It’s been a wild few years for global sheep and beef markets. The big reset that we went through a year ago caught everyone through the supply chain off guard and we’ve been feeling the pinch ever since.
But it’s not all doom and gloom out there. The room for improvement is certainly significant in China, but both beef and lamb sales into developed markets such as the United States, Europe and Japan have provided a little spark in an otherwise dull landscape.
One point that’s cropped up in conversation for people at all points in the supply chain is how much this season feels like a throwback to around 2017/2018. And perhaps that’s the period we should use as a reference to understand how the coming year and beyond may pan out.
New Zealand sheep and beef exporters haven’t had a “normal” trading year since 2018.
It all began with the African swine fever (ASF) outbreak in China. What followed was the mass culling of pigs, escalating Chinese pork production in 2018, only for these volumes to bottom out 24.1 million tonnes or 37% below those peak annual levels just two years later. Chinese pork output only recovered to pre-ASF levels last year.
This outbreak and the following concerns about food supply sparked the initial surge in buying from China, in turn lifting livestock values in New Zealand. In the space of a year, the share of New Zealand beef exported to China jumped from 26% to 46%, with lamb also rising, from 36% to 45%. Admittedly, some of this was driven by speculators who believed they could ride the market upwards.
There was always bound to be some market realignment as China rebuilt pig numbers, but as we all know covid muddied the waters further. Rather than tame buying, global production and logistical issues created artificial shortages in all markets.
Combined with various governments issuing massive stimulus cheques, this sent export prices to exorbitant levels in the early 2020s. Over time importers built up expensive inventories they eventually started to struggle to sell. These past 12 months have been the hangover from that party.
As the dust settles, our trading patterns are increasingly switching back to what we saw in the late 2010s. Exporters are spreading sales into a wider variety of markets, with China reverting to taking the lesser-quality cuts it was previously known for.
With the selling focus shifting back to the likes of the US and Europe, more emphasis has been put on creating value-add products within New Zealand too, mainly through producing more chilled or boneless cuts.
Because of this, lamb slaughter prices are likely to return to peaking in line with chilled Christmas production, rather than the later or extended peak that Chinese New Year buying has caused in recent years.
Locally, the big change has been the ease at which farmers can get stock into processors. It’s no secret that the major slaughter backlogs generated through the covid years kept a lid on what processors had to pay to source stock. Now that overseas workers are more readily available, staff absenteeism rates are well down, and other sectors aren’t competing for staff as heavily, all processors can churn through stock more readily, to the point where backlogs have been a rarity. The fact there’s been next to zero overhang of cull dairy cows into winter is one example of this.
That’s caused a switch to a more traditional winter slaughter market this season, where capacity has easily outnumbered the volume of finished stock available. Processors have tried to manage this by shutting chains earlier and for longer.
Regardless, procurement competition has returned, underpinned by local trade processors, causing slaughter prices to lift irrespective of what’s occurring in overseas markets. Low livestock numbers nationwide are exacerbating this situation too.
This article was written by AgriHQ analyst Reece Brick. Subscribe to AgriHQ reports here.
