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NZ farmers see limited benefit from high US beef prices as rising kiwi erodes returns

Tuesday 20th February 2018

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New Zealand farmers aren't seeing the full benefit of rising beef prices in the US, their largest market for the meat, because the stronger kiwi dollar is crimping returns, according to AgriHQ.

The price for 95CL imported bull beef was recently at US$2.25 a pound, up from US$2.14/pound last month, US$2.23/pound a year ago and ahead of the US$2.20/pound five-year average, according to AgriHQ data. The price for imported 90CL cow meat was recently at US$2.13/pound, from US$1.98/pound last month, US$2.05/pound last year, and the US$2.06 five-year average.

"US imported beef prices are lifting in response to the lack of beef coming out of NZ and Australia," AgriHQ analyst Reece Brick said in his monthly Sheep & Beef report for February. Still, he said the surging value of the kiwi dollar against its US counterpart had gnawed into margins.

"From a NZ exporter's perspective the NZD:USD is still a nuisance which is chewing into their export returns, having now hung in the US$0.72-0.74 range for more than a month."

Brick noted that imported 95CL was making NZ$6.78/kg last week, but if the NZD:USD had stayed flat from late-November/early-December it would be at NZ$7.21/kg.

The kiwi dollar has strengthened through December and January almost entirely due to US dollar weakness. The greenback is trading around its lowest levels in more than three years against a basket of currencies amid speculation the protectionist Trump administration could pursue a weaker currency to help bolster US exports and its 'Made in America' agenda. Demand for the greenback is also waning as investors see central banks in other parts of the world raising interests rates, taking the shine off yields in the US.

The US is New Zealand's largest market for beef, taking 191,075 tonnes, or 47 percent of New Zealand beef exports, in the 2017 calendar year, worth $1.25 billion, according to figures compiled by the Meat Industry Association of New Zealand.

AgriHQ's Brick said US buyers were initially slow to react to news that the New Zealand cattle slaughter had begun to stall as improved feed conditions prompted farmers to hold onto their stock, but successive weeks of low offerings on the spot market changed the tone, and prices had risen for five weeks in a row. 

Also helping bolster the price for imported beef in the US was weaker supply from Australia as farmers held onto stock following rain, and as Chinese and Canadian traders sought increased volumes of lean grinding beef from New Zealand, pulling beef away from the US, Brick said.

Consumer demand in the US remained positive on the back of a strong economy, which is expected to stoke demand for beef and other proteins over the next 12 months, he said.

"Market participants are anticipating imported beef prices to hold strong through until at least March, mainly based off the fact few of the factors driving the market are likely to change," Brick said.


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