Zealand industry to continue to move up the value chain and choose where our products are being consumed. The report also highlighted that the widening gap between global demand and supply is likely to be increasingly filled by lab-grown meat, which the UN believes will become cost competitive, if not cheaper, with traditionally farmed protein within the next five years – to the point where over half of the meat consumed globally will be made in a Petri dish as opposed to a farm by 2040. I’m not clear how they reached that conclusion or how realistic that scenario actually is, but I do believe cell-based protein is going to be a viable commercial option for our global customers in the future. However, we should not be afraid of that outcome. As the UN report suggests, the world will need both sources to keep a growing and more affluent population supplied with high quality nutrition. Again, the New Zealand industry is ideally placed to operate in that new world order as a niche player focusing on our pasture raised animals and sustainable farming practices, which specific groups of consumers and customers will undoubtedly place value on. Industry programmes such as NZFAP+ will be an important part of that journey, and this is an investment that I hope more New Zealand farmers will be willing to make in the years ahead.  

Back to the present day, and there has been no meaningful change in the China market since my last report, with sales tracking along solidly but without any real excitement from our customer base. Sheepmeat remains the category struggling the most to get out of first gear, with beef certainly more consistent with regard to demand. Last week’s May Day Holiday however, provided some good news looking forward, with a reported 275m people travelling for the holiday – up 20% on pre-pandemic levels. Hopefully this is a further sign that Chinese consumers are slowly but surely regaining confidence, which will ultimately flow through into increased consumption as we look ahead to the summer period. Next week I will be in China for the first time since 2019. This will present a great opportunity to get a better feel for how things are on the front line. I will also be attending the SIAL food show, providing an excellent chance to see what our customers and competitors are doing in-market and how the sector has evolved over the past three years.

In last month’s report I noted our expectation that pricing for manufacturing beef in the US market would continue to tick up over the course of April and May. That hasn’t happened, with prices plateauing and even softened a little as customers recalibrate and work through existing inventories of lean beef. Fundamentally however, nothing has changed, and we remain very positive about the general direction of travel. In-market inventory levels are now at the lowest levels since 2019, which highlights how end-users have been avoiding new purchases and trying to work though their existing stocks as much as possible. That is also a consequence of the lower domestic kill, which means there’s less domestic lean beef going into supply chains. Corn prices are also trending down and futures markets suggest that this trend will continue. That will only make it harder for US beef processors to encourage cattle owners to let their animals go in the coming months, particularly with rains now becoming a little more common place in parts of the country that have been desperate for water for the past two years.

The reference to lower corn prices is an interesting one. We are all hearing how inflation has apparently peaked, but it is always important to remember that these comparisons are year-on-year. A recent report on US agricultural markets highlighted that if you compare current pricing for key commodities versus those of two years ago then the picture can look very different, with petrol prices up 57%, corn up 120%, chicken up 90% and eggs up close to 400%! In the UK, inflation also remains a real issue, with the most recent year-on-year numbers as at the end of April showing food inflation was up over 16% (albeit down from 19% in March). This continues to cripple consumer spending. Retailers are discounting heavily to keep customers coming in the doors and the foodservice sector is struggling to find a way forward. Of late we have seen an increase in retail promotions on chicken, again highlighting the pressure on consumer spending in the UK, which is resulting in a move away from beef and lamb towards lower value products such as poultry and pork.

It has been a more positive few weeks in the Japanese market, with demand strong in the lead up to their Golden Week Holiday that took place last week. International tourism appears to be booming in Japan, which bodes well for the coming Japanese summer, but a lot will rest on how the balance of May plays out with regard to domestic consumption, as people return to work following their week of vacation.   

Our European based sales team is in Milan this week for the Tutto Food Fair. From all accounts, visitor numbers at the fair have been very strong and we have had a lot of interest in our Maimoa Lamb and Stony River Angus brands that we have been promoting at our stand. The general feeling from customers has been positive as they look ahead to what they hope will be a busy summer holiday season. With Irish and UK lamb supply tight right now, we are currently seeing solid prices for our chilled lamb shipments which we will look to take advantage of for as long as possible.

So, a mix of good and not so good news across our markets currently.  We continue to work with our major buyers to look for opportunities and pockets of value to ensure that we are maximizing revenues wherever possible, particularly as we look ahead to the New Zealand winter and the seasonal decline in production.

Rick Walker
ANZCO Foods General Manager Sales and Marketing