Positive outlook for sheepmeat and beef exports despite COVID-19, drought impacts

yobet正网 + yobet电子游艺 New Zealand’s (B+LNZ) Mid-Season Update 2019-20 has a positive outlook for New Zealand’s sheep and beef exports for the 2019-20 season, despite significant disruption from COVID-19 and widespread drought.
Monday, 25 May 2020

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“While the drought and COVID-19 have both had impacts for farmers and meat processors, the fundamentals are looking likely to remain strong for New Zealand sheepmeat and beef exports this year,” says B+LNZ’s Chief Economist Andrew Burtt.

“Red meat is expected to remain a key component of many diets and African Swine Fever (ASF) in China continues to drive a shortage of pork there, which underpins solid demand for beef and sheepmeat imports there.”

B+LNZ’s Mid-Season Update forecasts beef, lamb, and mutton farm-gate prices to maintain their high levels by long-term historical standards, supported by a strong start for the first half of the season and an expected weakening of the New Zealand dollar.

New Zealand’s export receipts for beef and veal, and lamb and mutton (including co-products like offal, meat-and-bone meal and hides and skins) are forecast to total just under $9 billion, which is equivalent to $1800 for every man, woman and child in the country. yobet正网 export receipts are expected to pass $4 billion for the first time, lifting 18 percent to $4.6 billion. A lift in the average export value for lamb offsets a lower lamb crop in 2019, resulting in a 4 percent lift in total lamb export receipts to $3.54 billion.

Throughout COVID-19, the red meat sector has proven remarkably resilient. It directly and indirectly supports over 92,000 jobs across New Zealand and has proven it is willing and able to continue to play an important role in supporting the country’s recovery.

Markets

The outbreak of COVID-19 disrupted an incredibly strong start to the 2019-20 season. Chinese demand for New Zealand’s red meat exports was severely curtailed during the second quarter of the season and the human and economic toll of the virus in both Europe and the US will impact demand for red meat exports for the remainder of the season. Significant short-term volatility in market demand and prices are expected.

Despite the disruption, demand fundamentals from China remain solid. The shortage of pork in China as a result of ASF is expected to underpin a recovery of demand for New Zealand sheepmeat and beef exports. In 2020, Chinese pork production is expected to be down 40 percent on pre-ASF levels. During 2019, Chinese consumers were increasingly turning to sheepmeat and beef as alternatives to pork. As economic activity recovers following COVID-19 being brought under control, demand for meat is expected to similarly recover.

Shifting market access dynamics have the potential to change the distribution of beef exports this season. The US is forecasting a significant lift in beef exports and has gained improved market access to China and Japan, though US exports have currently been significantly impacted by COVID-19 due to the closure of meat processing plants.

This may increase competitive pressure for New Zealand beef in some markets but has the potential to create opportunities in others. Brazilian beef has recently regained access to the US market, increasing competition on the US imported beef market. However, a significant reduction in Australian sheepmeat and beef production will provide some support for demand for New Zealand red meat in key markets during 2020.

Farm-gate prices

Average weighted farm-gate prices for 2019-20 remain near historical highs despite disruption by COVID-19 and widespread drought. Prices reached record highs in the first half of the season, providing a strong foundation for a weaker second half as the disruptions of COVID-19 and drought weigh on farm-gate returns.

The combined challenges of COVID-19 and drought have made the 2019-20 season an extremely challenging one for farmers. 

Production

At 295,000 tonnes shipped weight, in 2019-20, New Zealand’s export lamb production for the entire season is estimated to be down 3.5 percent from 2018-19, driven by a lower lamb crop for spring 2019 and lower carcase weights. Mutton export production in 201920 is expected to be down 10 percent, reflecting the expectation that the breeding ewe flock stabilises by 30 June 2020.

New Zealand export beef production is expected to lift marginally for the season. An increase in the number of cows processed is the predominant driver of the lift, as steer, heifer and bull production are largely steady on last season.

Livestock numbers

New Zealand’s beef cattle herd grew by 5.4 percent to 3.92 million head at 30 June 2019, though these increases follow many years of steady decline since the 1990s. The recent increase is largely driven by an increase in the number of breeding cows (+8.9 percent) and weaners.

The number of sheep at 30 June 2019 were provisionally 26.7 million head, 0.8 per cent lower than the previous June. Overall, excellent lamb and mutton prices underwrote a deeper culling than usual of lower performance sheep in 201718. This was countered by retention of ewe lambs, and the younger breeding flock matured, resulting in a younger flock on average and relatively stable numbers.

Farm profitability

Gross farm revenue for 2019-20, which ends on 30 June, under an exchange rate scenario of USD0.61 is forecast to average $597,600 per farm, down 3.8 percent. This is driven by decreases in revenue from wool, sheep and beef cattle. Even though revenues are forecast to decrease, there is still some further downside risk due to uncertainties about the impact of COVID-19. However, this forecast was made before the escalation of the coronavirus disease.

Farm expenditure for 2019-20 is forecast to increase. Higher expenditure is forecast to occur in all parts of farm businesses, except for interest due to lower interest rates. “So, decreased revenue and increased expenditure sharply reduces the farmers’ profitability,” says Mr Burtt.

“Adjusted for inflation, Farm Profit before Tax for 2019-20 is forecast at $104,400 per farm, down 20 per cent on 2018-19, and this was before the escalation of the coronavirus crisis.”

“How the situation develops from this point is uncertain given COVID-19, however, the New Zealand livestock production and red meat processing sectors continue to work hard to deliver products that meet customer needs.”

ENDS

Note for editors: The Mid-Season Update can be found on yobet正网 + yobet电子游艺 New Zealand’s website: //www.fcpfm.com/data-tools

For more information, please contact yobet正网 + yobet电子游艺 New Zealand’s Senior Communications Advisor Gwynn Compton on 027 838 6353