Lower beef supply keeps prices firm

Beef cattle graze in the moonscape of rocks near Sutton yesterday. Photo / Stephen Jaquiery

Reduced beef supply from Australia and New Zealand should continue to hold United States import prices firm over the coming months.

But some downward pressure on prices could be expected in the second half of the year as US domestic production lifted, Rabobank's beef quarterly report says.

Strong global demand, combined with tightening domestic supply through winter, was expected to support farm-gate prices at, or above, present levels for the remainder of the 2016-17 season.

New Zealand slaughter prices had firmed slightly since the start of March, on the back of that strong US imported-beef market.

The North Island bull price rose 4% to average $5.60kg cwt, while South Island bull prices rose 6% to $5.15. Those prices were slightly ahead of the corresponding period last year.

New Zealand became the largest exporter of beef to the US for the first quarter of 2017, although it had since been overtaken by Canada, despite the volume of New Zealand's own beef exports to the US declining by 13%, compared with the first quarter of 2016.

There was also an increase in demand in the first quarter from China, New Zealand's second-largest export market for beef.

Exports to China were up 28% by volume and 24% by value compared with the corresponding period last year.

Beef + Lamb New Zealand estimated New Zealand's export beef production for the 2016-17 season would be 1.8% down on 2015-16 to 607,000 tonnes, due to an expected 3.7% decrease in export cattle slaughter numbers.

The main driver was a lower cow kill, as improved milk prices ended the dairy herd retraction that had occurred over the past two seasons.

Prices for trading cattle had been particularly strong through autumn, as favourable growing conditions aided farmers in regions previously affected by drought to start rebuilding herd numbers, while others had been buying cattle to manage excess feed.

There were record prices for weaner beef calves indicating the strong level of optimism farmers had in the longer-term outlook for beef prices.

Globally, there had been a series of market disruptions through the second quarter, with political upheaval in Brazil, a new trade agreement between the US and China, and proposed bans on slaughter in India.

A trade agreement allowing US beef exports to China was in place after an absence of 13 years and the first small shipment was dispatched by air freight on June 14.

Although initial trade volumes were expected to be small, that could develop into a major trade channel in time, given China's position as the world's largest beef importer, the report said.

The introduction of another major beef exporter in the mix - after Brazil regained access in 2015 - would create more competition for a share of an important market.

China's beef imports were expected to reach almost two million tonnes in 2020. With domestic production increasingly unable to meet demand, imports represented 15% of total demand in 2016 and were expected to reach 20% by 2020.

ASB's latest Commodities Weekly said beef prices remained on track to surpass $6 a kg in the early spring.

Over the past month, prices had continued at record highs as they had over April and May.