Climate raises NZ Beef prices

Prices for New Zealand beef farmers are being boosted by global events from droughts in Argentina to bans on exporting wheat from Russia.

Beef shipments from Argentina for the first seven months of this year fell by about half to 110,000 tonnes after the worst drought in 70 years, government export limits and with the national herd down 15 per cent in the past two years.

Ranchers had sent a record number of animals to slaughter last year, with a lack of forage and export controls that prevented prices from reflecting international values. In August Russia banned grain exports for the rest of the year after a severe drought and wildfires destroyed crops.

Beef and Lamb New Zealand chairman Mike Petersen said the price of corn and grain had soared.

“You’re seeing now in America for example the feed lots [producers] really struggling because of the price of grain,” he said.

Cattle in New Zealand is predominantly grass fed.

In Europe beef production was plummeting as a result of reform of the Common Agricultural Policy.

“That’s almost in freefall in Europe and so there’s not enough beef in the European market,” Petersen said.

“There’s just strong demand from everywhere … and decreasing supply.”

Farm gate beef prices had increased strongly to more than $4 per kg, compared to a long-run average of about $3 per kg, Petersen said.

“Admittedly we’re in the low season at the moment so there’s actually shortage of supply anyway.”

He said the strong demand from around the worldwas expected to continue.

As markets and prices improved, the cost to consumers could also rise.

“If there’s strong demand from offshore then domestic consumers will expect to have to pay the prices that those consumers would pay.

“But the changes at retail here don’t appear to be as marked as the farm gate price or the offshore market price would suggest,” he said.

Beef and Lamb’s new season outlook for 2010/11 this month predicted sheep and beef farm profit before tax of $54,000 – based on an estimated exchange rate indicator of US68c.

Better prices for beef and sheep-meat had not been built into the outlook but if the exchange rate stayed at about US72c to 73c, they might offset any reduction in farm profit due to the higher currency, Petersen said.

Federated Farmers Meat & Fibre chairman Bruce Wills said there was more optimism in the sector than there had been for a while, although a pre-tax profit of $54,000 was not a sustainable level of profitability. Farms needed considerable capital reinvestment to keep up to date.

“International prices are strong but not enough is coming back to the farmer behind the farm gate.

“As a consequence we see the continual shifting to dairy, to forestry, to other income sources because our supply chain is just not getting enough of the returns back to the farmer to make it economic.”

Petersen said the beef herd was shrinking and the dairy herd growing.

“So we are looking at ways where we can integrate with the dairy herd more than we do today,” he said.

To start milking dairy cows needed calves, many of which were considered byproducts.

However, beef genetics could be put into the dairy herd to produce animals that could provide better quality meat, Petersen said.

It was important for New Zealand to have a diversified agriculture industry, he said.

“I don’t think anyone wants to see New Zealand as one big dairy farm.”

BEEFED UP FUTURE

NZ Beef outlook 2010-11

* $2.15 billion of exports, down 1.8 per cent.
* Farm gate prices up from $3 per kg to $4 per kg.
* $54,000 sheep and beef farm profit before tax.

– additional reporting by AP, BLOOMBERG

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