Expected gains from rising world food prices

Commodity prices could hit new highs this year.

This is the sentiment expressed in the latest ANZ Research Agri-Focus report, which indicates that rising global food prices bode well for New Zealand’s export returns.

With the supply of many products relatively limited and the continued strong demand for food, ANZ was forecasting average farm yields for beef and sheepmeat at record levels, according to the report.

Dairy markets were also supported by relatively tight global supplies, but demand was “a bit sluggish”. Prices have remained at relatively high levels.

On-farm lamb yields are expected to reach record highs when averaged over the entire season, assuming continued strength in global markets.

Prices for lamb products had continued to rise in New Zealand’s international markets, with the majority of cuts now returning as much as before the pandemic.

Some cheaper cuts such as lamb flanks and forequarters, which were typically sold to China, were now worth more than before the pandemic.

Some higher-value cuts, such as the French racks, still had a way to go to return to previous levels, but demand for these higher-value products was gradually improving as vaccination rates increased, especially in the developed world, and the confidence to dine has grown.

Looking ahead to the main processing season, the bank expected producer prices to decline from their current high levels, but at this point it looked like peak season prices would be stronger than last season and would match or even exceed the prices reached in 2018 and 2019.

At this point, it appeared that producer prices for the coming season might even be a little higher than those achieved in recent years.

“We are certainly at a more solid starting point, but during the peak processing months, prices are expected to be similar to previous years,” the report says.

That would bring the weighted average price for the 2022 season to around 7.40 kg CW, which, if met, would be a record price.

Sheep prices have reached record levels. Looking back, it wasn’t that long ago that the sheep was only worth 1kg CW. It was sold mainly to the Pacific Islands and the Middle East.

Now almost all of the sheep produced in New Zealand has gone straight to China, at over six times the price. The rise in the price of mutton had boosted farm income and offset the decline in wool income.

The recent spike in coarse wool prices was relatively short-lived and prices are trending down again, according to the report.

Supply chain congestion caused by shipping delays was one of the reasons cited for the immediate reduction in demand. The appetite of Asian buyers was lower than a few months ago.

The finer grades of wool offered for sale from the South Island were still in relatively high demand. European buyers were keen to pick up quality offers of fine wool. This had pushed the price of low micron wool to the high levels last seen about three years ago.

For the future, there were many initiatives going on that aimed to increase the yields of coarse wool. So far, it was “just a waiting game” for either of these initiatives to really start to bear fruit.

Beef prices were on the rise as tight global beef supplies failed to meet consumer demand. This situation was unlikely to change, meaning average farm yields for the coming year would likely be above normal.

Chinese demand for beef has increased “massively” in recent years. This demand could slow down a bit over the next six months due to the increased supply of pork, but Chinese beef consumption was certainly increasing.

If farm gate prices for steers and bulls do not fall below 5.50 kg CW, there could be record average farm yields for beef this year.

On-farm game prices were about 21% below the five-year average. Yields had improved but were still far too low to provide sustainable income to producers.

Market demand had been severely hampered by reduced demand from the restaurant industry. Hopefully this demand could improve a bit this year, but the economies remained fragile in the main European markets.

Sales of chilled game in these markets had started for the new season. This market has generally provided the most lucrative income for producers and exporters have their fingers crossed for a successful season.

European economies faced strong inflationary pressures as energy costs skyrocketed, long before winter demand peaked.

This would put pressure on households and the economy in general. As a greater proportion of discretionary income was used for heating bills, this would leave less money for high-end meals. Therefore, it could continue to be a very difficult market for high value products such as venison.

Some New Zealand game exporters had increased their direct sales to consumers to compensate for lost sales through the foodservice channel. Selling directly to consumers through retail outlets and online has brought its fair share of challenges.

It was difficult to consistently deliver fresh produce to overseas markets when delivery dates for global shipments were so unreliable. Despite these challenges, several companies were making inroads into the US market.

Locally produced feed grains were very scarce and very few grains were traded. High prices were achieved for all traded cereals, while contract prices for new season cereals tended to increase. Global grain supplies were expected to increase this season, but demand was also increasing.

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