New Zealand beef exporters are capitalising on United States’ demand for lean trimmings. Joanna Cuttance reports.
New Zealand has exported 20% more beef this season (October-February) to the US beef market than last year.
RaboResearch senior analyst Angus Gidley-Baird said despite a 12% drop in average per unit value to NZ$7.26/kg, total value had increased 2% to NZ$426m so far this season.
Covid-19 restrictions have led to a change in US consumer eating habits. Restrictions in food service activity and reduced business travel have limited eat-in restaurant style dining. This restricted channel for beef had affected the higher primal cut trade, Gidley-Baird says.
US food service sales for February 2021 remain 17% below February 2020, meanwhile food retail sales are up 12%.
Gidley-Baird said with the large stimulus packages, we have also seen that consumers have been willing to spend more on better quality meat bought through retail.
This meant some of the primal cuts, such as rib and loin cuts, that were destined for food service had found strong demand through retail outlets.
He said from a manufactured or trimmings market point of view, this market had been quite strong.
“Quick service restaurant trade had been able to leverage their takeaway, drive through and home delivery options, to maintain or increase sales.”
McDonald’s Corporation in the US had seen a 5.5% increase in same store sales for quarter four (Q4) 2020 and this followed a 4.6% increase in Q3.
Gidley-Baird said NZ was in a good position with regards to the US market. That was because Australian volumes were down, and the quick service trade, which demanded lean trimmings, was strong. Australian export volumes were down because they experienced high stock turnoff with the drought through 2018-19, and were now in a phase of rebuilding. This meant large numbers of cattle and in particular cows, that were being slaughtered and exported had dropped. In Australia production in 2020 was down 13% and exports down 15%. Exports to the US were down 16% in 2020.
Although the US was producing more lean trimmings themselves, the US domestic price for lean trimmings remained strong for this time of year, which created a favourable market for imported lean trimmings.
The US was in a period of contraction in their beef herd.
“As part of a normal cyclical pattern the US is selling down more cows at the moment and hence generating more lean trimmings themselves – this is the key market that Australia and New Zealand supply into,” Gidley-Baird said.
The US was starting to export more product to China but the domestic market was more important to the US than export markets. They export only about 12% of their production, he said.
Australia to bounce back
Over the medium term, three to five years he expected Australian production to increase, leading to more exports from Australia and competition for NZ. Though the US herd would go through its rebuild phase, the US domestic production of lean trimming would ease, placing a stronger reliance on imported products.
These two factors might balance each other out. The strength of currencies would also play a factor. At the moment it looked like both the AU and NZD were appreciating against the USD.
Meat Industry Association (MIA) stats showed in January and February of 2021, NZ beef exports to the US had totalled 30,424 tonnes. This was 5% down on the first two months of last year, despite the ongoing high demand for beef in China. It was likely that one of the reasons for this was the lack of supply coming out of Australia.
Like Gidley-Baird, MIA noted Australia was undergoing major herd rebuilding, and Australian beef exports to the US in the first two months of 2021 totalled 16,841 tonnes. This was less than half the volume of beef that Australia exported to the US in the first two months of 2020.
While the volume of NZ beef exports to the US was only down by 5% in January and February, there was a larger drop in the value-down 17% to $217 million. It was likely that the exchange rate had contributed to this drop in value. At the beginning of last year, the NZ dollar was trading at about US65cents, but in the early part of this year it had gone up over 70 cents.
US stimulus package
ANZ agriculture economist Susan Kilsby said people experiencing Covid-19 lockdowns in the US did not get the same level of support from the Government as New Zealanders did. But US central banks had been putting more money into circulation to stimulate the economy and keep things ticking along, as it was easier to keep an economy going, rather than retrieving it once it had fallen. This meant people had the money to buy easily prepared, higher quality beef cuts. There was still demand for NZ’s low-fat beef, which was blended with US high fat beef for the burger beef market.
Kilsby said, shipping costs were skyrocketing and labour processing costs were rising which would affect farmgate prices.
Moving product in a timely manner was another challenge facing exporters.
Kilsby said the Los Angeles port was congested, making it much harder to get product to shore. This was because there was a greater demand for products from China to the US. Kilsby said because Americans were unable to buy services during lockdowns, they had changed to buying products, which were taking container space. Also, many US ports were closed down during lockdowns and/or were not operating at full capacity.
She said this situation was challenging for NZ, not only for beef exporters but also for the horticulture industry which was looking for space. This could go on for months and no one really knew when it would be resolved. In NZ the South Island was not being serviced so well, as containers were not flowing nicely.
Kilsby predicted consumer demand would lift in the US as lockdowns were removed and sporting events and other activities were opened up, combined with the vaccine rollout.
There was more optimism compared to a year ago, she said.
The export story – Snapshot
Meat Industry Association (MIA) chief executive Sirma Karapeeva reported:
- Compared to February 2020 the overall value of exports was essentially unchanged but there have been shifts in destinations.
- In February 2020 Covid-19 hit China, and New Zealand exports to China basically halved and product was diverted to other markets.
- February 2021 exports have followed the pattern of recent months, with ongoing high exports to China, and steady increase in exports to other markets, as NZ comes into the peak of the processing season.
- Australia was the only other top 10 market (apart from China) where there was an increase in exports compared to last year. The majority of NZ exports to Australia are co-products, but the increase was largely due to growth in beef exports.
- Australia is undergoing a major herd rebuilding phase, with slaughter levels and export volumes significantly lower. For example, Australian beef exports in February decreased by 30% compared to last year.
- NZ beef exports of 47,467 tonnes in February this year was the highest February total in more than 20 years. This was probably supply-driven, with high levels of steer and heifer slaughter in late January and early February, but was also driven by demand in China.