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Rebounding global demand is primed to send global meat prices higher over 2021. Meanwhile, global meat supply will struggle to keep up with demand. The main constraint on farmgate prices this year will be a strengthening NZ dollar

Rebounding global demand is primed to send global meat prices higher over 2021. Meanwhile, global meat supply will struggle to keep up with demand. The main constraint on farmgate prices this year will be a strengthening NZ dollar

This article is a repost of the Westpac publication Monthly Meat Matters here. It is used with permission.


By Nathan Penny

Key global meat prices are on the rise. For example, two prices of relevance for New Zealand, US bull beef prices and EU lamb leg prices, have both jumped around 10% so far over 2021.

And we expect prices have further to run over 2021. In terms of export markets, we anticipate that Covid vaccine rollouts will boost meat demand, first in the US, and then later in the year in the EU and the UK. This boost will add to the demand strength already present in China.

The broad strength in our key export markets will translate into broad strength across all meat sectors. That means venison prices, which have been hardest hit by Covid, are also likely to turn the corner as European (German) meat demand returns. Similarly, fine (and mid micron) wool prices are likely to lift as strength eventually returns to Northern Hemisphere apparel markets.

High prices for other key (agricultural) commodities are consistent with the case for higher global meat prices. For example, the FAO World Price Index, which includes key grain prices as well as meat and dairy, has surged to its highest level since 2014. In addition, Brent oil prices are trading above US$63/bbl as at the time of writing, essentially back at their pre-Covid levels.

Meanwhile, global food supply is struggling to keep up with surging demand, causing high grain (feed) prices. That is going to constrain global supply of meat (and to a lesser degree wool). We think that this dynamic also has further to run and will add to the upward price pressure over 2021.

At the same time as global meat prices are rising the New Zealand dollar is also likely to firm. As a result, farmgate prices will not reflect the full rise in global meat prices. Nonetheless, we expect farmgate prices to generally track above 2020 levels over 2021. Note though that seasonal patterns in farmgate prices will still apply, notably for lamb prices. All up and those caveats aside, 2021 is shaping up as a healthy year for farmgate meat prices.

Sector snapshots


Lamb

Farmgate prices dipped sharply to start the year, but have since stabilised. The initial price dip was significant, with January prices averaging 36 cents per kg (5.2%) lower than the December average. By the end of January prices have stabilised and February prices to date are beginning to hint at a lift.

From here, we’re picking a gradual return to strength in lamb markets and prices. As mentioned above, while the Chinese and US markets are firm and firming, the EU and UK markets are likely to remain soft before they pick up later in the year. As such, we expect farmgate lamb prices to trend largely sideways in the short term, before they pick up strength from around mid-year. Meanwhile, farmgate mutton prices are likely to outperform on the back of very strong Chinese demand.


Beef

Farmgate beef prices have dipped since the end of 2020. However, this dip masks a price turnaround. Notably and as mentioned above, US beef prices have jumped more than 10% so far this year.

Moreover, we expect this positive trend to continue over 2021. In the key US market, the vaccine rollout is going well, and this should boost the economy and in turn meat demand. Meanwhile, the Chinese economy remains strong, further underpinning beef demand. On the supply side, grain (feed) prices are high which will constrain the supply response to higher prices. While the firm New Zealand dollar will cap returns to a degree, we expect farmgate beef prices to head higher over the year.


Venison

Venison prices have remained very weak so far over 2021. Indeed, prices have slid an additional 2.9% to date this year.

However, we see light at the end of the tunnel for venison producers. In the key German market, vaccine rollout will help boost demand and venison prices over the year. Mind you, the pickup will be gradual, reflecting the relatively slow pace of growth in Germany. With that in mind, we expect the farmgate price pickup to materialise from around mid-year.

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23 Comments

Recent prices for R1s at Canterbury Park are in the basement, probably reflects low grass cover and the vultures have swooped in. I will be finishing myself now that a bit of rain is keeping paddocks green.

Still don't understand the difference between NI and SI prices - seems like a crock to me. Maybe we should all hold the animals onfarm for a bit, force the processors to pay up. They've been gaming us for far too long.

Have a look at the details. I suspect you will find it is "freight" - not only the cost of shifting the animals, but who pays it, you or the processor.

David I respectfully suggest you actually have some skin in the game as opposed to observing it, before you comment. The freight charges don't even come close to explaining the difference. What does explain the difference is there is more competition in the Nth Island for animals and thus a higher premium is paid.
Just out of interest, when was the last time you sent animals to a processor?

David as you can see,( via the posted schedules) Silver Fern are paying 25-30c/kg CW higher in the NI vs SI - both cartage paid. That's equivalent to $60 - $100 extra per head
Interestingly all the output from both Islands are aggregated and exported as one product - there is no differentiation between Nth and Sth Island production at an export level. It's all NZ Beef.

Actually Chaston, after giving it some thought, I've come to the conclusion that you (and most urbanites) have absolutely no idea about what happens outside of the beltway. Most of you have no idea about what it takes to put food on your table, and absolutely none of you have an inkling of the wrench farmers have to accept when they put an animal on the truck. Saying "see ya" to an animal you've grown, looked after and turned into a mate for 3 years is immensely hard.. something most people seem to ignore

Hook
Think you are a bit tough on Mr Chaston as an individual but your sentiment is correct, the populas expectations for ever lower food prices and demanding ever lower foot print from it production is tiresome.
Regulation appon Regulation is killing the enthusiasm for Ag

Yeah I certainly agree Westy, about regulations and demands coming out of Wellington. My comments to Chaston were triggered when he made the dumb suggestion that I didn't factor in freight, and was written in a manner that seemed to imply I had no idea. Hence the strong response - it is he who has no idea
I also have a personal dislike of Chaston after he threatened me with legal action for taking an educated guess about the identity of the defendants in the NZF Foundation saga.

hook,

Serious question from someone with no farming background who still enjoys eating good quality meat in small amounts. Bobby calves. Just a necessary part of the process?

Unfortunately yes. Farmers can get sexed semen for AI use but it's very expensive. Most if not all farms use a bull for natural mating at some point and Bobby calves are part of production. Unfortunately a lot of calf rearers left the industry when milk powder got so expensive that they were losing money. A good use of bobby calves is to steer them and raise them as "dairy beef" but you still need the calf rearers in the chain to go from 4day old to about 3 month old when they go onto good quality pasture. I personally believe bobby calves are the biggest waste in NZ but there are a lot of factors - breed of bull used, breed of cow, age of cow - there are really only one beef breed bull used in dairying - Hereford mostly. Jersey bulls - very common - don't produce good carcase quality progeny so their bobby calves will always be an issue.
Hope that helps a bit

Maybe we should do away with jersey and cross bred. If the country cann't stand the larger animals then maybe it shouldn't be in dairy anyway.
That way all calves could be raised for dairy beef and the Bobby calf issue goes away..

It's complicated. Jersey are favoured for their production/kg of feed but need to be fed well or they can lose condition quickly, they are smaller lighter animals but don't really do well on hillier country. Friesians are big animals, can handle a fed pinch better, produce a good beef cross and put up with a bit of hill. There are pros and cons of both breeds. In an ideal world calf rearers would be able to make a decent earn and then we could use all the bobbies - although that would then impact on the traditional beef farmers rearing Angus, Hereford, Charolais etc who don't make a huge earn now. As I said - it's complicated, unfortunately there's no quick fix. Add in land prices and compliance pressure, rates, labour issues, machinery costs, a sometimes hostile media, a perception of environmental vandalism and it's a wonder people still farm. Luckily for NZ they still do.

We use jersey bulls for natural mating of our heifers ( the next generation milking cow), this is meanly to prevent calving problems, jersey calfs are small what is best for a ideal calving. Calf is not great meat maker, and will be a bobby calf.

Is there really a issue with bobby calves? They go into the food chain (veal) just like lamb, chicken and pork. The big myth is they are killed and chucked in a hole.

I know of one farm in my area that throws 2500 calves into a hole every year. 300 males are kept for future mating needs.
What's known as a flying herd (no replacements bred) and too far away from any bobby calf processing facility for humane/cost effective transport.

The bobby calf issue has been identified by animal rights groups as a great platform to attack dairy farming in NZ. As a farmer I agree they are part of the food industry like chicken, pork and lamb. However farmers are not doing themselves any favours with some on farm practices. Problems were highlighted by the media with the failing Crafer farm empire and piles of dead and dying calf carcasses. Mistreatment by truckers was another media opportunity to vilify farming practices.
Our error is we treat the bobby calf as having no economic value so not justifying any effort. On some larger farms the risk of accidental contamination with penicillin milk and the resulting significant fines and convictions don't justify keeping them even for a week. These are the ones that end up in a hole. Calves (even in well maintained facilities) are vulnerable to disease such as Rotovirus.
LIC are making improvements in conception rates (the biggest issue apart from cost) in sexed semen which should lead to more dairy heifers as replacements and more beef bulls/steers for rearing for finishing.
The debate about Jerseyx as suitable dams for beef production is mired in historical prejudice by finishing farmers and processors payment schedules - not eating quality or production per kg of grass eaten.
I foresee a reducing dairy industry in particular and livestock farming in general. through expanding forestry and horticulture, will allow us to focus on improving how we use the resources we currently have.

Doesn't matter how they are killed, fact of the matter is a cow, whose instincts to mother kick in with the birth of her baby is distressed every year having them taken from her.
There is no getting around it, killed soon after birth or raised for replacement or beef, that calving for dairy cows is a cruel practice and it can't be couched any other way, it is just a matter of how much longer the general populace will see it as acceptable.

PA, the cow soon forgets about the calf - 2,3 weeks at most. If they are paddocked close to each other (within visual) the separation stress is much less severe. Fact of the matter is a cow needs to get in calf to produce milk - no calf=no milk. When humans no longer require dairy products (and their nutritional benefits to humans) then yes I guess dairy farming could cease. The same thing goes for beef. Regardless of your preference (or otherwise) for veganism, it isn't mainstream and realistically won't be for a very very very long time - if ever.

I dont agree Hook. At all. Letting the cows see their calves just reminds them of their loss. Out of sight out of mind. Of course many dont give a rats. Drop their bundle, lick it clean then because their udder is rock hard and bursting dont really want to let it suckle. Or there are 30 others dropped that night in the paddock they arent too sure which is theirs as calves wander here n there amongst all those big feet.
We can sell it differently but calving is a messy business. We suck it up, acknowledge the nastiness of it and drink our milk. But do our best to make it as least stressful for the animals as possible.
Which really means less animals per worker. But ahhh everyone wants cheap cheeses coffee and croissants. Most of the problems stem from dairy workers being over stretched. Corporate farm owners dont want to know. The bottom line is all they care about. So the labour units get less and less, while the 'management' fees rise. The heirachy of these units suck of the tit, yet add little value.

Even with sexed semen , you still have an excess of calves born , vs dairy replacements needed. Though I guess they could send the excess off to China...

Farming animals will not be accepted by some animal rights groups regardless of what we change.
However that should not stop the farming industry including farmers, processors and suppliers from continuing to work to improve animal welfare.

Yeah, that differential is really rude. I've heard the lamb differential being blamed on the smaller more intense seasonal killing window for SI lamb, but for beef?

The lamb schedule reason would stand up if the Processors hadn't embarked on a "right sizing" exercise some years back. The intensity is of their own making. As for beef - there is no good reason either, other than commercial gain for the Processors at the supplier's expense. Remember the "right sizing" exercise was rolled out by all the SI plants regardless of ownership. It was market manipulation done under the guise of "plant efficiency" and all Processors agreed to embark on it.