Beef export market facing headwinds

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Auckland
Headwinds are building for New Zealand exports of beef, the country’s largest meat export, according to Agri HQ.
The outlook for beef prices is weakening in the United States, the largest market for New Zealand beef, after a US Department of Agriculture report showed cattle numbers at a nine-year high as farmers rebuild their herds following heavy culling in 2014 and 2015, with most of the increase in beef cows rather than dairy cows. Elsewhere, Japan has temporarily lifted the tariff on frozen beef from New Zealand, rival exporter Australia has increased supplies, and a rise in the New Zealand dollar is hurting margins, according to Agri HQ’s monthly sheep and beef report for August.
“Sentiment in the US towards imported beef has turned negative, largely on the belief that US domestic prices will weaken in the next few months,” Agri HQ analyst Reece Brick said in his report. “Importers are very reluctant to buy on the current market, with exporters reporting very limited interest over the past fortnight.
“This view is predominantly driven by weaker beef futures as well as production forecasts which paint a picture of increased supplies through the back-end of this year.”
The price for 95CL imported bull beef dropped to $US2.27 a pound this month, from $2.38 last month, according to Agri HQ data. The price for imported 90CL cow meat slipped to $2.18 a pound from $2.20. Still, prices remain above year-earlier levels with 95CL last year at $2.25 and 90CL at $2.10.
Mr Brick noted that the rising value of the local dollar was “an extra thorn” in the side of exporters, with the local currency recently hitting its highest value against the US dollar since May 2015.
“The appreciation of the New Zealand dollar has eaten into processor margins, and there’s an active attempt throughout New Zealand to decrease slaughter prices as a result,” he said.
In Japan, the tariff on frozen beef has been lifted to 50% from 38.5% until the end of March next year after “exceptionally high” sales of imported beef, with beef imports in the year to June at the highest level for the country since 2003, Mr Brick said. This meant New Zealand exporters would be forced to find alternative markets to divert product to, he said.
ASB Bank senior rural economist Nathan Penny noted the Japanese tariff change was likely to put a spanner in the works for local beef prices, as Japan was New Zealand’s highest paying export market for beef. The average beef export price in the Japan market for the September 2016 year was almost 20% higher than the next-best market, and about 45% higher than prices in the US, he said.
Australian beef is exempt from the tariff hike on the back of its trade agreement with Japan, so New Zealand and the US will bear most of the brunt of the increase, Mr Penny said.
In Australia, the national beef kill is continuing back towards its five-year average at a steady pace as the country rebuilds its herds following droughts. NZME

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