Australian drought impact on NZ livestock markets
After several years of favourable weather conditions, resulting in a substantial increase in livestock numbers, Australia faced dry conditions in Q3 of 2023.
Consequently, Australian farmers have swiftly downsized their herds and flocks, leading to a notable increase in the supply of sheep meat and beef in New Zealand's key markets during the latter half of the 2022-23 season, with expectations that this trend will persist into 2023-24.
In the first 11 months of 2023, the processing of Australian lambs and sheep witnessed a 7 percent increase, while cattle processing recorded a significant 16 percent rise compared to 2022.
In the year to October 2023, Australia exported 84,000 tonnes more sheepmeat and 173,000 tonnes more beef than it did in the same period in 2022.
This surplus supply has entered the international trade arena at a time when demand is fragile, particularly in China, contributing to a decline in prices for prime livestock in New Zealand, particularly lambs and sheep; uncharacteristic for this time of the year, where prices are typically higher.
Mutton and lamb prices are 45% and 15% below the five-year average, respectively. Beef prices are only 1% below the five-year average. Beef has held up better due to the global beef market being much bigger.
While there has been an increase in supply of beef from Australia, some other major producers like the US and Canada have been experiencing drought for a while and their exports are down, while demand for imports has remained up.
Unfortunately, these diminished prices coincide with elevated on-farm costs, resulting in forecasted profits averaging more than 60 percent lower than two years prior.
Many farmers are anticipated to operate at a loss this year due to this challenging scenario.
The decline in prices in New Zealand, however, is a lot less significant than what has happened in Australia and what Australian processing companies are selling for in markets. In some markets (like the US and UK where we sell legs and racks) New Zealand has been able to differentiate itself from Australian product as our smaller cuts are valued by our customers.
The duration of downward pressure on international markets hinges on the severity and duration of the dry conditions and drought in Australia, coupled with the pace of recovery in China's economy and demand.
Expectations of any improvements in the China market will become clearer as pre-order sales commence for Chinese New Year, providing insights into the market's trajectory by the middle of December.
The Australian drought has sent ripples through New Zealand's livestock markets, impacting prices, and challenging the profitability of local farmers. The longer-term situation will become clearer over the coming months.
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