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Allan Barber examines what the US beef shortage and Japan-Australia trade deal might mean for New Zealand beef farmers

Allan Barber examines what the US beef shortage and Japan-Australia trade deal might mean for New Zealand beef farmers

By Allan Barber

There have been some interesting beef market developments in recent days.

Of immediate interest is the news of a forecast excess of US exports over production in the second half of the year as against a relatively small increase in production, reported in the USDA livestock supply and demand report which was released yesterday.

This leads to a prediction of firmer prices for lean beef, although this will coincide with the seasonal downturn in New Zealand production. Australia is expected to be in a good position to take advantage of this situation.

The other item of interest is the bi-lateral trade agreement between Japan and Australia which will reduce the tariff on frozen beef from 38.5% to 19.5% over 18 years and on fresh beef to 23.5% over 15 years.

While this may appear to be unduly slow, all other countries’ beef tariffs will remain at the 38.5% rate, until or unless the TPP agreement is concluded. It would be difficult for Japan to expect to negotiate a less favourable deal with signatories to the TPP, and if more favourable the terms of the Australian FTA would be amended to match it.

In the meantime New Zealand’s beef exports to Japan will have to compete with Australian product at gradually decreasing tariff rates.

What is significant here is that the FTA has taken seven years to negotiate, but indicates an increasing willingness to open up the fiercely protective Japanese agricultural sector under pressure from Prime Minister Shinzo Abe. Cheese has also benefited under the terms of the FTA with Australia permitted to export a further 20,000 tonnes.

Japan has a highly protected and subsidised farm sector, particularly in the areas of rice, beef, pork, dairy, and sugar and its powerful farm lobby has long resisted any efforts to liberalise trade in those products. It will be fascinating to see how successful Abe is in encouraging more concessions in pursuit of the TPP.

Equally he could find himself going down the path taken by all Prime Ministers of recent years which has seen Japanese trade policy stagnate in the face of opposition and an inability to get reform measures through the Japanese parliament. 

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Farms For Sale: the most up-to-date and comprehensive listing of working farms in New Zealand, here »
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Here are some links for updated prices for
lamb
beef
deer
wool

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Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country where he runs a boutique B&B with his wife. You can contact him by email at allan@barberstrategic.co.nz or read his blog here ».

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5 Comments

Thanks Allan,
  The problem I see is competition form other sources of Protien. I purchased a boned leg of Australian lamb yesterday at Costco for $4.50 a pound. A good back leg between $16-20.
 Either way Im pleased to be stocked up with cattle at the moment, I was able to buy them very well last winter.
 Beef is pricing itself off the market for many people here. You can get a whole chicken for $4.60 so beef is a luxury for many people.
 The last few weeks cows with calves at foot have been selling for around  $2500 a head, all going back to Texas to rebuild herds after there drought. Its rained in California, not enough to fix the problem with the dams and most farmers will be reliant on bore water.
  Cattle numbers will be down but the ability to rebuild herds fast always astounds me. Dairy heifers are being sort after with anything springing going for over $2500.
  The problem in the States is wages are low for so many people that they won't be buying beef at high prices this summer.

its what the Ozzies call international cost curve, we are up against it (and they seem to be running up the white flag):
take a look at the NAB/BNZ thought item from yesterday: p7
The challenge for producers in Australia (and NewZealand) is that global milk production costsamong dairy exporters continue to convergeon the back of cost increases amongst low-cost producers. Going forward, efficiency gains arecritical for Antipodean producers to retain theirinternational supply curve advantage.
and p8

Q: How will the beef sector meet the aspiration of being the ‘food bowl’ of Asia?

A: Australia will never be Asia’s food bowl – our production systems are simply not big enough.But we can be one of the grains of rice or cubes

of beef in the food bowl. As a high cost nation, Australian product will not be affordable to a majority of the Chinese population for some time

to come. Our productivity cannot meet the protein demands, but we do have capacity to supply as much as we see fit
and here below:
''To be blunt, Australia is not going to feed the world. It's certainly not going to be capable of feeding Asia,'' Irvin said.
NAB chief economist Alan Oster said Australia's agriculture was too small to be a global powerhouse like the resources sector.
''There may be some opportunities [for Australian producers] in specific or niche agricultural areas, such as high-yield protein and dairy, but the notion that Australia will somehow become the food bowl of China, or the food bowl of Asia - what some people are calling a 'dining boom' - is very much misguided,'' Oster said.
''We simply don't have the capacity to produce that much food at low enough cost.

Read more: http://www.smh.com.au/business/a-deals-a-deal-but-alls-not-free-in-love-or-trade-20140411-36ife.html#ixzz2yc63bIor

 

could this expalin the number of scale kiwi dairies that have tipped over, over there?

or

http://adf.farmonline.com.au/news/nationalrural/agribusiness/general-new...

The partners Ron Greentree and Ken Harris [legends] have decided to sell the 47,500 hectare stations, Milton Downs and Boolcarrol, either as one parcel or as separate lots.

If the fund managers say they want to get into agriculture, let's just see how serious they are.

http://www.theland.com.au/news/agriculture/property/general-news/grain-f...

http://www.abc.net.au/news/2014-04-11/greentree-farm-sale/5382900

either way we need not undersetimate the value of Fonterra - ioho. Or the sleeping value in the co-op owned meat plants.....

 

- from yesterday: For further analysis download the full report.

 

Henry, I'm shocked how expensive NZ has got. Australia is in a close second. Take out the stupid house prices and you have a very unfriendly business environment. Our fuel prices are simply too high and the problem is Tax . Scroll down to Gasoline taxes and we are right up there.
 
http://www.giz.de/expertise/downloads/Fachexpertise/giz2013-en-ifp2013.pdf
 
Until someone addresses the cost structure young farmers like me will continue to look for opportunities and invest off shore.
 Its not a win-win situation for NZ.

money not worth what it was..
..http://www.afr.com/p/opinion/savers_beware_low_rates_here_to_1CUqB1oHZWgYeGv4mCOMXP
The IMF’s benchmark rate fell from an average of 5.5 per cent in the 1980s to 3.4 per cent in the 1990s, 2 per cent over 2001-08, and 0.33 per cent between 2008 and 2012. The Australian 10-year real rate has dropped from 3.8 per cent to 1.9 per cent over the past decade. We are marginally above the global average because investors require a higher risk premium to go Australian.
Even so, cautious investors who placed all their funds in supposedly risk-free 10-year Australian government bonds would have seen their annual interest income halved in purchasing power.
.............
Summers is sceptical of the cheap money and tight fiscal approach that remains the preferred strategic approach for most advanced economies.
He wrote recently: “A strategy which relies on interest rates significantly below growth rates for long periods of time virtually guarantees the emergence of substantial bubbles and dangerous build-ups in leverage. [as we are seeing]
“The idea that regulation can allow the growth benefits of easy credit to come without the costs is a chimera.”
 
energy-wise we were brought up on stories of Lanz Bulldogs running on butterfat during the war similar to:
http://www.caravanersforum.com/viewtopic.php?f=9&t=27896
...They weighed about 4 tons with wheel weights fitted, would get along at around 20 mph in top gear on a gravel road and had absolutely useless brakes. We tried a pulling contest with a Ford 5000 and the Bulldog just towed the Ford backwards with no effort at all.

The older model had a 9inch bore and 2'6" stroke, with max 500 rpm. Unfortunately modern diesel was too clean burning so every so often we had to grind up the carbon rods from old telephone batteries, make a paste and plaster it around inside the hot bulb to provide a good glow. After 25 years of hard work ploughing (5 furrow trailing plough) and other cultivation the only mechanical work done was to fit new piston rings. They were originally designed to run on black oil, although they did apparently run them on butterfat in Italy during WW2.....
... not a dry eye in the place....

What’s behind recent market instability? Well, cracks in the global Bubble are beginning to impinge U.S. securities markets. Trouble at the “periphery” has finally begun to impact risk-taking at the “core” – much as markets have operated traditionally. For the most part, market participants are still living in the halcyon 2013 world. That world was inundated by central bank liquidity, with cracks at the periphery ensuring “money” flooded into the core (especially U.S. equities and corporate debt). Now, with the Fed in taper mode, the liquidity environment has begun to change. Market dynamics are beginning to normalize. De-risking and de-leveraging at the “periphery” will lead to waning liquidity and risk appetite away from the periphery. Contagion now starts to become an issue, as intense “risk on” begins its inevitable transition to “risk off.” There is rising trepidation in some quarters that the exit may be narrowing. Greed begins to turn to fear.
 
http://www.prudentbear.com/2014/04/financial-stability.html