Analyst Intel

15 February 2021

PULSE | Beef prices lean high and low

Prices in the US imported manufacturing beef market typically strengthen at this time of year, as New Zealand supplies dwindle and US buyers look to start securing lean NZ beef for their peak consumption period. That said, prices are particularly heated this time around, due to a lack of competing supply from Australia and South America.

Last week, the AgriHQ 95CL bull beef indicator price hit a record-high for early February, strengthening to US$2.54/lb. The 90CL cow indicator has also lifted, pushing up to US$2.32/lb and showing further upward potential.

Despite a strong US market, current cattle slaughter indicators are 30-45c/kg below the five-year average, a fact that is no small frustration for farmers.

Let’s explore a few factors that are driving the disconnect between the export market and the farm gate price.

Firstly, the high NZ dollar erodes a lot of the gains made in the US market. If the NZD was at $0.64 USD, as it was this time last year, then the current US export returns would be nearly NZ$1/kg higher than this time last year. But with the NZD up around $0.72 USD, we are actually only looking at a NZ 15c/kg improvement on last year’s level.

Secondly, the US imported manufacturing market is the only beef market that is showing this level of enthusiasm. Exporters are reporting static prices for other beef products such as prime trimmings and offal products throughout the export markets. While the majority of a bull or cow carcass (50-60%) can be sold to an eager US market as 95CL or 90CL respectively, there are still steak cuts and co-products that need to be placed elsewhere.

The lack of restaurant trade remains a hindrance for items such as bull and cow tenderloins. In fact, some international customers that have bought these items are attempting to defer their orders, which suggests a lack of confidence in the near term.

Thirdly, the hot US market is a relatively new development, beginning its firm rally in mid-January. Even in the best of situations, it is typical to see a 4-6 week lag before export sales filter through to farm gate prices. At the moment, processors are busy filling orders that were made at previous pricing. If the current US prices persist for a few more weeks, then it is likely that this will be reflected in farm gate prices if there isn’t an oversupply of slaughter stock. 

Fourthly, the pandemic has severely impacted international shipping options. This situation is showing signs of further deterioration, with NZ ports defending their supplies of empty refrigerated containers. While selling beef is not an issue, getting it off shore is a growing concern which processors are managing by keeping a closer eye on the size of their kill. Thankfully, the need to bring in “no kill days” has been fairly limited at this point, but this dampens some of the usual procurement enthusiasm from processors. 

Finally, there is also the issue of domestic supply, which has been generous. 

Until very recently, there has been no shortage of cattle booked for processing. The latest slaughter statistics (current to January 16) show that, for the season-to-date, the NZ cattle kill was 13%, or 84,475hd, higher than the same period last season. In recent weeks, the cattle kill appears to have slowed down to a more typical level, which may allow for some procurement pressure to build. However, the timing of the dairy cow cull will be the major influencer of cattle supply, and therefore beef prices, in the coming weeks. Good dairy returns may keep cull dairy cows on-farm for longer this season. In the short-term, that could provide some upside to beef prices, but the dairy cattle will hit the system at some point prior to winter causing inevitable issues with cattle slaughter space. 

On an optimistic note, given that beef farm gate prices are already depressed, the effects of a cattle backlog later in the season may be less severe than usual.

Nicola Dennis