Rabobank cuts loan rate
Rabobank New Zealand will reduce the variable base rate on its rural loans by 0.5%, effective from 16 October 2024.
Matt is responsible for analysing developments in animal protein markets including beef, sheepmeat, pork, chicken and seafood. He is one of Rabobank’s
80 food and agribusiness research analysts worldwide.
Question: 2015 has been a mixed year for sheep and beef farmers in New Zealand. What has stood out to you?
Answer: The standout performer has clearly been the beef sector, with record cattle prices in all categories, although they have eased over the past few months. Making the returns even more impressive is that they were achieved despite huge cattle supplies in NZ (given the high dairy cow slaughter) and liquidation of the Australian cattle herd.
Q: Surely this leads to a tighter supply scenario in 2016?
A: Absolutely. For NZ the increased beef supply has been underpinned by the weaker dairy prices. The higher returns for beef have certainly helped and, given the massive cattle slaughter this year, we expect the NZ beef supply to reduce in 2016. Encouragingly for NZ farmers and processors, Australia's cattle supply is at last showing signs of contracting after three years of near record slaughter volumes. Given that Australia is NZ's major competitor in export markets, the tighter supply will support ongoing strong cattle and export prices for NZ.
Q: The higher prices have been underpinned by strong demand from the US, however imported beef prices have fallen significantly in the last few months. What has caused this decline?
A: Large volumes of beef were absorbed by the strong US market in 2015, as their herd continued to rebuild. More recently however, US domestic and imported beef prices have been pressured by to a combination of variables. These include high domestic US beef production (Fed cattle weights at record levels), imbalance in beef trade from an import/export perspective, strong export volumes from NZ and Australia (as they fill the allocated quota) and the high US dollar has dampened exports from the US to other markets. Lastly, supported by cheap feed costs, competing proteins such as pork and poultry have also tested beef price competitiveness, given the increase in production in these sectors. Despite these short term pressures, the fundamentals for the NZ beef sector are sound, as seen from demand and supply perspectives.
Q: One clear cause of the lower lamb and mutton price this year has been weaker demand from China. What has transpired?
A: The weaker lamb and mutton prices in 2015 are attributed mostly to oversupply in the Chinese market in 2014 causing higher carryover stocks into 2015. This has seen overall Chinese imports and NZ exports in 2015 fall around 20% YOY.
However, forecast record Chinese sheepmeat production of about 4.3 million tonnes (equating to roughly eight times the volume NZ produces) in 2015 has continued to put downward pressure on demand, although slowdown in the Chinese economy and a crackdown on government spending is likely to be also impacting demand. Wholesale sheepmeat prices in China have declined roughly 12% YOY through the first seven months of 2015.
Q: Looking ahead, what is the outlook for 2015-16 season for the sheepmeat sector?
A: From a supply perspective, lamb supplies are going to be much tighter this season, with expectations of a 10% (1.5 million) decline in lamb processing numbers. This tighter supply will support farmgate prices but it is always important to find the right balance between the procurement price and end user demand.
Demand from China leading up to Chinese new year (February 2016) is reportedly steady, but the market remains somewhat volatile because of expected higher domestic Chinese production. Demand from the EU has reportedly been strong with the usual chilled Christmas trade driving demand and higher prices. Expectations are for prices to ease from these highs, although farmgate returns should be higher than last year. Supporting the positive outlook for sheepmeat and beef sectors is a weaker currency.
• Matt recently authored a sheepmeat report, 'Maximising the Cut - Breaking it All Down', which looked at the overall carcase from a value, yield and end market perspective. To request a copy contact Rabobank on 0800 722 622.
