Market Update - September 2022
Global meat markets remain difficult with very little sign on the immediate horizon of a friendly breeze to refill our sails.
The US market for manufacturing beef has been flat with domestic inventories high and buying interest low as they look to manage their way through those stocks into Q4. Of growing concern is the state of the premium beef and lamb business in the US, with retail and foodservice demand generally weak and orders for the balance of the year being cut back as a result. This will require us to look at other markets to keep moving these high value cuts and inevitably will have an effect on frenched rack and loin cut values.
China’s zero Covid policy remains a major impediment to red meat consumption. While not widely reported in mainstream media – partly because it is old news and partly because the cities involved are largely unknown to the rest of the world – the ongoing management of Covid-19 through lockdowns is impacting many millions of people and is an ongoing headwind for the Chinese economy and for beef and lamb markets. There seems no sign of a change in approach. The prevailing view is that once the major political events occur later this year and the President has secured his position, that an easing of restrictions will ensue. That however is a massive assumption, and it is very possible that the current policies will continue into 2023 and potentially have an impact on the vital Chinese New Year holiday period. Meanwhile imports into China remain very strong, with exporters from all origins making sure they take advantage of any sale available to them, particularly on beef, which is linked to the malaise noted above in the US frozen beef market.
I have spent the past two weeks in Europe and the UK, meeting customers and refreshing my knowledge of the market after a three-year absence. The general theme from all I have spoken to in the UK is one of uncertainty, with the next three or four months likely to prove decisive with regards to demand for lamb in the first half of 2023 as the country heads into winter with a bleak outlook around general inflation, the cost of food, and most important for households and business, the cost of energy. There are already reports of manufacturers signalling that they intend to shut down plants because of the expected increases in energy bills that will make running their facilities uneconomic. That of course would have a trickle-down effect on employees and the wider economy, with the lack of unemployment being the only positive in an otherwise complicated and difficult environment currently. All are waiting to see what the new Prime Minister’s policies related to capping energy costs will have, but most are not optimistic.
The traditional UK retailers are all seeing a drop in sales, with more consumers moving to the discount chains of Aldi and Lidl. It was noticeable how these chains have stepped up their game during the past three years when it comes to the look and feel of their stores, as they aim to appeal to a wider cross section of the population. More broadly, the visit has been a reminder of just how competitive the grocery sector is in the UK, particularly compared with our own situation here in New Zealand. It will be interesting to see how that develops in 2023. It is hard to understand how so many chains can survive given the lack of differentiation between the likes of Asda, M&S, Sainsbury and Morrisons in the middle ground. Tesco still controls that segment of the market and Waitrose holds on by their fingernails to that ‘aspirational’ space at the high end, but with the growth in discount chains it is the middle that will be most squeezed. Lamb and cattle prices in the UK remain high, which is also squeezing margins right through the value chain. While we have already conceded that Christmas promotions for lamb will be low, the bigger issue will be how brave retailers will want to be regarding looking ahead to the all-important Easter period in 2023, with negotiations for those volumes likely to take place right in the depths of winter and at the height of general despair amongst consumers and customers. This may make it challenging for New Zealand exporters.
Continental Europe is less pessimistic than their friends across the channel, however the ongoing conflict in Ukraine and the impact that will have on energy prices remains the major topic of the day and is driving consumer sentiment. There was a general view however that the top end of the market will survive given the amount of money that flows within that top 10%, and that as a result our premium products will continue to have a good home in the coming months, albeit with pressure on values.
Good news is also hard to come by in the Japanese market. Demand remains very sluggish for beef and lamb across both retail and foodservice channels, with beef most affected because of high levels of Australian product entering the market without an end destination, meaning in-market inventories remain high for this time of the year.
Hence in general it is becoming an increasingly difficult market for New Zealand exporters to be operating in. Our focus remains on keeping tight control of our own inventories here in New Zealand and being nimble in our decision making as we look at all opportunities that ANZCO’s global sales team bring to the table. We are confident that we will continue to find homes for our products, and we are lucky that we are entering a more difficult period off the back of historically high prices, hence values remain solid, just not spectacular. Our weak currency is also a welcome addition to the mix and looks likely to remain so for the coming weeks (Although that is not based on anything other than the proverbial finger in the air!). While many market cycles are generally boom followed by bust, we are also cautiously optimistic that the outlook is one of an incremental recalibration of prices as opposed to a massive correction, and that we will manage our way through this period thanks to the underlying strength of our relationships with major customers, maintaining as much stability in markets as possible.
ANZCO Foods General Manager Sales and Marketing