Market Update - November 2022

Global markets continue to be challenging as we look ahead to the last few weeks of 2022.

We are now in the last couple of weeks of our shipment schedule for China to arrive in time for the New Year celebrations that kick off in the second half of January. 2023 will be the Year of the Rabbit, which is meant to be a calm and tranquil animal, yet it would appear that 2023 in China may be anything but when it comes to their markets for imported beef and sheepmeat.

Given the Chinese government’s ongoing concerns around Covid-19 all eyes will be on how they manage the holiday period – which in pre-Covid days was the largest annual period of human migration in the world. While there have certainly been positive noises coming from central government around a relaxation of their approach, the practicalities are that very little has changed, and it is likely that they will react robustly if any sign of a decent outbreak occurs in the lead up to the New Year holiday.

The major concern with the Chinese market is in-market inventory levels. It is normal for importers to bring in strong volumes of product in the lead-up to Chinese New Year, but this is all premised on an expectation of massive consumption during that two-week period. Travel bans or lockdowns would have a significant impact on consumption and would mean that those same importers will be far less likely to re-enter the market come February, when New Zealand will be in full flight regarding production and our own inventory levels. One reason for our nervousness over the Chinese market is the continued record levels of Brazilian beef that is being exported to China. September shipments hit the 130,000mt mark for the third month running. Given our own customers’ relatively conservative approach to purchasing of late because of the uncertainty that they are seeing in the market, this volume of product out of South America is an outlier and materially heightens the risk as we look ahead to the holiday period.

While South American supply is not an issue when it comes to sheepmeat markets in China, the same concerns apply when it comes to high in-market inventories and the reliance on a successful Chinese New Year to release the pressure valve. This is particularly so for sheepmeat, with a higher percentage ending up in the vulnerable foodservice channel.

The other market of major interest right now is the US. As previously reported, the domestic beef cull has been very high this year and the latest number for October shows that this has not yet abated, with dairy beef slaughter rates up 13% year-on-year. This is largely going into coldstores and creating stockpiles that will take time to deal with. As with China, Brazil is also having an influence on market sentiment, with reports of beef being imported and placed in bonded stores for release once their new quota year begins on 1 January. Prices have continued to soften during the past month. We are hopeful that we have plateaued, and that current level are sufficiently attractive for buyers to come back to the table. Our view continues to be that the high domestic kill will impact the market at some point in 2023, but until the kill slows down and stocks are taken out of the market through consumption, we are likely to see a softer US market and poorer returns for our bull and cow manufacturing beef – returns that are being made worse by the strengthening NZD during recent days.

Lamb demand in the US is also continuing to wane as consumers trade down or away from the category. Retailers are reluctant to promote in the current market conditions, thus lamb very quickly becomes a marginal product on the shelf. While softer prices are not what we want, the silver lining is that this will hopefully make our products more competitive and encourage consumers to put lamb back in their shopping trollies each week.

The UK lamb market has not improved in recent weeks. The current outlook is for a recession that could last up to two years, which would create challenges for our retail partners and their consumers. The lamb category in general has shrunk during the course of 2022 and it would appear unlikely that we will see a sustainable recovery as we head into 2023 and look head to the all-important Easter period.

Europe is traditionally quiet at this time of year as the game season takes over many restaurant menus. If nothing else, it provides some breathing space for buyers and sellers to reassess where the market is at for both beef and lamb and plan ahead for the first quarter of 2023. We are seeing some signs of life on chilled products – albeit driven by our willingness to meet declining price expectations – and frozen beef sales looking forward are also relatively solid.

Japan is in a similar situation to the UK – just less the ongoing political turmoil. The devaluation of the yen against the USD, which has made imported beef and lamb extremely expensive for importers, continues to hamper sales. This flows through onto retail shelves and restaurant menus, and we are seeing consumption soften as a direct result.  

While it’s a somewhat flat market assessment this month, as mentioned in Peter’s update, we need to acknowledge that global food prices and costs of production as a result of higher grain prices should continue to underpin the red meat market. 

Rick Walker
ANZCO Foods General Manager Sales and Marketing