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Farm gate meat prices are set to rise, with beef tipped to approach near-record highs come spring. (File photo)
A rebounding Chinese market and weak US production are expected to boost farm gate meat prices, with beef tipped to approach near-record highs come spring.
However, “red-hot” farm cost inflation and a strengthening New Zealand dollar loom as potential spoilers.
Westpac senior agri economist Nathan Penny said red meat prices had been on a wild ride since the outbreak of Covid-19, heavily influenced by changing demand from China, but were beginning to stabilise.
After equalling last season’s record high of $9.50 per kilogram over the spring, lamb prices plunged to $6.80 a kilogram by January.
A catalyst for the price slump was falling Chinese demand, which saw China’s share of New Zealand lamb exports fall from 51% in early 2022 to 41%, Penny said.
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The short, sharp fall began to reverse in March, driven by the reopening of the Chinese economy and the country’s increased demand for meat.
Prices had since bounced back to around $7.45 a kilogram, rising at a time of the year when they normally fell.
The unusual pattern had been repeated, to a less extreme extent, for other meat prices, Penny said.
“From here, we expect the price rebound to continue across the board. Looking to the spring peak in prices, we expect steer prices to challenge last season’s record highs and may even go close to breaking the $7 a kilo.”
Mark Schiefelbein/AP
Hot pot is an interactive communal style of dining in China, New Zealand’s largest export market for red meat.
Sheepmeat prices had more ground to make up but were expected to lift back to about average levels by spring.
Farm gate lamb and mutton prices were expected to peak at close to $8.50 and $5.50 a kilogram, respectively.
The strong outlook for beef prices was also influenced by sluggish production in the US, the world’s largest beef exporter.
supplied
Westpac senior agri economist Nathan Penny says red meat prices have been on a wild ride since the outbreak of Covid-19 but are beginning to stabilise. (File photo)
Prolonged drought and the subsequent slaughter of stock have led the US Department of Agriculture to predict production will fall to its lowest level since the start of the Covid-19 pandemic.
While the overall outlook was positive, there were potential spoilers in the mix, including ongoing on-farm cost pressures, Penny said.
Sheep and beef farm annual cost inflation, excluding livestock purchases, was running “red-hot” at 12.3% in the March quarter.
“That said, it was down from 15.1% in the September quarter, and we expect further falls over the year,” he said.
Westpac expected annual farm cost inflation for all farm types to fall to 4% by the end of the year.
“If this proves correct and with farm gate meat prices lifting, then farm margins and profits should improve over the new season.”
The New Zealand dollar, which had tracked around US60 cents so far this year, was another potential spoiler, Penny said.
“Looking over the rest of year and into 2024, we expect the New Zealand dollar to lift gradually to around US68 cents by the start of 2024. If we are correct, this will put some downward pressure on farm gate prices.
“On balance, though, we expect healthy overall farm gate meat prices over the season and, assuming cost inflation falls in line with our expectations, then farm profits should also improve.”
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