Producers cautioned to look beyond the current price peak
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Cattle producers cautioned to look beyond the current price peak

Angus Beef

New Zealand cattle producers are being cautioned that the current high price environment they are experiencing is unlikely to be sustained in the medium to long term, as prices come under pressure from global increases in beef and animal protein production.*

“New Zealand farmgate cattle prices have fallen from the peaks of late-2014, however they are still amongst the highest of all key producing countries in the world,” says Rabobank animal protein analyst Matthew Costello, “and in our view, this high pricing cannot be sustained in the medium to long term.”

Mr. Costello says New Zealand farmers do not have to look back too far for evidence of how quickly unsustainable pricing can place pressure right along the supply chain.

“Those in the lamb industry will remember how quickly New Zealand farmgate prices fell when consumers pushed back from record-high prices at a time when the economic environment was weak post-GFC, with New Zealand lamb prices falling by around 40 per cent in the space of 16 months” he said.

Although prices are likely to ease, the good news is that cattle producers should still be able to trade in a higher than average range until 2020, with six key developments set to influence cattle farmgate prices in the coming years:

  • Lower domestic production
  • Record global beef production
  • Increased competition from cheaper proteins
  • China’s role in global trade
  • Market access
  • Currency movement

Mr. Costello commented: “On balance, these developments underpin a positive outlook for the New Zealand cattle industry, however, there are likely to be some headwinds from increasing global beef production, which is set to reach record levels by 2020, and competition from cheaper animal proteins.”

“We are expecting an additional five million tonnes of beef to be produced by 2020, compared to the global level of production reported in 2015,” he says, “mainly driven by the US and Brazil, and increasingly Argentina.”

On the up side, not all of this increased production will be exported, with Rabobank estimating that of the additional five million tonne increase in beef production, around 1.5 million tonnes will hit global trade. Rabobank forecasts that Chinese demand will outstrip their domestic production by around 1.5 to two million tonnes over the next five to 10 years, thus China has the potential to absorb all the exported beef that is forecast to hit the market.

Mr. Costello says while “future price fluctuations are inevitable”, New Zealand’s exposure to these swings could be better managed by greater collaboration across the supply chain.

“This may be achieved by increasing the value and usage of the entire animal, not just the beef cuts, identifying new consumers within existing long established markets, as well as developing new markets. Greater adoption of risk management solutions such as locking in forward supply contracts would benefit both producers and processors,” he says.

What are your views on beef prices heading to 2020 and how cattle producers can protect themselves against easing prices?

*Source: New Zealand beef report – Looking Beyond the Price Peak (September 2016), Rabobank Food & Agribusiness Research and Advisory.