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A combination of higher domestic supply and weaker Chinese demand for beef, as a result of coronavirus, has seen New Zealand cattle prices on the decline since December.
But a recovery in Chinese demand should be on the horizon once the virus disruption is resolved, according to agribusiness specialist Rabobank.
In its Q1 global Beef Quarterly report, Rabobank says China will again dominate beef imports in 2020 – despite the impacts of coronavirus – albeit at a far slower rate than the heady 60 per cent increase in imported volume recorded in 2019.
The report says while it is hard to predict how long the coronavirus would disrupt the Chinese market, lower sales volumes and limited cash flows would delay a return to normal beef imports in the short term.
With a high inventory of frozen beef unconsumed over the Lunar New Year due to coronavirus restrictions and a significant percentage of the Chinese public avoiding eating out entirely, China’s beef demand will be down, it said.
Food service and tourism in China would remain disrupted until the virus is contained with decreased restaurant sales contributing to weaker beef demand in the first half of the year, compared with previous years. Chinese importers also faced the additional challenge of limited cash flow due to unsold stock at ports and financial losses.
“Despite this, we expect China’s beef imports to continue to grow in 2020, with a strong rebound in the second half of the year,” the report said. “But import growth will be lower than seen in 2019.”
New Zealand
For New Zealand – where cattle prices have declined between 18 and 20 per cent since November – multiple factors, including the impact of coronavirus, had contributed to the pricing slide, which was “well in excess of the normal seasonal pricing decline”, according to Rabobank animal proteins analyst Blake Holgate.
“Weaker-than-expected Chinese import demand in December, after the peak buying period going into Lunar New Year, saw prices start to fall,” he said. “Then prices dropped further in January as supply chain disruptions in China caused by coronavirus came at a time when New Zealand farmers were looking to offload an increasing number of cattle due to drying weather conditions, substantially increasing domestic supply levels.”
As a result, Mr Holgate said, some farmers were having to wait up to four weeks to have cattle processed.
The price decline had seen both the North Island bull and steer prices sitting at NZD 4.80/kg ctw as of mid-February.
This has bull prices starting to fall behind where they were at this stage last year and prime prices well below last year’s levels.
Outlook
The report says Rabobank expects the longer-term underlying shortage of animal protein in China to ensure that demand for New Zealand beef will recover once coronavirus-related supply chain disruptions have been resolved and the existing inventory in the country distributed.
“The exact timing and degree of this recovery will depend largely on how the spread of the coronavirus is managed,” Mr Holgate said.
The Chinese market aside, he said, New Zealand processors had the ability to redirect volumes of manufacturing beef into the US market, where demand remained solid.
“Importantly, this will enable processors to maintain bull and cow throughput as seasonal cattle supplies increase over the coming quarter,” he said.
For prime cuts though, New Zealand exporters would have greater difficulty finding alternative markets to China, Mr Holgate said, facing stiff competition from Australia and the US in potential options such as Japan and Korea.
Other findings
Other key findings in the latest Beef Quarterly include:
- Brexit’s impact on the beef industry to be minimal for the next 12 months, but to offer potential future opportunities for New Zealand exports
- After a major jump in the Rabobank Seven National Cattle Price Index in late 2019 (driven particularly by increases in US and Brazilian prices), the index eased in January, primarily due to price falls in Brazil and New Zealand.
Rabobank New Zealand is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has nearly 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of about 8.6 million clients worldwide through a network of close to 1000 offices and branches. Rabobank New Zealand is one of the country's leading agricultural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 32 branches throughout New Zealand.
Media contacts:
David Johnston
Marketing & Media Relations Manager
Rabobank New Zealand
Phone: 04 819 2711 or 027 477 8153
Email: david.johnston@rabobank.com
Denise Shaw
Head of Media Relations
Rabobank Australia & New Zealand
Phone: +612 8115 2744 or +61 2 439 603 525
Email: denise.shaw@rabobank.com
