In this industry we often refer to the previous season as a benchmark.
Last year was one out of the box for bull farmers.
Strong manufacturing beef demand from China led to a tug of war between it and the United States, enabling export prices to soar.
Bull finishers were in the box seat. Export demand peaked as farmers were offloading bulls in the late-spring processing market. It was a win-win for all parties.
The first six months of 2020 have shown there is no rule book – prepare for and expect anything.
For those who yearn for a little more predictability we usually expect bull slaughter prices to firm through winter, based on historical trends. Lately, the combination of procurement pressure and a hangover of record May export prices is driving the bull job upwards.
The big question is whether this momentum can be sustained. AgriHQ’s June Market Outlook tempered expectations for much pricing upside through to spring because of a combination of factors.
We have yet to see the return of strong, sustained competition from China for manufacturing beef. Covid-19 is miles away from disappearing, protein stocks are high in China and beef production in the US and Brazil is on track to climb as they recover from earlier plant shutdowns.
Processing disruptions that plagued the US in May are firmly in the past with weekly kill rates back above 650,000 head, only 1% below this time last year. However, cattle are coming through at heavier carcase weights, which is more than making up for the small discrepancy.
The number of cattle on US feedlots for longer than 150 days is more than 40% higher than last year, meaning a much higher number of near-finished cattle sitting on feedlots. As a result, increased beef supplies will feature there for some time yet.
Unfortunately, US consumers stepped away from buying beef through the heart of the lockdown, opting for cheaper options instead, causing beef products to back up. Ultimately, that affects interest in New Zealand beef, which then flows back to NZ farmers.
While the NZ bull slaughter will drop from here through to spring it’s worth keeping an eye on market conditions.
At the height of US processing disruptions NZ exporters got US$2.66/lb for 95CL bull meat (NZ$9.50/kg). The market has fallen since as US production recovered but remains at a historical high for this time of year. Given the wave of cattle yet to be slaughtered in the US it’s very difficult to see such positive prices hanging around for much longer. We need to keep those facts front and centre as we move toward spring.