Situation and Outlook for New Zealand Agriculture and Forestry (August 2008)
18 Beef
Prices for New Zealand beef in international markets have in recent months increased above the high level set in 2003. However, due to the strength of the New Zealand dollar, especially against the US dollar, little of these gains have reached the farm gate.
The outlook for New Zealand manufacturing beef prices in the US is good, due to a surge in demand and falling supply. (Manufacturing beef is a type of minced beef.) The downturn in the US economy has prompted consumers to switch from expensive prime beef cuts to cheaper products made from manufacturing beef. Manufacturing beef supplies in the US have been declining due to reduced imports. New Zealand and Australian exports were down as a result of drought, and Uruguay diverted beef to the EU where Brazilian beef has faced severe restrictions. A decrease in the US domestic supply of culled cow beef is forecast in the year ending 30 June 2009, which will further improve prices for manufacturing beef.
Improving prices for beef in the US, combined with the expected depreciation of the New Zealand dollar, means schedule prices for manufacturing beef are forecast to increase significantly over the next four years.
Increased competition and higher beef supplies in our key prime beef export markets will see downward pressure on in-market prices in 2009 and 2010. However, the assumed fall in the New Zealand dollar means that improvements in New Zealand prime beef schedules are expected.
Biofuel expansion
Grain-fed beef producers in the US have adjusted well to the higher corn prices created by the expansion of biofuel. It was anticipated that all meat prices would lift in response to the rising cost of grain, but pork and chicken have been affected more than beef and dairy.
One by-product created when distilling ethanol from corn is distillers’ grain. This is high in protein and can be partially substituted for grain in the cattle feed ration. (Mono-gastric animals like pigs and chickens cannot consume distillers’ grains to the same degree.) The rapid expansion of ethanol production in the US has led to the abundance of distillers’ grain and, to make better use of the new feed source, some beef feedlots have been set up next to ethanol plants.
US producers have also adapted to the higher price of grain by keeping cattle on pasture for longer before moving onto feedlots. This extends the time to get cattle ready for the market but it also minimises the amount of grain needed.
In the future, biofuel production is expected to rise, thus increasing the supply of distillers’ grain.
Exports
Beef exports for the year ended 31 March 2008 were 4.1 percent down at 352 000 tonnes. Export earnings dropped by 14 percent to $1.6 billion due to the combination of a strong New Zealand dollar, lower beef prices and less volume exported. As a result, this was the lowest beef export earnings since 2001.
Beef export earnings reduced in all our major markets, except Canada and Indonesia, for the year ended 31 March 2008. Indonesia is gradually becoming a more important export market for New Zealand beef. Since 2006, the volume of beef exported to Indonesia has doubled and, in the year ended 31 March 2008, contributed $88 million.
When Bovine Spongiform Encephalopathy (often referred to as “mad cow disease”) was discovered in the US in late 2003, US beef was shut out of the South Korean and Japanese markets. Recently, however, the US has gradually been regaining limited access to the South Korean and Japanese markets. As a result of this renewed competition, there has been some decline in New Zealand exports.
Export earnings are expected to increase in the future as the New Zealand dollar depreciates.
Table 18.1: Beef prices and export volumes and value, 2005–2012
| Actual | Forecast | |||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | |
| Schedule manufacturing beef price (cents/kg)1 | 228 | 233 | 213 | 225 | 249 | 274 | 295 | 310 |
| Schedule prime beef price (cents/kg)1 | 319 | 311 | 328 | 327 | 333 | 352 | 366 | 369 |
| Export volume (000 tonnes)2 | 415 | 381 | 367 | 352 | 345 | 357 | 366 | 368 |
| Export value ($ mil)2 | 1 918 | 1 727 | 1 816 | 1 562 | 1 693 | 1 915 | 2 133 | 2 263 |
Notes
1. Year to 30 June. 2008 figure is estimated.
2. Year to 31 March.
Sources Meat & Wool New Zealand, Statistics New Zealand and MAF
Production
Total beef production is expected to have fallen 4 percent for the year ended 30 June 2008. This is mainly due to the drought earlier in the year, which reduced overall slaughter weights by about 2 percent and lowered manufacturing beef production. There were also fewer bulls available for slaughter and dairy cows were retained to maximise milk yields as dairy payouts reached record highs. Beef sourced from culled cows made up about a fifth of total beef production. This proportion is expected to increase in the future as the dairy herd expands.
The total number of beef cattle has stabilised at about 4.4 million and is expected to remain at a similar level for the outlook period. The recent drought is expected to reduce the number of calves born in the 2008/09 season. Fewer calves, along with stock rebuilding due to drought-induced slaughter, will see beef production drop in 2009 and 2010, before rising again.
Figure 18.1: Beef export value, by destination, 2000–2008
Source Statistics New Zealand.
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