bEEF - SITUATION AND OUTLOOK FOR NEw ZEALAND AGRICULTURE AND FORESTRY

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Source AgriBase.

bEEF

bIOFUEL EXPANSION

Grain-fed beef producers in the US have adjusted well to the higher corn prices created by the expansion of biofuel. It was anticipated that all meat prices would lift in response to the rising cost of grain, but pork and chicken have been affected more than beef and dairy.

One by-product created when distilling ethanol from corn is distillers’ grain. This is high in protein and can be partially

substituted for grain in the cattle feed ration. (Mono-gastric animals like pigs and chickens cannot consume distillers’ grains to the same degree.) The rapid expansion of ethanol production in the US has led to the abundance of distillers’ grain and, to make better use of the new feed source, some beef feedlots have been set up next to ethanol plants.

US producers have also adapted to the higher price of grain by keeping cattle on pasture for longer before moving onto feedlots.

This extends the time to get cattle ready for the market but it also minimises the amount of grain needed.

In the future, biofuel production is expected to rise, thus increasing the supply of distillers’ grain.

Increased competition and higher beef supplies in our key prime beef export markets will see downward pressure on in-market prices in 2009 and 2010. However, the assumed fall in the New Zealand dollar means that improvements in New Zealand prime beef schedules are expected.

EXPORTS

Beef exports for the year ended 31 March 2008 were 4.1 percent down at 352 000 tonnes. Export earnings dropped by 14 percent to $1.6 billion due to the combination of a strong New Zealand dollar, lower beef prices and less volume exported. As a result, this was the lowest beef export earnings since 2001.

Beef export earnings reduced in all our major markets, except Canada and Indonesia, for the year ended 31 March 2008. Indonesia is gradually becoming a more important export market for New Zealand beef. Since 2006, the volume of beef exported to Indonesia has doubled and, in the year ended 31 March 2008, contributed $88 million.

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When Bovine Spongiform Encephalopathy (often referred to as “mad cow disease”) was discovered in the US in late 2003, US beef was shut out of the South Korean and Japanese markets. Recently, however, the US has gradually been regaining limited access to the South Korean and Japanese markets. As a result of this renewed competition, there has been some decline in New Zealand exports.

Export earnings are expected to increase in the future as the New Zealand dollar depreciates.

PRODUCTION

Total beef production is expected to have fallen 4 percent for the year ended 30 June 2008. This is mainly due to the drought earlier in the year, which reduced overall slaughter weights by about 2 percent and lowered manufacturing beef production. There were also fewer bulls available for slaughter and dairy cows were retained to maximise milk yields as dairy payouts reached record highs. Beef sourced from culled cows made up about a fifth of total beef production. This proportion is expected to increase in the future as the dairy herd expands.

The total number of beef cattle has stabilised at about 4.4 million and is expected to remain at a similar level for the outlook period. The recent drought is expected to reduce the number of calves born in the 2008/09 season. Fewer calves, along with stock rebuilding due to drought-induced slaughter, will see beef production drop in 2009 and 2010, before rising again.

ACTUAL FORECAST

2005 2006 2007 2008 2009 2010 2011 2012

Schedule manufacturing

beef price (cents/kg)¹ 228 233 213 225 249 274 295 310

Schedule prime beef

price (cents/kg)¹ 319 311 328 327 333 352 366 369

Export volume (000 tonnes)² 415 381 367 352 345 357 366 368

Export value ($ mil)² 1 918 1 727 1 816 1 562 1 693 1 915 2 133 2 263 Notes

1. Year to 30 June. 2008 figure is estimated.

2. Year to 31 March.

Sources Meat & Wool New Zealand, Statistics New Zealand and MAF.

TAbLE 18.1: bEEF PRICES AND EXPORT vOLUMES AND vALUE, 2005–2012

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Note

1. EU27 refers to the countries in the European Union as at 1 January 2007.

Sources US Department of Agriculture, EuroStat, Statistics New Zealand and Dairy Australia.

FIGURE 19.1: SKIM MILK POwDER EXPORT vOLUMES, bY MAjOR EXPORTER, 2000–2007

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The dairy payout, in inflation-adjusted terms, is the best since 1965. For the year ended 31 May 2008, the payout¹ is estimated to be $7.55 per kilogram of milk solids.

In the year ended 31 March 2008, dairy export revenues grew by 25 percent to $10 billion. International prices for dairy products have been exceptional, overwhelming the impact of the strong New Zealand dollar and the drought on New Zealand dollar dairy export revenue.

However, high international dairy prices are now declining from their peaks.

Growth in demand, for milk powders especially, has come from China and other developing economies and particularly from oil-exporting countries enjoying higher income flows. For the year ended 31 March 2008, the Organization of Petroleum Exporting Countries (OPEC) accounted for 21 percent of New Zealand’s total dairy export value (up from 17 percent the previous year). While milk reconstitution from imported milk powder has been a major part of the overall demand, there is also growing demand for higher-value consumer products, such as cheese and yogurts.

A number of significant disruptions to supply in the last two years

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“ ...dairy export revenues grew by 25 percent to

$10 billion. ”

1 Averaged across dairy companies and net of industry levy and retentions.

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helped keep international prices high. Initially, exports of skim milk powder from the EU declined due to Common Agriculture Policy changes in 2003. This was compounded by two years of drought in Australia, reducing its milk production. Here in New Zealand, milk solids production fell in late summer 2008 due to the drought.

Notes

1. USD – US dollars.

2. FOB – free on board: the value of the goods at the port of export and loaded onto a vessel for transportation out of the country of origin.

Source Statistics New Zealand.

FIGURE 19.2: DAIRY EXPORT PRICES IN US DOLLAR TERMS

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