Beef prices humming but is forecast milk price enough?

Fonterra has kicked off the new 2024- 25 production season with a second consecutive milk price forecast midpoint of $8.00/kgMS.

This sits slightly below RaboResearch’s national breakeven milk price assumptions and will likely provide another season of fiscal constraint for dairy farmers.

Dairy commodity markets have improved over the last month. Butter prices are hovering around 2022 records while prices for powders have lifted from the slump at the end of quarter one 2024. Still, global demand settings remain soft and warrant a note of caution – particularly for fat prices.

The key weight on the global dairy market remains our main trading partner, China. We now anticipate softer import demand for 2024 – marking the third consecutive year of weaker import volumes. Rabobank’s forecast is for China’s net imports to be 8% lower in 2024 compared to 2023.

Chinese domestic milk production remains a critical factor to consider when assessing farmgate milk price forecast movement for the season ahead.

Global milk production continues to lose steam, helping to keep commodity price equilibrium. Milk production from the ‘Big 7’ exporters has been in collective decline for up to four quarters, beginning in Q3 2023.

New Zealand milk supply dropped in April 2024 on both a tonnage and milksolids basis compared to last year. The season-to-April 2024 is now behind -0.5% on a tonnage basis. There are challenges ahead for the new production season, with rainfall required in some areas before temperatures cool too quickly as winter approaches.

Beef

As winter settles in, the normal seasonal flow of beef cattle and cull cows off farm has been apparent in New Zealand. NZ Meat Board data suggests peak cow cull has now passed, with national cow cull up 10% in the calendar year until early May 2024. The focus is expected to shift to other cohorts of cattle and the NI bull price continues its +10% theme on five-year average pricing.

Looking at the New Zealand slaughter season to date, which tracks from 1 October to 30 September, the US is primed to tip the China ship in terms of the value gained from NZ beef. Season-to-date, the value of beef exported towards US shores sits at $936m, up $203m or 28% year-on-year (YOY). The total value of beef exports to China is sitting at $796m, a drop of 22% YOY.

Year-on-year for the month of April NZ beef exports were up 2.3% by volume to 45,174 tonnes. The big mover in the opposite direction was China, down 21% to 14,347 tonnes with the US taking number one spot with 17,678 tonnes, up 5% YOY. The volume of exports to both Japan and Canada has again performed well in April, with YOY increases of 169% and 239%, respectively. Total value for beef exports YOY was $402.5m.

RaboResearch anticipates strong beef pricing over the winter months, following both the normal seasonal trends but also driven by global demand, especially over the US summer. There is upside in production out of both Brazil and Australia, adding competition, with a lot of Brazil beef heading into China. Despite this, demand due to fewer cattle in the US over a key consumption period in this market is likely to steer our farmgate prices to the upside, and to continue above that five-year average price range.

Sheepmeat

After many months tracking sideways, lamb pricing is starting to see an upswing. This is due to both the usual season trend, on-farm procurement pressures and some higher value export markets taking a bigger role.

To 4 May, national lamb slaughter numbers for the kill season are now tracking 7% ahead at just over 13.2m, according the NZ Meat Board. Long-term slaughter data now suggests a sharp downward trend in bookings from early June until the new season lambs begin and talk now moves to scanning and the new 2024/25 season ahead.

Lining up with the slaughter numbers, total exports of lamb in April were up 8% YOY to 32,741 tonnes. Exports of all New Zealand sheepmeat in April were 37,057 tonnes, 1.9% lower than April 2023. Calendaryear- to-date, the value of our sheepmeat exports are down by $102.4m, echoing the challenge in this sector for the 2023- 24 season. The average export value for lamb for the 2023/24 kill season (Oct-Sep) to the end of April sits at $10.03/kg FOB vs. $11.16/kg FOB for the same months of the 2022/23 season. This is a sign of the softer export market value, especially out of key market China, which takes around half of frozen lamb exports.

Export markets for both total sheepmeat and lamb tell an interesting tale for April 2024. Good news comes from the UK for our lamb markets, up 73% by volume (to 4602 tonnes) with a value of $41.5m (up 38% YOY). The US jumped on board with volumes of lamb up 51% YOY and an extra $15.2m in export value. Total volumes of all sheepmeat to China are down by 27% YOY to 16,081 tonnes with a drop of $69m in value (lamb volumes are down 17% to 12,965 tonnes, with value down $44m). China only equated for 26% of total sheepmeat exports by value for April 2024, down from a 40% slice of the value pie in April 2023.

RaboResearch expects the upward trend in lamb pricing to continue over winter, following seasonal trend. Eyes will be on the hope of pricing sneaking back into the five-year average range before the new season lamb kill begins.

Farm Inputs

For fertilisers, May was a relatively quiet month on the global front. Ammonium Nitrate FOB Baltic Sea Spot was fairly flat monthon- month, and subpar demand will likely keep it that way in the short term. UAN-30 prices in France also remained weak with very limited transactions taking place in recent weeks. US nitrate prices stabilised over the past couple of weeks following a decline earlier in the month amid waning demand.

In late April, Russia announced the extension of its fertiliser export quotas, which will run from 1 June to 30 November. The new quota is for 19.7mt of fertiliser, of which 12.4mt is nitrogenous fertilisers that should not limit global availability much.

Australian demand at present remains muted. However, the devastating flooding in Brazil’s Rio Grande do Sul state could provide a boost for demand as soil nutrients are suffering there.

One factor which may impact FOB fertiliser prices in Oceania is global container rates. The WCI index increased 56% in May, surpassing the previous 2024 high of late January. The risk premium can largely be explained by a combination of continued shipping delays/diversions amid the ongoing Red Sea crisis and concerns regarding a US-China trade war.

Australia and New Zealand remain sensitive to global nitrogen pricing given parts of both countries have experienced adverse weather, which has resulted in less purchasing than normal, meaning more buying is still to come especially as rains in WA and SA might improve farmer confidence there.