Trade balance with the US a saving grace
New Zealand is so far escaping the unpredictable vagaries of President Donald Trump's trade policies by the skin of its teeth.
A ban on Brazilian beef exports and high feed prices are keeping global supply in check while demand for meat around the world remains firm.
P2 steer prices in New Zealand have cracked $6.50/kg, with November likely to be the third month in a row of record highs.
Lamb prices have also set fresh record highs, topping $9.50/kg at one stage.
Westpac senior agri economist Nathan Penny forecasts prices to fall in line with the normal seasonal patterns through to the autumn.
However, prices this autumn will be at record highs relative to previous autumns.
Lamb prices have been on a spectacular run: since March, prices have jumped by over $3/kg.
"Importantly, with that high tide water mark, we expect prices this autumn will also set record highs relative to previous autumns," says Penny.
"Normally, prices fall around $1.20/kg from the spring peak to the autumn low."
Lamb supplies remain tight in New Zealand and Australia, and demand is strong in China and improving in the US and Europe.
"We expect these factors to continue to underpin prices," he says.
Lamb exports, especially to the UK, could also get a big boost from a free trade deal between NZ and UK.
Rabobank agriculture analyst Genevieve Steven believes lamb prices will receive a boost when the NZ-UK FTA comes into effect, hopefully from early next year.
"The FTA, if ratified as announced in October, would result in sheepmeat quota increase of 44% over the next 15 years from the current quota volume.
"The increase in quota could provide exporters with the opportunity to further diversify markets, and to take advantage of off-season supply into the UK, particularly lamb for Christmas and Easter," she says.
Farmgate beef prices have set a string of records, with prices cracking $6.50/kg over the last month. P2 steer prices have jumped over $1.70/kg (36%) since January.
Steven expects farmgate beef prices to remain elevated through to December due to strong demand from key markets and ongoing lower global beef supply.
But she says one thing to watch for is the suspension of beef exports from Brazil to China and other countries due to the discovery of atypical BSE two months ago.
"This ban remains in place and it is unclear how long it will continue."
Penny believes beef prices appear to have now peaked.
"Demand is firm (for now) in China and US demand is rising as the US economic recovery gathers pace.
"Meanwhile, high grain prices and supply chain issues are still crimping global beef supply. With this in mind and allowing for the normal seasonal patterns, we expect prices this autumn to set record highs relative to previous autumns."
Penny expects the current factors underpinning prices have further to run.
"Global meat supply remains very tight, with feed grain prices still very high," he says.
"With no short-term resolution in sight, we expect tight supply to continue to underpin prices," he says.
Global meat demand remains firm and while slowing Chinese economic growth may moderate demand in 2022, Penny expects that the economic recoveries in the US and Europe will generate sufficient demand to offset any Chinese weakness.
"With the above in mind, the autumn is shaping up as one for the record books," he says.
