Market Update - November 2021

The past month has seen robust market conditions across the board for both beef and sheepmeat, and the outlook for the balance of 2021 is for more of the same.

China remains the engine room for global demand. MIA export statistics released last week highlight this fact. September exports to China represented 60% of total industry trade for sheepmeat and 46% for beef, maintaining a trend that has seen 57% of sheepmeat and 41% of beef heading to this one market over the past 12 months. No doubt October and November’s numbers will be of a similar ilk, as the main shipment period for pre-Chinese New Year arrivals moves into high gear.

The situation in China has only been supported by continued tensions on global supply, notably for beef, with Australia limited due to domestic cattle shortages and geopolitical tension. Argentina is now only just returning to the table after government export controls were created in a bid to keep food inflation in their own domestic market under wraps. Brazil scored an own goal with an unacceptable delay in reporting two separate BSE cases within their industry back in June which lead to China essentially banning all beef from that country over the past six weeks, with some 100,000mt of product left in limbo.

US frozen beef markets have been forced to follow the lead set by China, and prices have trended higher over the past month. We forecast that incremental increases should be possible in the month ahead.

Likewise, demand for New Zealand chilled and frozen lamb in North America has continued to go from strength to strength, and recovery in prices for products such as frenched racks have seen us return to close to pre-pandemic levels. With Thanksgiving and Christmas ahead, there seems no immediate concern, with our only limitation being our ability to supply raised without antibiotics, 100% grass-fed product at this time of year when livestock numbers are still low.

Of greatest interest to ANZCO Foods has been the recovery in the Japanese market over the past few weeks, with the expectation that this will continue through November and into December. Foodservice demand for both beef and lamb is again picking up in the key markets of Sapporo, in the far north, and Tokyo, and retail demand remains in line with expectations. Lack of supply of premium grain-fed beef from both Australia and the US is keeping tension on price and will continue to benefit our business in the short term.

Q1 2022 volumes have now been locked in with UK retailers for their chilled and frozen lamb requirements. With livestock prices currently so high, we were forced to reflect that in our price expectations. This may have had an impact on the volume that we ended up securing, but this was of little concern to us given current global demand dynamics.

The announcement of the FTA between the UK and New Zealand was also a very welcome development this past month. While providing no meaningful benefit to New Zealand lamb exports, the new quota access for beef will undoubtedly have piqued the interest of all New Zealand exporters and ANZCO Foods will certainly be investing more time and effort into understanding this market opportunity as we head into 2022. We currently supply a very small volume of super premium beef into the foodservice channel in London, hence we are quietly confident that this channel may offer us some further room to grow in the future if we can establish a point of difference that offsets many of the prevailing concerns that UK farmers and consumers are voicing around increased trade from both New Zealand and Australia. Sustainability and traceability will likely be key components of that story.

Demand in Europe has also been very good. With shortages of beef out of South America and a tight supply of lamb out of the UK and Ireland continuing to impact internal supply chains, our office in Belgium has simply been doing its best to satisfy our customers given our own limited supply seasonally.

Inquiries from the Middle East, South East Asia, and Korea have also been numerous over recent weeks, but we have had limited ability to take advantage of them due to strong demand and pricing in the markets mentioned already in this report.

Hence, based on the above, it is hard not to be very positive about life as we look ahead into the first quarter of 2022. However, it has been noticeable over the past two weeks around the presence of some darker clouds on the horizon that will keep us on edge moving forward.

In the US, food prices were up month-on-month between September and October by 5%, with meat leading the charge at 11%. This is leading to reports from major retail customers that they are seeing an active trend towards trading down, either from steak cuts to round cuts or into ground beef, or away from beef altogether with consumers walking down the aisle to the chicken or pork sections. Likewise in Canada, we have seen one retail chain reducing order sizes this past week as the increasing lamb price burns off demand, which has been growing so strongly over the past 12 months.

In China too, food inflation is gaining a significant focus from Chinese government agencies and media. In addition, as per most of us here in New Zealand, the average Chinese family has a heavy bias towards property in their investment portfolio and are justifiably feeling nervous as they see major property development firms tinker on the brink of collapse. COVID-19 in China is also casting a shadow over our most important market. In this past week, Dalian city was essentially placed in lockdown. This also extended to the Dalian port, which is a major entry point for our frozen sheepmeat volumes. While we can actively look to move consignments into other ports, Dalian is of a scale that if all trade destined for that destination is diverted, there is a very real risk that the whole Chinese port network would grind to a halt, as we experienced in the first half of 2020 when the initial outbreak of COVID-19 in China hit.

The UK and Europe face a precarious last few weeks of 2021 with COVID-19. Our foodservice partners on the continent have suddenly become very cautious about over-committing, despite the short supply situation noted above. Power prices are also a major issue facing our consumers in Europe and the UK as they head into winter, with the cost of heating a home up by some 600% year-on-year in some countries. This has been caused by a shortage of coal and gas as well as renewable energy sources such as North Sea wind farms, leading to a massive supply-demand imbalance.

In short, the world is feeling a bit shakier today than it was just a month ago and the rose-tinted glasses we are wearing thanks to current market conditions for beef and lamb could very quickly come off if we are not carefully managing our business risk both overseas and here at home during the weeks ahead. Of course, I haven’t thrown in the continued and worsening challenges around labour and shipping here at home that you are well aware of and which all New Zealand meat processors are facing. This will become a bigger issue as the main production period gets into gear. Hence I can only reiterate the message you are probably hearing from others in our business who operate closer to the farm gate, that I would encourage you to keep livestock moving through the supply chain as best you can. My personal history in agricultural markets over the past 25 years suggests that when the downside comes it happens faster and with more intensity than the upside of the cycle, and it is in everyone’s interest to manage that risk as best we can.

Finally, and without wanting to blow our own trumpet too loudly, the team at ANZCO Foods was very pleased to see that our premium Greenstone Creek grass-fed beef, hand selected at our Eltham plant in the Taranaki, was awarded a gold medal at this month's World Steak Challenge in Dublin. While I admit to being biased, I truly believe the product we put into this brand is the best quality beef in New Zealand, and our Chefs around the country consistently reinforce that view, so we were really excited to see that this has been verified by an independent source! Our next goal is to take out the overall award for the best grass-fed steak in the world, which this year was won by a company out of Finland, which I wouldn’t have picked… perhaps some market research will be required in 2022, assuming borders finally re-open and international travel is back on the agenda!

Regards,

Rick Walker
General Manager Sales & Marketing