BASED on the strength of the United States beef market and the Kiwi dollar it’s time farmgate beef prices showed some improvement, especially as backlogs disappear.
AgriHQ data shows values are 30-60c/kg behind this time last year and simply don’t reflecting the latest spike in key export market prices.
The upside in overseas prices in the last 10 days has been swift but the US originally staged an impressive rally in late March, driven by a revival in Chinese demand and strong US domestic demand following its own lockdown.
The timing of that initial upside in US and Chinese demand coincided with New Zealand processing plants moving to level 4 processing restrictions. That clearly dampened any enthusiasm to lift farmgate prices at a time when world markets were so unpredictable.
In fact, US imported beef prices did stutter through mid April as the lack of food service demand took its toll. However, that market has completed a very sharp U-turn since late-April and has continued well into May.
There’s been a considerable lag in farmgate prices reflecting any of the improvement we have seen though some companies are finally rectifying the issue.
This extra layer of US demand has been influenced by the high rate of covid-19 infections that’s swept
through US processing plants, slowing throughput and drying up the supply of meat into retail and food service outlets.
Imported beef prices are getting extremely close to levels seen at the end of last year, underpinned by a rattled US domestic beef market along with some seasonal upside. When converted into NZ dollar terms, returns are close to matching the records set late last year. While cattle kill rates are similar to November levels the bull kill is nearing its seasonal end, which might limit exporters eagerness to lock in sales on falling supplies. But there are still plenty of cows to process and US imported prices for cow meat are also soaring, providing further incentive to up farmgate prices to secure supplies.
Part of the problem lies with the time the import prices are expected to stay high. The spike in prices has been so fast some don’t think it will last. The US is not facing a shortage of cattle for processing but rather a shortage of processing capacity. That shortage means cattle are backing up on feedlots and farms and will eventually have to be processed.
The recent US Agriculture Department’s World Agriculture Supply and Demand report could be viewed as bullish for future imported beef demand. It indicates restrictions on US beef production could extend well through 2020.
It also suggests cattle will remain outside of feedlots until later in the year, driving US beef production 6.1% lower than earlier expectations and pushing some of that cattle production into 2021. However, an earlier return to full processing capacity in the US might tighten these timeframes and take some of the heat out of the market.
BACKLOG: As cattle back up on United States feedlots many animals will be kept back from them till later in the year.