Rabobank flags rising global dairy prices, warns of downside risks ahead
While global dairy commodity prices continue to climb in most key exporting countries, the second half of the year is expected to bring increased downside risks.
That's according to Rabobank's newly released Q1 Global Beef Quarterly, which says it expects overall Chinese household consumption will rebound strongly in 2023 from the low base of 2022.
Despite marginal growth in food and beverage retail and the impact of ongoing Covid restrictions on food services, there are positive signs of recovery.
Rabobank agricultural analyst Genevieve Steven says they're seeing changes in the recent behaviour of Chinese consumers, who are becoming more pragmatic in spending money on products they perceive to be practical, valuable and worthy. However, she says weaker economic conditions will have some impact on Chinese beef consumption among lower-income groups.
"But to other consumer groups - mainly younger generations, middle to high income families and health-conscious people - beef is perceived to bring better taste, more health benefits and different eating experiences compared with traditional meats.
"We see beef trading both up and down as consumer groups become more segmented. Although total consumption may increase more slowly, we expect a gradual [overall] increase."
Steven adds that evolving market channels and consumer behaviour are also influencing the development of China's beef market. With food service previously the main channel for beef consumption, retail channels are now seeing rising sales.
Despite a slow-down in beef imports in the first half of the year due to pre-existing high inventory of frozen beef, consumption in China is still predicted to steadily expand in the coming years.
An atypical form of BSE recently being identified in Brazil leading to self-imposed export suspensions to China is also expected to impact beef trade. Rabobank says whether New Zealand sees any benefit for beef demand and returns will be determined by how long the suspension lasts.
Meanwhile, the report says New Zealand beef production declined 4% in 2022, which Steven attributes to reduced beef cow processing.
"Whilst volumes to the US and overall volumes declined, export earnings rose 20% YOY and exports to China and Japan both grew 5%."
Weaker demand from China and lower average market returns reinforced by the strengthening of the NZD/USD led to a plunge in farmgate prices in Q4 2022.
Returns settled through early 2023 and RaboResearch anticipates the Q1 North Island bull price will remain elevated above the five-year average price.
Steven said the livestock losses, infrastructure damage and flow-on effects because of Cyclone Gabrielle will become more apparent through March. She adds that damage to road infrastructure will impact the ability to get staff and livestock to processing plants in the coming weeks or months.
"With significant infrastructure damage, some may need to offload animals. Good feed levels across most of the country should support the store market."
