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Contents
                                                                                                                            LAMB                                                                                       23
                                CONTENTS .............................................................................1     MUTTON                                                                                     23
                                FOREWORD ...........................................................................3     BEEF OUTLOOK 2020-21 – OPPORTUNITIES AND CHALLENGES
© 2020 Beef + Lamb New          EXECUTIVE SUMMARY – OUTLOOK 2020-21 ..........................4                           ............................................................................................ 24
Zealand Limited also              OVERVIEW                                                                            4   BEEF & VEAL EXPORTS ......................................................... 25
referred to as B+LNZ,
B+LNZ - Economic Service          ECONOMIC CONDITIONS                                                                 4   BEEF – INTERNATIONAL SITUATION ..................................... 27
and the Economic Service.         LAMB AND MUTTON                                                                     4     OVERVIEW                                                                                   27
                                  BEEF                                                                                4     CHINA                                                                                      27
All rights reserved. This
work is covered by
                                  LIVESTOCK NUMBERS                                                                   5     UNITED STATES                                                                              29
copyright and may not be          SHEEP AND BEEF FARMS                                                                5     AUSTRALIA                                                                                  30
stored, reproduced or           ECONOMIC CONDITIONS .......................................................6                SOUTH AMERICA                                                                              30
copied without the prior          THE GLOBAL ECONOMY                                                                  6   CATTLE PRICES – FARM-GATE .............................................. 32
written permission of Beef +      NEW ZEALAND                                                                         7   BEEF PRODUCTION .............................................................. 33
Lamb New Zealand Limited.         CONSUMER PRICES                                                                     8     CATTLE SLAUGHTER                                                                           33
Beef + Lamb New Zealand           INTEREST RATES                                                                      9     CATTLE WEIGHTS                                                                             33
Limited, its employees and        EXCHANGE RATES                                                                      9     BEEF PRODUCTION                                                                            33
Directors shall not be liable     GLOBAL TRADE                                                                      10      PRICES                                                                                     34
for any loss or damage
sustained by any person
                                  TRADE CHALLENGES                                                                  10      EXPORTS                                                                                    34
relying on the forecasts          TRADE OPPORTUNITIES                                                               10    WOOL1................................................................................. 34
contained in this document,     EXCHANGE RATE SENSITIVITY – 2020-21 .............................. 11                       PRODUCTION                                                                                 35
whatever the cause of such        SHEEP                                                                             12      SHEARING                                                                                   35
loss or damage.                 LIVESTOCK NUMBERS .......................................................... 12             AUTUMN 2020 SUMMARY                                                                        36
Beef + Lamb New Zealand           BEEF CATTLE                                                                       12    CLIMATIC CONDITIONS ........................................................ 36
PO Box 121                        DAIRY CATTLE                                                                      12      OUTLOOK – AUGUST TO OCTOBER 2020                                                           37
Wellington 6140                 SHEEPMEAT OUTLOOK 2020-21 – OPPORTUNITIES AND                                             FARM REVENUE, EXPENDITURE & PROFIT – NEW ZEALAND 38
New Zealand                     CHALLENGES ........................................................................ 13      REVENUE                                                                                    38
Phone: 04 473 9150
Fax:     04 474 0800              LAMB                                                                              14      EXPENDITURE                                                                                38
E-mail: econ@beeflambnz.com     LAMB & MUTTON EXPORTS ................................................. 14                  FARM PROFIT BEFORE TAX                                                                     39
                                  MUTTON                                                                            16    FARM REVENUE, EXPENDITURE & PROFIT – REGIONAL ....... 41
Contact:
                                  OVERVIEW                                                                          17      EBITRM                                                                                     41
Andrew Burtt: 04 474 0842
Chief Economist                 LAMB & MUTTON – INTERNATIONAL SITUATION ................ 17                                 NORTH ISLAND SUMMARY                                                                       41
Rob Davison: 04 471 6034          CHINA                                                                             17      SOUTH ISLAND SUMMARY                                                                       41
Executive Director                AUSTRALIA                                                                         18    REGIONAL COMMENT – NORTH ISLAND .............................. 42
Rachel Agnew:                     EU-27 & UK                                                                        19      NORTHLAND–WAIKATO–BAY OF PLENTY                                                            42
027 294 1276                      UNITED STATES                                                                     20      EAST COAST                                                                                 43
Senior Agricultural Analyst
James Cho: 04 474 8030
                                LAMB & SHEEP PRICES – FARM-GATE .................................. 22                       TARANAKI–MANAWATU                                                                          43
Senior Agricultural Analyst     LAMB & MUTTON PRODUCTION.......................................... 23                     REGIONAL COMMENT – SOUTH ISLAND .............................. 44

1
No - Beef + Lamb New Zealand
MARLBOROUGH–
    CANTERBURY        44
    OTAGO–SOUTHLAND   44

2
Foreword
About this report
The New Season Outlook 2020-21
presents projections for sheepmeat
and beef production, exports,
farm-gate prices and on-farm
profitability. It also provides an
overview of key international markets.
It has been prepared at a time of
considerable volatility and uncertainty.
The outlook is based on market
intelligence available until
mid-September 2020 and reflects the
COVID-19 impact domestically and
globally to that point in time. There is
little certainty around the continued
spread of the virus. The forecasts in
this report are subject to the limitations
of the uncertainty and the constantly
evolving situation.

3
Executive Summary – Outlook 2020-21
Overview                                   Economic Conditions                        Lamb and Mutton                           The outlook for mutton in 2020-21 is
                                                                                                                                also uncertain, driven by the same
Beef and sheepmeat exports face an         There are many variables that will         For 2020-21, total lamb export            factors as for lamb.
uncertain outlook for the 2020-21          influence the outlook for global growth    receipts are forecast at $2.94 billion
season as economic disruptions from        in the 2020-21 season. These include       FOB, down 14.8 per cent on 2019-20.       In 2020-21, mutton export production
the COVID-19 pandemic continue to          the persistence of the spread of           Co-products are forecast to decline a     is forecast to decline 10 per cent, as
impact consumer demand.                    COVID-19, with many countries              further 7.9 per cent.                     farmers maintain their breeding ewe
                                           experiencing second waves, the                                                       flocks following the 2020 drought.
Despite this, there are solid underlying                                              Lamb exports are forecast to be down
market fundamentals that will continue     duration and reoccurrence of               6.5 per cent to 280,000 tonnes            The average FOB value per tonne is
to support demand for New Zealand          lockdown restrictions, the subsequent      shipped weight, driven by a lower         forecast to decline 7 per cent but will
sheep and beef exports. Chinese            impact on economic activity and the        2020 lamb crop.                           still be above the five-year average.
demand for meat protein continues to       implementation of fiscal and monetary
                                           policy support in individual countries.    Average export returns for the season     Total mutton export receipts are
be fuelled by African Swine Fever pork
                                                                                      are forecast to decline 9.3 per cent to   forecast to decline 15.6 per cent on
shortages and there is growing             On a positive note for the New             $9,841 per tonne but remain 3 per         2019-20, to $605 million, dropping
demand for high quality, nutritionally     Zealand red meat sector, the primary       cent above the five-year average.         below the five-year average.
rich proteins. A shifting consumer         food sector is expected to show
preference towards food safety will        significantly more resilience to the       COVID-19 has introduced uncertainty       The annual average mutton price for
also support demand for New Zealand        pandemic crisis compared to other          into the outlook for sheepmeat.           the 2020-21 season is forecast at
sheepmeat and beef.                        sectors. The demand for food               Consumer demand has been                  415-485 cents per kg with a midpoint
                                           products has been more stable              impacted by weaker economic               of 447 cents per kg, a decline of
The global meat trading environment
                                           compared to other commodities.             conditions and the disruption to the      9 per cent on the 2019-20 estimate of
will face challenges in the 2020-21
                                                                                      foodservice sector will continue to be    490 cents per kg.
season. In addition to COVID-19            The deteriorating trade relationship       a challenge for lamb exports in the
disruption, competitive pressure in key    between the US and China is a cause        2020-21 season.
export markets is expected to increase     of wariness in the global trading
and ongoing uncertainty exists around      environment and some believe it has        Although, the outlook is uncertain,
key trade negotiations.                    the potential to jeopardise                underlying fundamentals remain solid,
                                           international co-operation.                driven by continued pork shortages in
New Zealand sheepmeat and beef
                                                                                      China, increasing demand for high
exports will not be immune to these        The New Zealand economy has                quality proteins and increasing
challenges, however the premium            contracted in the first half of 2020 but   disposable income in some Asian
attributes of New Zealand sheepmeat        is expected to experience a degree of      countries.
and beef make New Zealand products         recovery in the second half. The
well positioned to weather the             sharp contraction of global economies      The weighted average lamb farm-gate
uncertainty.                               and the continuing closure of the          price is forecast to be between 620
                                           border are expected to weigh on the        and 715 cents per kg with a midpoint
Total beef, veal and sheepmeat export
                                           economy into the 2020-21 season.           of 665 cents per kg, which is down
revenue for the 2020-21 season is
                                                                                      10 per cent on 2019-20. Despite the
forecast at $7.39 billion, down            In response to the pandemic crisis, the    decline, the midpoint forecast price is
12 per cent or $1 billion, from            RBNZ is now expected to introduce a        above the above the five-year
2019-20.                                   negative OCR in 2021.                      average.

4
Beef                                      Livestock Numbers                       Wool                                      Sheep and Beef Farms
Export revenue from beef and veal in      The total number of sheep at 30 June    Unfortunately, there is little optimism   Gross farm revenue for the 2020-21
the 2020-21 season is forecast to be      2020 is estimated at 26.2 million,      in the outlook for wool.                  farming year, which ends on 30 June,
$3.85 billion FOB, down 9 per cent on     down 2.3 per cent on the previous                                                 is forecast to average $559,300 per
2019-20.                                  June and 55 per cent lower than in      The outlook for 2020-21 is for wool       farm – down 10 per cent.
                                          1990.                                   exports to decline 2.8 per cent on
Beef and veal exports are forecast to                                             2019-20.                                  The sheep and cattle revenue
be steady on 2019-20 at 453,000           The number of beef cattle at 30 June                                              accounts, which combined account for
tonnes shipped weight.                    2020 is estimated at 3.89 million,      Average export receipts at FOB are        three-quarters of gross farm revenue,
                                          unchanged on the previous June and      expected to decrease 34 per cent to       are forecast to decline to levels below
The number of cattle processed for        down 15 per cent on 1990-91. The        $3,700 per tonne, following an
export in 2020-21 is forecast to                                                                                            2017-18, while wool is forecast to be
                                          change in the latest year was largely   18 per cent drop the previous year.       about 30 per cent lower than in
decline marginally (-0.9%) on 2019-20     driven by little change in the number
and export beef production is forecast                                            Total wool receipts are forecast to       2017-18, clearly reflecting the very
                                          of weaners overall, after there was a                                             challenging circumstances in the wool
to be mainly steady at 661,000 tonnes                                             drop 36 per cent on the previous year
                                          high base of trade cattle and weaners                                             sector, and, revenue from dairy
carcase weight.                                                                   to an estimated at $276 million.
                                          on hand on 30 June 2019, particularly                                             grazing is forecast to be similar to
Average export returns for the season     in the South Island.                    The estimate for the overall auction      2017-18.
are forecast to decline 9.5 percent to                                            wool price is down 20 per cent on
                                          The number of dairy cattle at 30 June                                             Sheep revenue is forecast to decrease
$7,445 per tonne.                                                                 2019-20.
                                          2020 is estimated to have decreased                                               by 14 per cent to average $267,500
The global beef market will face          2.1 per cent to 6.25 million. The                                                 per farm for 2020-21.
uncertainty due to COVID-19 in the        number of dairy cows in milk is
2020-21 season. Consumer demand           estimated to have decreased by a                                                  Cattle revenue decreases 5.0 per cent
has been weakened by economic             similar percentage (-2.5%).                                                       to average $151,600 per farm due to
uncertainty and the disruption to                                                                                           steady international demand for New
foodservice sector demand will also                                                                                         Zealand beef but some easing in
impact beef demand.                                                                                                         prices for cattle.

Global beef trade is expected to grow                                                                                       A 24 per cent decrease in wool
increasingly competitive in the 2020-                                                                                       revenue to $25,500 per farm is
21 season.                                                                                                                  forecast for 2020-21. Wool revenue
                                                                                                                            accounts for less than five per cent of
At USD0.66, the estimated 2020-21                                                                                           gross farm revenue, the lowest level
average annual price for P steer/heifer                                                                                     on record.
(270-295kg) is 515 cents per kg. It is
forecast to average 364 cents per kg                                                                                        Dairy grazing revenue is forecast to be
for M cow (170-195kg), which includes                                                                                       almost unchanged (-0.7%) averaging
a large component of cull dairy cows,                                                                                       $28,400 per farm (and five per cent of
and 480 cents per kg for M bull (270-                                                                                       gross farm revenue) in 2020-21.
295kg).

5
Economic Conditions
The Global Economy                              impact on economic activity and the           of calendar 2020 declined                 recession. China’s growth prospects
                                                implementation of fiscal and monetary         3.75 per cent. The full extent of the     rely on the ability to stimulate
The COVID-19 pandemic has pushed
                                                policy support in individual countries.       impact of COVID-19 on trade in 2020       consumer demand and boost the
the global economy into the deepest                                                                                                     service sector, which contributes more
                                                                                              is still unclear, however economists
recession since the Great Depression            On a positive note for the New                from the World Trade Organisation         than 60 per cent to its economic
in the 1930s. Steep declines in                 Zealand red meat sector, while most                                                     growth.
                                                                                              (WTO) have estimated that world
economic growth are being recorded              markets are projecting a major global         trade could decline between 13 and
in all major economies, excluding               economic downturn, the primary food                                                     Other key factors impacting China’s
                                                                                              32 per cent.
China, unemployment is soaring,                 sector is expected to show                                                              economic outlook include any
consumer spending has slumped and               significantly more resilience to the          The outlook is for a swift recovery in    resurgence of COVID-19, the
the purchasing power of key New                 pandemic crisis compared to other             2021 (albeit after a precipitous fall),   weakening trade relationship with the
Zealand markets has been restricted.            sectors. The demand for food                  however expectations are that global      US, which is discussed later in the
                                                products has been more stable                 GDP will still remain below               report, and recovery from the
There are many variables that will              compared to commodities such as oil.          pre-COVID-19 levels in 2021.              extensive flooding experienced in
influence the outlook for global growth.                                                                                                mid-2020.
These include the persistence of the            Global trade contracted through the           The global trade environment has
spread of COVID-19, with many                   first half of 2020, driven by the lack of     been marred by rising protectionism,      Food security is an evolving issue in
countries experiencing second waves,            international tourism and weaker              which has been accelerated this year      China. The country has endured
the duration and reoccurrence of                overall demand. The volume of goods           by COVID-19. The escalating               months of severe flooding and insect
lockdown restrictions, the subsequent           and services traded in the first quarter      US-China trade war is also causing        infestations, on top of African Swine
                                                                                              increasing wariness in the global         Fever (ASF) and COVID-19. There is
Table 1 Economic Growth                                                                       trading environment, and some             growing speculation that the country
                   Annual Average % Change, March Year                                        believe it has the potential to           may be facing a shortage of grain, as
                           2017        2018        2019      2020e        2021f       2022f   jeopardise international co-operation     well as pork. This speculation was
                                                                                              and prospects of freer trade.             fuelled by an announcement by the
                             %           %           %           %            %          %
                                                                                                                                        Chinese government in mid-August of
US                         +1.8        +2.6        +2.8        +1.7         -6.4       +2.2   China                                     its Clean Plates Campaign, which is
UK                         +2.0        +1.6        +1.6        +0.5       -13.8        +3.2   China is one of the few economies         intended to curb food waste and
Euro zone                  +1.9        +2.8        +1.6        +0.1       -10.1        +3.0   expected to experience growth this        described the problem of food waste
Japan                      +0.9        +2.0        +0.3        -0.0         -6.8       +0.9   year. China’s economy contracted          as “shocking and distressing”. This
                                                                                              sharply in the first quarter of 2020      follows a call for the need to stabilise
China                      +6.9        +6.9        +6.6        +2.7        +2.7        +6.5
                                                                                              (-10.1%), however economic activity       agriculture and ensure the safety of
South Korea                +3.0        +3.2        +2.5        +2.0         -1.4       +2.6   rebounded swiftly once lockdown           grain and major non-staple foods.
Australia                  +2.6        +2.7        +2.4        +1.7         -1.7       +1.8   restrictions were lifted, supported by    Record import volumes of wheat, rice,
                                                                                              fiscal and monetary policy stimulus.      rapeseed, as well as meat, have been
Trading Partners            +3.7        +4.2       +3.7        +1.7         -2.7       +3.7   Economic activity recovered in the        recorded in 2020, and food prices in
                                                                                              second quarter and the economy grew       China rose 10 per cent in the 12
                                                                                              (+11%).                                   months to July 2020.
New Zealand                 +3.7        +3.2       +3.1        +1.5         -8.2       +4.5
Note: "Euro zone" are 15 Member States: Belgium, Germany, Ireland, Greece, Spain,
                                                                                              Economic recovery in the second half      ASF, which is a highly contagious
Cyprus, Malta, France, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland and     of 2020 is expected to be constrained     disease in pigs but does not affect
Slovenia.                                                                                     by weaker consumer demand and the         humans, continues to adversely
"Trading Partners" account for about 85% of New Zealand's total merchandise trade.            continued expectation of a global         impact Chinese meat production, and
6
e estimate, f forecast | Source: Statistics New Zealand, NZIER Quarterly Predictions
remains a key driver of demand for            pork from other EU countries, Brazil       more Chinese consumers to purchase        and the economic this may have on
New Zealand sheepmeat and beef                and the US.                                beef and sheepmeat. While the return      the economy.
exports in 2020-21. Analysts report                                                      to full capacity pork production
that up to 45 per cent of China’s sow         Chinese pork production between            following recovery from ASF may           The outcome of the elections on
herd have been lost to ASF, and while         2018 and 2020 is estimated to have         result in Chinese consumers reverting     3 November will be a key point of
herd recovery is underway, pig                dropped by just under 40 per cent or       to pork as the protein of choice, there   focus for the US economy, and
numbers are still expected to only be         around 27 million tonnes. The Chinese      are increasing signals the more           financial markets will focus on this in
at 80 per cent of pre-ASF levels by the       Bureau of Statistics shows that            affluent consumers may choose beef        the lead-up to November.
end of 2021.                                  Chinese pork output for the first six      or sheepmeat as a higher quality,
                                              months of 2020 dropped 20 per cent                                                   New Zealand
                                                                                         nutritionally rich protein source.
ASF outbreaks continue to be                  on 2019.                                                                             The New Zealand economy has faced
reported through 2020, in China as                                                       US                                        unprecedented change during 2020.
well as other countries, signalling the       Pork is the largest source of meat
                                                                                         The outbreak of COVID-19 has been         The COVID-19 pandemic introduced a
continuing relevance of this disease in       protein consumed in China. Chinese
                                                                                         severe in the US. Human health and        new economic playing field in New
world protein demand. In September            pork imports soared through 2019 and
                                              in 2020 in response to the shortage. In    economic conditions have met              Zealand and across the globe, where
2020, the first case of ASF was                                                          unprecedented adversity. The              the rules are largely unknown by
confirmed in Germany – in a wild boar.        the first six months of 2020, China’s
                                              pork imports rose a staggering             pandemic has been slow to release         anyone.
Imports of German pork were                                                              it’s grip on the US, however, at the
subsequently banned by China and              153 per cent.                                                                        The New Zealand economy
                                                                                         time of writing in September there was    contracted in the first half of 2020, with
several other countries. Germany is           The shortage of pork caused prices to      evidence of progress in the
the third largest supplier of pork to         surge, and alternative meat protein                                                  GDP contracting by 12 per cent in the
                                                                                         management of COVID-19, with falling      June quarter. The recession was
China following the US and Spain.             sources such as beef and sheepmeat         fatality rates and rising economic
However, reports indicate that the gap                                                                                             expected by economists, given the
                                              to become more competitive.                activity.
left by the absence of German pork in                                                                                              level of disruption from COVID-19.
China is likely to filled adequately by       Price and the increasingly important       The US economy contracted sharply         The focus for the New Zealand
                                              issue of food safety have encouraged       in the second quarter of 2020. In         economy for the second half of 2020
                                                                                         March and April, more than 20 million     will shift to the speed of recovery and
Figure 1                  Change in New Zealand Real GDP                                 jobs were lost. Consumer confidence       a move from recession. A lack of
                                                                                         was severely shaken, and consumer         restrictions and sharp lift in economic
                                 Annual % change March year                                                                        activity in the third quarter of 2020 will
                                                                                         spending, which is a key driver of the
                   6.0                                                                   economy, was well down. However,          support a recovery, however
                                                                                         macroeconomic reveals that April took     economists remain wary of the sharp
                   4.0                                                                   the brunt of the impact, and recovery     contraction of global economies and
                                                                                         is expected during the third quarter.     the fact that the largest impact of the
 Annual % change

                   2.0                                                                                                             border closure is still to be felt as
                                                                                         Employment has rebounded more             activity typically peaks between
                   0.0                                                                   rapidly than expected and some
                          2017    2018     2019      2020e        2021f          2022f                                             October and March.
                   -2.0                                                                  estimates signal that GDP has the
                                                                                         potential to return to the average of     While economic shock of COVID-19
                   -4.0                                                                  2019, by the end of 2020.                 lockdown restrictions are, for now,
                                                                                                                                   behind us, economists warn that the
                   -6.0                                                                  Downside risk remains significant,        full impact of the closed border will be
                                                                                         however. The threat of a resurgence       felt for many months ahead. The
                   -8.0                                                                  in COVID-19 cases is real, and there      absence of international tourism,
                                                                                         is also wariness surrounding the          international students and the migrant
               -10.0                                                                     escalation of the US-China trade war      labour force will be felt into the first
 e estimate, f forecast
7Source: Beef + Lamb New Zealand Economic Service, NZIER Quarterly Predictions
Table 2         Consumer Prices                                                                from meat, dairy and horticulture,              The impact of the drought on the New
                                                                                               particularly kiwifruit, have all displayed      Zealand economy was overshadowed
                   Annual Average % Change, March Year                                         resilience so far in 2020. Returns              by COVID-19. Sheep and beef farm
                           2017        2018        2019      2020e        2021f       2022f    from forestry fell as log prices                revenues will be affected through loss
                              %          %           %           %           %           %     reflected the effects of reduced global         of income and higher expenses. The
US                         +1.6        +2.1        +2.3        +1.9        +0.7        +1.6    construction demand. The annual                 impact will be felt most notably on the
                                                                                               merchandise trade balance is                    East Coast of the North Island. More
UK                         +1.1        +2.8        +2.3        +1.7        +0.7        +1.3
                                                                                               strengthening, with year-on-year data           detail is provided below.
Euro zone                  +0.7        +1.4        +1.8        +1.1        +0.3        +1.0    signalling 8.6 per cent growth in
Japan                       -0.1       +0.7        +0.7        +0.5        +0.0        +0.1    exports over a 16 per cent decline in           Consumer Prices
China                      +1.9        +1.8        +2.0        +3.7        +2.6        +2.1    imports.                                        The Consumer Price Index (CPI) for
South Korea                +1.3        +1.7        +1.3        +0.5        +0.2        +0.9                                                    the June 2020 quarter dropped
                                                                                               The New Zealand pastoral sector has
Australia                  +1.5        +1.9        +1.8        +1.8        +0.1        +1.4                                                    0.5 per cent on the March quarter –
                                                                                               had an extremely challenging year,
                                                                                                                                               the first quarterly deflation in over five
                                                                                               with one of the worst, if not the worst,
                                                                                                                                               years.
Trading Partners            +3.5        +1.7       +1.7        +1.8        +0.6        +1.4    droughts recorded. On 12 March 2020
                                                                                               the entire North Island, parts of the           Transport was the largest contributor
                                                                                               South Island and the Chatham Islands            to the decline (-4.9%), driven by a
New Zealand                 +1.1        +1.6       +1.7        +1.9        +1.0        +1.0
                                                                                               were declared as being in drought by            12 per cent drop in petrol prices for
Note: "Euro zone" are 15 Member States: Belgium, Germany, Ireland, Greece, Spain,              Agriculture Minister Damien O’Connor.           the quarter, the largest fall since the
Cyprus, Malta, France, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland and      The impact of the 2020 drought was              2008 financial crisis. This reflects the
Slovenia.
                                                                                               felt throughout the entire North Island         weak demand for oil during March and
"Trading Partners" account for about 85% of New Zealand's total merchandise trade.
                                                                                               and upper South Island, with the full           April as major economies shut down.
e estimate, f forecast | Source: Statistics New Zealand, NZIER Quarterly Predictions
                                                                                               impact hitting the East Coast of the
quarter of 2021, or until border                spread of the virus overseas, also             North Island.
restrictions are eased.                         adds to the uncertainty. Policy
The extent of Government fiscal
                                                makers as well as the New Zealand             Table 3         Short-term Interest Rates
                                                population were reminded that the
stimulus in the first half of 2020 has          risk of further outbreaks is very real.
                                                                                                                                % p.a., March Year
supported the New Zealand economy                                                                                        2017        2018        2019      2020e        2021f       2022f
successfully, as indicated by better            The overall confidence of New                                               %           %           %          %            %           %
than expected data from the                     Zealand consumers and businesses
                                                                                              US                          0.5         1.4         2.5        1.6          0.1         0.4
pre-election fiscal update (PREFU) in           has been shaken, and caution has
September 2020. However, there is               grown. Unemployment is rising, job            UK                          0.0         0.3         0.7        0.7          0.0         0.0
some wariness surrounding how this              security is uncertain for some, and           Euro zone                  -0.4        -0.3        -0.3       -0.4         -0.5        -0.5
stimulus may be sheltering the                  investment and spending will be               Japan                       0.1         0.1         0.0        0.0          0.0         0.2
economy and the impact as the                   down.                                         Australia                   1.8         1.8         2.1        0.9          0.1         0.3
support spending of wage subsidies
and COVID-19 relief payments begin              The second wave of COVID-19 in
to roll off. These factors all provide          New Zealand also resulted in the              New Zealand                 2.0         1.9         1.9         1.1         0.4        -0.1
uncertainty to the outlook for the New          general election being delayed four           Note: "Euro zone" are 15 Member States: Belgium, Germany, Ireland, Greece, Spain,
Zealand economy                                 weeks to 17 October 2020.                     Cyprus, Malta, France, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland and
                                                New Zealand’s food exports have               Slovenia.
The emergence of the second wave of                                                           "Trading Partners" account for about 85% of New Zealand's total merchandise trade.
COVID-19 in New Zealand in August               performed solidly during the
                                                                                              e estimate, f forecast | Source: Statistics New Zealand, NZIER Quarterly Predictions
2020, combined with the continuing              COVID-19 disruption as international
                                                demand for food lifts. Export returns
8
Food prices lifted 1.1 per cent,            commitment was made to keep it at        Figure 3        Meat Exports by Currency of Trade
influenced by a 16 per cent rise in         that level for at least 12 months.
vegetable prices, which was driven by                                                                               Oct 2019 - Aug 2020
disruption to the food production           In mid-August 2020, the RBNZ
                                            signalled increasing monetary policy                0%         20%           40%            60%           80%        100%
process during the period of
COVID-19 lockdown.                          support for the COVID-19-affected
                                            economy, by expressing a preference         Beef
Annual inflation was 1.5 per cent in        to move to a negative OCR. It also
the year ending June 2020. The key          introduced a “funding for lending”
drivers of the increase were higher         programme to provide support for           Lamb
housing costs (+3.2%), and higher           banks in a negative interest rate
food costs (+3.7%).                         scenario. This programme would lend
                                            money directly to the banks to ensure     Mutton
The impact of COVID-19 is expected          that a lower benchmark rate would be
to continue to be felt in the medium        passed onto customers. Economists
and long term. Projections are for the      are now forecasting a move to a             Total
CPI to ease as the economic                 negative OCR in April 2021.
contraction weighs on inflation.
                                                                                                                USD      EUR      CNY     GBP      Other
                                            Exchange Rates
Interest Rates                                                                         Source: Beef + Lamb New Zealand Economic Service | New Zealand Customs
Interest rates have dropped to all-time     Exchange rate forecasts are
lows in 2020 as the Reserve Bank of         challenging even when global markets
                                                                                     weaker NZD through March and April          major global economies and the
New Zealand (RBNZ) attempts to              are stable. A combination of
                                                                                     provided some support for New               deteriorating relationship between the
soften the impact of COVID-19 on the        COVID-19 and subsequent economic
                                                                                     Zealand exporters in an otherwise           US and China.
New Zealand economy.                        impacts, and geopolitical tension
                                                                                     disrupted market.
                                            makes a volatile backdrop for foreign                                                The outlook for 2020-21 is for the NZD
All around the world, central banks         exchange projections. The rapidly        Despite continued easing in monetary        to appreciate against the USD by
quickly responded to COVID-19 with          changing global and domestic             policy by the RBNZ, the NZD began to        3.6 per cent on 2019-20 (Table 4).
expansionary monetary policy                environment introduces risk to the       lift from May. This partly reflected the
measures.                                   forecasts in this report.                success of New Zealand in eliminating       For the first eleven months of
                                                                                     the virus as well as ongoing strong         2019-20, 76 per cent of total meat
The initial outbreak of COVID-19 in         The NZD depreciated sharply as the                                                   export volume was reported as being
New Zealand in March 2020 resulted                                                   commodity prices.
                                            impact of the initial wave of COVID-19                                               traded in USD-denominated contracts.
in the RBNZ making an emergency             hit the economy and weakened the         The NZD remained strong through             The Chinese yuan has maintained its
75 basis points cut to the Official Cash    growth outlook. The NZD dropped to       mid-2020 with the NZD reaching a            position as the next most significant
Rate (OCR) – to 0.25 per cent. A            a low of USD0.5670 in March 2020. A      16-month high in September of               currency, with 7.4 per cent of New
                                                                                     USD0.6798. The stronger tone was            Zealand’s red meat exports traded in
Table 4          New Zealand Dollar Exchange Rates                                   despite signals from the RBNZ of            this currency. However, this
                                  Annual Average                                     further cuts to the OCR in early 2021.      decreased from 8.1 per cent in the
Sep Year                            USD               GBP                  EUR       Monetary policy measures expected in        2018-19 season, reflecting the
                                                                                     2021 will be a key driver of the            disruption in the Chinese market
2018-19                             0.67               0.52                0.59      direction of the NZD.                       during COVID-19. The EUR and GBP
2019-20e                            0.64               0.52                0.59                                                  account for 5.9 and 4.4 per cent of red
                                                                                     Global risk is also a factor in the         meat exports respectively.
2020-21f                            0.66               0.50                0.57
                                                                                     outlook. Economists are monitoring
2020-21f % change                  +3.6%              -4.0%               -3.3%      closely the spread of COVID-19 in
e estimate, f forecast
9Source: Beef + Lamb New Zealand Economic Service, Reserve Bank of New Zealand
Global Trade                               and the UK domestic market becomes        eliminated tariffs for a certain number     commitments may become less easy
                                           oversupplied.                             of agricultural products, including beef.   to enforce.
Brexit                                                                               The US now enjoys the same tariffs
The UK's departure from the EU,            US-China                                  on beef into Japan as New Zealand           Trade opportunities
scheduled for 31 December 2020, is         The relationship between the US and       and Australia do under the                  New Zealand is continuing to pursue
one of the most concerning trade           China is deteriorating. The two           Comprehensive and Progressive               new trade arrangements and
issues for New Zealand red meat,           countries are engaging in a cycle of      Agreement for Trans-Pacific                 innovative trade policy approaches.
particularly sheep, exporters.             retaliation against each other,           Partnership (CPTPP). The US                 New Zealand is currently negotiating
                                           including stepping up sanctions on        responded quickly to the lower tariff       Free Trade Agreements (FTAs) with
While the UK and EU are currently          officials. This escalating situation is   rate; Japan’s imports of US beef lifted     the EU and the UK, aiming to
negotiating a trade deal that will apply
                                           creating significant risk to the “Phase   8.5 per cent in the first half of 2020.     conclude in 2021. As long-established
after departure date, at the time of       One” deal, which was struck late in       The increased presence of US beef in        high-value markets, these FTAs
writing, the outcome did not look          2019 and sought to resolve the US-        increased competitive pressure for          present important opportunities,
promising. The risk of a “hard Brexit”     China tensions. It included an            New Zealand.                                particularly for beef exports, which are
was growing in probability. A “hard
                                           undertaking by China to make very                                                     currently constrained by EU and UK
Brexit” would leave the UK with no         significant purchases of US agriculture   Trade challenges                            policy settings, but both the EU and
preferential trade access to the EU.       exports, including red meat.
For New Zealand, the relevance of                                                    Outside of trade negotiations between       UK have already signalled a high
this will be the UK’s loss of free trade   The deal potentially placed New           specific countries, there are other         degree of sensitivity around opening
access to the continental EU for UK        Zealand exports to China at a             headwinds to consider.                      up their agriculture markets.
sheepmeat exports. While the UK is         competitive disadvantage, particularly    Rising protectionism has been a             Separately, the Regional
seeking new trade avenues with other       given China’s stated intention to         growing concern for New Zealand             Comprehensive Economic Partnership
countries, the outcome of these are        loosen restrictions on the use of         trade officials over the past three         (RCEP) negotiations with a range of
long-term. In the short-term, a “hard      hormone growth promotants in              years. COVID-19 has accelerated this        Asian trading partners and Australia
Brexit” may result in a decline in         imported beef.                            trend, as major economies dispense          have concluded, with likely modest
demand for New Zealand sheepmeat                                                     support to farmers. Both tariff and         improvements in market access, but
exports to the UK as domestic product      To date, however, the volumes of US
                                           agricultural exports purchased by         non-tariff barriers are a growing           India (a big potential market for New
saturates the market.                                                                concern for the red-meat industry.          Zealand lamb) pulling out of the deal
                                           China have been well below the
New Zealand would be further               mandated levels. The magnitude of         Non-tariff barriers include subsidies       before conclusion. Other negotiations
impacted by a decision from the EU         the deficit increases the risk of China   and other mechanisms that are               in prospect include expansion of the
and UK, as part of the Brexit process,     not meeting its commitment, unless it     becoming more prevalent such as             CPTPP to more trading partners in
to split New Zealand's current             makes some unprecedented                  animal welfare and environmental            Asia and potentially the UK and
sheepmeat and goat meat tariff-rate        purchases in the second half of the       standards.                                  strengthened trade arrangements with
quota (TRQ) access equally between         year. That is possible given the main                                                 countries in Latin America – but these
                                                                                     The World Trade Organisation (WTO)          are likely to have a longer timeframe.
the UK and EU. Currently, the TRQ          crop harvest occurs in the second half    dispute settlement system is current
applies to the two markets combined.       of the year in the US.                    being destabilised. The appeals
Splitting the TRQ would result in the                                                process is no longer operational as a
loss of flexibility for New Zealand        There is growing speculation that
                                           tensions between the two countries        result of US blocking new
exporters to shift sheepmeat between                                                 appointments to the Appellate Body.
the two markets in response to             will be a long-term trend, with phases
                                           of escalation and de-escalation.          to appoint the necessary judges,
changing demand and price trends.                                                    While New Zealand has signed on to
The impact of this will be even more       US-Japan                                  an interim mechanism alongside a
pronounced if UK sheepmeat exports                                                   group of other WTO members, long-
                                           In September 2019, Japan and the US
lose preferential access to the EU,                                                  established WTO rules and
                                           signed a limited trade deal that
10
Exchange Rate Sensitivity – 2020-21
Exchange rate movements have a              from late November through to June,            mutton and wool and thus farm
significant leveraged effect on             which means that the value of the              revenue.
farm-gate prices.                           NZD during this period is crucial to
                                            farmers and export companies.
Table 5 shows farm-gate prices under        Exchange rate movements during that
five different exchange rate scenarios.     period strongly influence the
This approach provides an indication
                                            season-average prices for beef, lamb,
of the impact of exchange rate
volatility on the prices paid to farmers.   Table 5            Exchange Rate Sensitivity
The shaded column represents our                                                       NZD Exchange Rates
forecasts of exchange rates for the                                                                                                   Exchange Rate Change from USD 0.66
major currencies and the related                                   -10%           -5%      Forecast           +5%          +10%             to USD 0.6        to USD 0.73
farm-gate prices used to derive the          USD                    0.60          0.63         0.66           0.69          0.73              -10%              +10%
base estimates of export receipts and        GBP                    0.45          0.48         0.50           0.53          0.55              -10%              +10%
farm revenue in this report. The four
other scenarios show the impact on           EUR                    0.51          0.54         0.57           0.60          0.63              -10%              +10%
farm-gate prices of variations of ±5                                              Farm-Gate Prices Received
and ±10 per cent in the exchange                                                          $ / head
rates for the USD, GBP, and EUR.
                                             Lamb                    146          135            126           118            110             +15.5%          -12.7%
In 2020-21, the NZD is expected to           Mutton                  137          126            116           107             99             +18.1%          -14.8%
strengthen against the USD and ease          Steer/Heifer          1,672        1,552          1,445         1,348          1,260             +15.7%          -12.8%
against the GBP and EUR. Exchange
rate movement with the USD has the           Cow                     837          777            723           675            631             +15.7%          -12.8%
greatest effect because 75 per cent of       Bull                  1,677        1,558          1,450         1,353          1,264             +15.7%          -12.8%
New Zealand’s red meat exports are           All Beef              1,348        1,252          1,165         1,087          1,016             +15.7%          -12.8%
traded in this currency (Figure 3).                                                              c / kg
                                                   1
All other things being equal, a              Lamb                   768            714           665           621            581             +15.5%          -12.7%
                                                   1
10 per cent decrease in the NZD              Mutton                 528            486           447           413            381             +18.1%          -14.8%
against the USD – from 0.66 to 0.60 –        Steer/Heifer           596            554           515           481            449             +15.7%          -12.8%
and the associated cross rates against
                                             Cow                    421            391           364           339            317             +15.7%          -12.8%
the GBP and the EUR, increases the
average lamb price received by               Bull                   555            516           480           448            419             +15.7%          -12.8%
farmers by 15 per cent. Alternatively, if    All Beef               532            494           460           429            401             +15.7%          -12.8%
                                                  2
the NZD appreciates by 10 per cent –         Fine                  1,148        1,054            970           894            824             +18.4%          -15.0%
from 0.66 to 0.73 against the USD –
                                             Medium2                541            497           457           421            388             +18.4%          -15.0%
then the weighted average farm-gate                        2
price for lamb for the season would          Crossbred              168            154           142           131            121             +18.4%          -15.0%
                                                       2
decrease by 12 per cent.                     All Wool               251            230           212           195            180             +18.4%          -15.0%
Meat and wool production is seasonal         1 includes wool and skin 2 wool ¢/kg greasy | Source: Beef + Lamb New Zealand Economic Service
with the majority of production sold
11
Livestock Numbers
Sheep                                                                                                   2020 and the number of breeding                                                                        Table 6         Livestock Numbers (million head)
                                                                                                        ewes decreased 1.2 per cent.
The total number of sheep at 30 June                                                                                                                                                                                                            Breeding                     Total          Beef    Dairy
                                                                                                        Decreases in the number of breeding
2020 is estimated at 26.2 million,                                                                      ewes occurred in East Coast (-2.7%)                                                                                                        Ewes Hoggets             Sheep          Cattle   Cattle
down 2.3 per cent on the previous                                                                       and Taranaki-Manawatu (-1.1%) while                                                                    30 June 2019                        16.85   9.14              26.82          3.89     6.26
June and 55 per cent lower than in                                                                      there was an increase in Northland-
1990. This is the second year in a row                                                                                                                                                                         30 June 2020e                       16.86   8.40              26.21          3.89     6.25
                                                                                                        Waikato-Bay of Plenty (+1.6%). The
that sheep numbers have been below                                                                      number of hoggets in the North Island
27 million. Within this, the number of                                                                                                                                                                         19-20 to 20-21 % change              +0.1%        -8.1%       -2.3%         +0.1%    -0.1%
                                                                                                        decreased 8.6 per cent with East
breeding ewes was unchanged and                                                                         Coast estimated to have decreased by
                                                                                                                                                                                                               e estimate
the number of hoggets decreased                                                                                                                                                                                Source: Beef + Lamb New Zealand Economic Service | Statistics New Zealand
                                                                                                        12 per cent, primarily in response to
8.1 per cent, which reflects two                                                                        drought.
factors: carryover trade lambs on hand                                                                                                                                                                         June 2019 that were processed in the             The number of beef breeding cows
at 30 June 2019 that were processed                                                                     In the South Island, the total number                                                                  September 2019 quarter. The number               decreased 7.8 per cent with the
in the September quarter of 2019, and                                                                   of sheep decreased 1.1 per cent. This                                                                  of breeding ewes increased                       largest decrease in East Coast
underlying changes in the retention of                                                                  was made up of a small increase of                                                                     1.2 per cent after decreasing for many           (-11.3%) in response to drought. The
younger animals.                                                                                        less than one per cent in                                                                              years, due to several factors including          magnitude of the change also
                                                                                                        Otago/Southland and a larger                                                                           conversions to dairy farming and the             reflected an increase in the number of
In the North Island, the number of                                                                      decrease in Marlborough (-3.5%),                                                                       impacts of drought.                              trade cattle, underpinned by
sheep decreased 3.5 per cent                                                                                                                                                                                                                                    dairy-beef, on hand as at 30 June
                                                                                                        which reflected a relatively high                                                                      After excellent lamb and mutton prices
(-466,000) to 12.7 million at 30 June                                                                                                                                                                                                                           2019.
                                                                                                        number of trade lambs on hand at 30                                                                    underwrote a deeper culling than
Figure 4                    Livestock Numbers                                                                                                                                                                  usual of poorer-performing sheep in              In the South Island, the number of
              70,000                                                                                                                                                                    7,000                  2017-18 – partly offset by farmers               beef cattle increased 2.5 per cent to
                                                                                                                                                                                                               retaining ewe lambs – the younger                1.21 million at 30 June 2020.
                                                                                                                                                                                                               breeding flock matured resulting in a
              60,000                                                                                                                                                                    6,000                                                                   The number of beef cows decreased
                                                                                                                                                                                                               decrease in the number of hoggets.
                                                                                                                                                                                                                                                                3.5 per cent, while the number of other
              50,000                                                                                                                                                                    5,000                  Beef Cattle                                      cattle increased modestly (+1.3%).
Sheep (000)

                                                                                                                                                                                                Cattle (000)
              40,000                                                                                                                                                                    4,000
                                                                                                                                                                                                               The number of beef cattle at 30 June             Dairy Cattle
                                                                                                                                                                                                               2020 is estimated at 3.89 million,
                                                                                                                                                                                                               unchanged on the previous June. This             The number of dairy cattle at 30 June
              30,000                                                                                                                                                                    3,000                  was largely driven by little change in           2020 is estimated to have remained
                                                                                                                                                                                                               the number of weaners overall (but               static (-0.1%) at 6.25 million. The
              20,000                                                                                                                                                                    2,000                  some differences between regions),               number of dairy cows in milk is also
                                                                                                                                                                                                               and a high base of trade cattle and              estimated to remain static (-0.2%).
                       1990-91
                                 1992-93
                                           1994-95
                                                     1996-97
                                                               1998-99
                                                                         2000-01
                                                                                   2002-03
                                                                                             2004-05
                                                                                                       2006-07
                                                                                                                 2008-09
                                                                                                                           2010-11
                                                                                                                                     2012-13
                                                                                                                                               2014-15
                                                                                                                                                         2016-17
                                                                                                                                                                   2018-19
                                                                                                                                                                             2020-21e

                                                                                                                                                                                                               weaners on hand on 30 June 2019,                 The South Island contains 39 per cent
                                                                                                                                                                                                               particularly in the South Island.                of the New Zealand dairy herd, up
                                                                                                                                                                                                                                                                from around 35 per cent 10 years
                                                      Sheep                                       Beef                                   Dairy                                                                 In the North Island, the number of beef          earlier.
     Source: Beef + Lamb New Zealand Economic Service | Statistics New Zealand                                                                                                                                 cattle decreased 1.0 per cent to
                                                                                                                                                                                                               2.68 million at 30 June 2020.

12
Sheepmeat Outlook 2020-21 – Opportunities and Challenges

13
Lamb & Mutton Exports
Lamb                                       4 per cent on the same period in             Figure 5                                      New Zealand Lamb Average Export Value
                                           2018-19.
2019-20
                                           A weaker NZD supported export                                               13,000
The 2019-20 sheepmeat export

                                                                                         Average FOB value ($/tonne)
season has been one of two                 returns in 2019-20. The annual                                              12,000
extremes. Exceptionally strong             average value of the NZD was
                                                                                                                       11,000
demand from China, fuelled by the          4 per cent down on the 2018-19.
                                                                                                                       10,000
ASF-induced pork shortage, drove           Export lamb production for the 2019-
record export returns for the first        20 season is expected to be down                                             9,000
quarter of the season. However,            1.6 per cent on 2018-19. A smaller                                           8,000
export returns slumped in late             lamb crop in spring 2019, the 2020
December as Chinese demand                                                                                              7,000
                                           drought and COVID-19 have been
slowed following government                drivers of export volumes.                                                   6,000
intervention in the protein market. This                                                                                5,000
was followed closely by COVID-19           COVID-19 disruption has been the
                                                                                                                                Oct    Nov    Dec   Jan   Feb   Mar   Apr    May    Jun   Jul   Aug   Sep
disrupting all New Zealand’s key           leading issue in New Zealand’s key
sheepmeat export markets.                  lamb export markets in 2020. The                                                                  Prev. 5yr range     2017-2018         2018-2019     2019-2020
                                           sharp decline in foodservice demand               Source: Beef + Lamb New Zealand Economic Serv ice | New Zealand Customs
A weaker NZD buffered export returns       has impacted the US, China, UK and
from the full impact of the                EU-27. While retail demand is steadily       The outbreak of COVID-19 has                                             months from October 2019 to August
COVID-19-induced drop in export            increasing in some of these markets,         weakened the global economic                                             2020, export volumes to this market
prices in markets, however,                the growth is not enough to offset the       outlook. Consumers are wary                                              lifted 7 per cent year-on-year and
disruptions to the foodservice sector      deterioration in the foodservice trade.      regarding emerging new waves of                                          accounted for 45 per cent of total lamb
and weakening economic conditions                                                       COVID-19 and deteriorating economic                                      exports, up from 35 per cent just two
have weighed on average export             Sales of frozen middle lamb items in         conditions. Exporters note that                                          seasons earlier (in 2017-18). In the
values (Figure 5).                         particular, have been impacted by the        consumers are increasingly price                                         same two-year period, the average
                                           decline in foodservice demand.               sensitive, and the threat of protein                                     FOB value of exports lifted an
The strong start to the export season
held up total receipts for lamb            In the five months from April 2020 to        substitution with cheaper pork and                                       impressive 30 per cent, from $6,600
(including co-products) for the            August 2020, the average export              poultry products will challenge growth                                   per tonne to $8,600. From October
2019-20 season. An increase of             value of lamb racks was 21 per cent          in demand for lamb.                                                      2019 to August 2020 the average
1.7 per cent is estimated (Table 7).       lower than in the same period of                                                                                      export value was 13 per cent higher
                                                                                        Growth in lamb import demand in the                                      than in the same period of 2018-19.
                                           2018-19. In contrast, demand for lamb        short term is also being challenged by
Average export returns for 2019-20         sold in the retail trade, or that could be
are estimated to be up 4 per cent on                                                    reports of larger than typical volumes                                   COVID-19 has disrupted trade to the
                                           easily transferred to the retail sector,     of sheepmeat held in storage. The                                        EU (including UK) this season. From
the previous season, to average a          fared much better. Exporters reported
record $10,850 per tonne. Data for                                                      decline in foodservice sector sales has                                  October 2019 to August 2020, exports
                                           the volume and value of chilled lamb         resulted in key markets accumulating                                     were 5 per cent lower than in 2018-19.
October 2019 to August 2020                sales were maintained and export
provides a solid foundation for this                                                    lamb in cool stores. For China, the
                                           statistics show both chilled and frozen                                                                               During April and May exports were 47
estimate, with approximately 95 per                                                     problem was exacerbated by high
                                           legs maintained value in the months                                                                                   and 37 per cent lower than in the
cent of volume exported in this period.                                                 imported growth in late 2019.
                                           following the initial outbreak.                                                                                       same months in 2019. Exports
This data shows an average export                                                       China continues to be New Zealand’s                                      declined to the UK (-2%), Netherlands
value of $10,815 per tonne - up                                                         leading market for lamb. In the eleven                                   (-9%) and France (-3%), but Germany
14
Table 7        New Zealand Lamb Exports                                                                                                       Lamb exports are forecast to be down
                                                                                                                                              6.5 per cent to 284,000 tonnes
                                                Lamb meat                             Co-Products          Total Lamb         Lamb Meat
                                                                                                                                              shipped weight. A lower lamb crop in
Sep Year                      000 tonnes             $ / tonne            $m FOB            $m FOB            $m FOB                 %*       2020 is the predominant driver of the
2016-17                                 295               8,603              2,538             168               2,706             94%        decline. Average export returns for the
2017-18                                 313             10,086               3,156             199               3,355             94%        season are forecast to decline
2018-19                                 305             10,445               3,186             203               3,389             94%        9.3 per cent to $9,841 per tonne.
2019-20e                                300             10,850               3,255             190               3,445             94%        While the decline is significant,
2020-21f                                280               9,841              2,760             175               2,935             94%        average export values remain
2020-21f % change                     -6.5%              -9.3%             -15.2%            -7.9%             -14.8%                         3 per cent above the five-year average
                                                                                                                                              of $9,500 per tonne. As discussed
* Lamb Meat value as a percentage of the value of Total Lamb exports, including Co-Products                                                   above, there are some strong
 e estimate, f forecast | Source: Beef + Lamb New Zealand Economic Service, Statistics New Zealand
                                                                                                                                              fundamentals supporting lamb
                                                                                                                                              demand, despite the risk posed by
lifted (+5%). The average value of             Of the items included in this category,         For 2020-21, total lamb export                 COVID-19-related market disruption.
lamb exports to the EU lifted                  there is only good news coming from             receipts (including co-products) are           First quarter lamb exports will be
5 per cent. Exceptionally strong               the tallow and meat-and-bone meal               forecast at $2.94 billion FOB, down            traded into an uncertain market;
returns in the first quarter of the            (MBM). Hides and pelts have suffered            14.8 per cent on 2019-20, and 5 per            however, we expect market sentiment
season supported the weaker market             a loss in value due to changes in               cent below the five-year average.              to improve as 2020-21 progresses.
as COVID-19 spread.                            fashion and a shift in consumer                 Co-products are forecast to decline a
                                               preferences.                                    further 7.9 per cent. The outlook for          Two windows of international demand
Export sales to the US have suffered                                                           pelt demand is weak as consumer                that will provide insight into the
severely from COVID-19. Export                 2020-21                                         spending remains low.                          direction export returns might take in
volumes dropped 23 per cent from               The outlook is one of uncertainty for                                                          the outlook period are the peak buying
October 2019 to August 2020 and the            lamb. Underlying fundamentals remain                                                           periods of Chinese New Year and
average FOB value of exports                   strong, driven by continued pork
declined 6 per cent. This market               shortages in China, increasing
                                                                                                Figure 6          New Zealand Lamb Exports
remains New Zealand’s third largest,           demand for high quality proteins and
accounting for 7 per cent of volumes;                                                                                              Oct to Aug, $m FOB
                                               increasing disposable income in some
down from 8 per cent in 2018-19.               Asian countries.                                               EU 27
Exports to the Middle East lifted              The economies of most of New                                      UK
significantly (+20%) from October              Zealand’s key markets are also
2019 to August 2020, driven by                                                                       North America
                                               expected to recover rapidly in the
market diversification in response to          outlook period.                                          Middle East
the impact of COVID-19.
                                               The challenges for lamb exports                           North Asia
The value of co-products has been in           outlined above, are, however,
decline in recent years, and COVID-19                                                                         Pacific
                                               expected to persist in 2020-21.
placed further pressure on this “fifth         Sheepmeat inventories in key markets                            Other
quarter” of the meat industry. The total       will need to be shifted and foodservice
value of New Zealand’s exports of              sector demand in key markets is still                                    0%   10% 20% 30% 40% 50% 60% 70% 80% 90%
co-products is estimated to decline            expected to be below pre-COVID-19                                                     2018-19    2019-20
6 per cent in 2019-20.                         levels.                                               Source: Beef + Lamb New Zealand Economic Service, New Zealand Customs,
                                                                                                            New Zealand Meat Board
15
chilled lamb exports to the UK and EU        Table 8         New Zealand Mutton Exports
for Christmas. Typically, these
windows of demand drive high export                                                          Mutton meat                            Co-Products        Total Mutton     Mutton Meat
returns in the first quarter of the          Sep Year                       000 tonnes           $ / tonne              $m FOB          $m FOB             $m FOB                %*
processing season.                           2016-17                                   81            5,247                   424            120                 544            78%
Current market sentiment for both            2017-18                                   94            6,460                   606            154                 760            80%
China and the UK/EU is uncertainty           2018-19                                   84            6,715                   564            100                 664            85%
around solid price expectations for          2019-20e                                  83            7,482                   625              92                717            87%
these periods. Despite chilled lamb          2020-21f                                  75            6,948                   522              83                605            86%
sales at retail performing well so far
this year, the reduction in consumer         2020-21f % change                   -10.1%              -7.1%               -16.5%           -9.5%              -15.6%
disposable income may impact                 * Mutton Meat value as a percentage of the value of Total Mutton exports, including Co-Products
demand in the lead into Christmas.            e estimate, f forecast | Source: Beef + Lamb New Zealand Economic Service, Statistics New Zealand
The volatility of the Chinese market
means demand could go either way as          season on a record high of $7,482 per           ASF and the shift towards high quality            The average FOB value per tonne is
their peak demand window opens               tonne, up 11 per cent on the previous           protein are expected to maintain                  forecast to decline 7 per cent,
from September. Consumer                     season and 32 per cent up on the five-          export returns at historically high               however, will still trend 12 per cent
sentiment, however, will need to be          year average. Export volumes are                prices, however there will be downside            above the five-year average.
significantly stimulated to see a lift in    estimated to hold steady on 2018-19.            risk in the forecast.
                                             Total mutton export receipts (including                                                           Total mutton export receipts are
export prices.                                                                               In 2020-21, mutton export production              forecast to decline 15.6 per cent on
                                             co-products) are estimated to lift
The outcome of Brexit will also be a         8 per cent for the season.                      is forecast to decline 10 per cent as             2019-20. The large drop in export
contributing factor to the export                                                            the farmers rebuild breeding ewe                  production combined with lower
outlook for lamb. This has been              A weaker NZD/USD also supported                 flocks following drought-induced turn-            average export values results in 2020-
discussed in detail earlier in the report.   mutton returns, with most Chinese               off in the autumn 2020.                           21 mutton export receipts dropping 5
                                             trade undertaken in US dollars.                                                                   per cent below the five-year average.
Mutton                                       The impact of COVID-19 has only                    Figure 7         New Zealand Mutton Exports
2019-20                                      recently taken its toll on mutton
Mutton was a strong export performer         average export values, with values                                                     Oct to Aug, $m FOB
in 2019-20, despite COVID-19. The            declining year-on-year from June to
                                             August. This has been driven by                                 EU 27
key drivers of the strong performance
were the large decline in Australian         weaker sentiment in China as                                       UK
mutton exports and the speed at              uncertain economic conditions and
                                             geopolitical tension weigh on demand                  North America
which the Chinese economy
recovered from COVID-19.                     for sheepmeat imports.                                   Middle East
For the eleven months from October           2020-21                                                    North Asia
2019 to August 2020, China                   The outlook for mutton in 2020-21 is                           Pacific
accounted for 70 per cent of total           one of uncertainty. The same drivers
mutton exports. Demand trends in this        outlined in the lamb section will                               Other
market are the sole driver of export         underpin the season ahead for
performance.                                 mutton. Economic and political                                           0%   10% 20% 30% 40% 50% 60% 70% 80% 90%
                                             sentiment in China will be key to                                                     2018-19    2019-20
Average export values for mutton are
                                             import demand patterns.                              Source: Beef + Lamb New Zealand Economic Service, New Zealand Customs,
estimated to finish the 2019-20
                                                                                                         New Zealand Meat Board
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Lamb & Mutton – International Situation
Overview                                     sheepmeat prices typically induced by     Sheepmeat consumption in China is           sheepmeat in the medium to long
                                             tighter supplies.                         small, making up only 6 per cent of         term.
The outlook period for global
                                                                                       total meat consumed in 2019.
sheepmeat trade is one of uncertainty.       Brexit uncertainties continue to plague   However, the market has experienced         ASF continues to drive demand for
Markets have been dramatically               the UK and EU-27 markets, however,        considerable growth from 2018 due to        sheepmeat in the outlook period. As
altered by COVID-19. The disruption          have been overshadowed by COVID-          ASF and increasing consumer                 discussed earlier in this report, while
to the foodservice sector has resulted       19. An outcome will become clear                                                      significant investment into recovery for
                                                                                       incomes. There is growing demand
in a sharp decline for high-value            early in 2021 and current signals         from the affluent Chinese consumer          the Chinese pork industry is occurring,
frozen lamb cuts. Consumer demand            suggest that there is the potential for   for high quality, nutritionally rich        pork production is not expected to lift
has weakened, and price sensitivity          significant disruption for New Zealand    protein, and imported sheepmeat is          to pre-ASF levels for at least 24
has lifted, driven by deteriorating          sheepmeat exporters.                                                                  months. Given the risks outlined
                                                                                       expected to fill this demand going
economic conditions. The drop in                                                       forward. Consumption is expected to         earlier, it is unlikely that demand will
consumption has resulted in an               Geopolitical tension between the US                                                   lift to the ASF-driven highs seen in late
                                             and China is escalating and will be a     lift 3 per cent in 2020 and growth rates
increase in protein inventories in some                                                of 1-2 per cent are forecast out to         2019, however prices are expected to
key markets. Trade uncertainties and         risk to be monitored during 2020-21.                                                  remain at historically high levels.
                                                                                       2025. While there is a risk demand for
geopolitical tension also contribute to      China                                     sheepmeat may decline as China
the volatile outlook.                                                                                                              The outbreak of COVID-19 in China
                                             China is one of the only major global     recovers from ASF, it is thought that       resulted in a sharp drop in sheepmeat
Underlying the uncertainty, however,         economies forecast to experience          there may be a permanent shift by the       consumption in the months from April
there remains solid fundamentals to          annual growth in 2020. While it is        more affluent consumer towards              to August 2020. An estimated
support sheepmeat demand.                    leading the way globally with COVID-      higher quality proteins.                    60 per cent of Chinese sheepmeat
ASF-induced pork shortages and tight         19 recovery, the market continues to      Sheepmeat production in China is            consumption occurs in the foodservice
global supplies will be leading demand       face challenges in the 2020-21            expected to lift in 2020 and into the       sector, and the majority of New
drivers. In addition, there continues to     outlook period.                                                                       Zealand product is destined for this
                                                                                       medium term. The most recent
be growth in middle class incomes                                                                                                  sector. While there has been strong
                                             Weaker economic conditions prevail        estimates of growth from FAO signal a
across Asia, and a shift in affluent                                                   2 per cent growth in production as          growth in on-line and retail sales in the
consumer demand toward high quality          post COVID-19. Following years of                                                     months following the Chinese COVID-
                                             economic growth, the sharp change         record high sheepmeat prices in late
protein sources.                                                                       2019 provided incentive for Chinese         19 outbreak, volumes are still minor
                                             has created uncertainty for                                                           compared to foodservice sector sales.
World sheepmeat production is                consumers. Demand has weakened            sheepmeat producers to increase
expected to lift by 1 per cent in 2020,      and price sensitivity has lifted. The     flocks.                                     Chinese import data for the first six
with most of the growth coming from          decline in foodservice demand is also     The estimated gains in domestic             months of 2020 shows evidence of the
China. World trade of sheepmeat,             of concern for sheepmeat demand. In       Chinese production remain insufficient      challenges COVID-19 has inflicted on
however, is expected to contract in the      addition, the escalating tension                                                      sheepmeat demand. For the first six
                                                                                       to meet consumption requirements.
2020-21 season, with both Australia          between China and the US is a             This market will continue to be reliant     months, Chinese sheepmeat imports
and New Zealand recovering from              growing concern for the Chinese           on imports, although the gap between        from all countries are down 4 per cent
drought.                                     consumer.                                 the two is shrinking. While there is        on 2019 levels. This is in contrast to a
                                                                                       much volatility in Chinese domestic         43 per cent lift in beef imports from all
While tighter sheepmeat supplies will        Despite this risk, the underlying
                                                                                       production trends, there is potential for   countries.
provide support for demand, factors          fundamentals for sheepmeat demand
such as consumer price sensitivity and       remain solid, driven by ASF induced       increasing domestic production to           The COVID-19 outbreak in China
increasing competition from pork and         pork shortages and continued growth       dampen demand for imported                  came on the back of a record month of
poultry, will constrain the lift in global   in consumer disposable incomes.                                                       sheepmeat imports in December
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