Highlights

With the dairy sector in the doldrums dairy cattle numbers are still being reduced to right size herds outweighing confidence in the beef sector where famers have increased numbers. By the end 2016 total cattle numbers will have dropped 130,000 head to sit at 9.9 million head which is where they are forecast to stabilize at by the end 2017. Beef production will come off the high in 2015 of 690,000 metric tons to be 649,000 metric tons in 2016. For 2017 it is forecast there will be further reduction to 635,000 metric tons.

Executive Summary

Cattle numbers in New Zealand have continued to fall. The Marketing Year (MY) 2016 ending inventory is now estimated at 9.9 million (m) head, which is 1.3% less than the MY2015 ending inventory. The reduction is primarily driven by poor financial returns in the dairy sector where the farmers have responded by cutting cow and heifer numbers. This has overridden positive sentiments among beef farmers who have increased numbers. These two drivers will continue into 2017 but the dairy herd reduction will moderate and by the end of MY2017 it is forecast the total herd will stabilize at 9.9m head.

Total cattle slaughter for MY2016 is now estimated at 4.46m head, which is 14,000 head or 0.3% ahead of the previous forecast but a full eight percent below the MY2015 year. For MY2017 it is forecast total slaughter will reduce to 4.32m head a three percent drop from MY2016. The cow kill is likely to reduce to a long run sustainable level as cow numbers stabilize. The beef herd is younger now reducing the number able to be grown out enough for slaughter in MY2017.

With over half the year, MY2016, passed it is now unlikely New Zealand beef production will reach previously forecast volumes. It is estimated beef production will be 649,000 metric tons (MT) carcass weight equivalent (CWE), six percent down on the big year in MY2015 (690,000MT). Looking forward to MY2017 the forecast is for total beef production to reduce by a further two percent to be 635,000MT CWE. Over the last ten years average beef production has been 636,000MT CWE. With the combination of the reduced cow kill and a younger beef herd producing less cattle for slaughter it is unlikely the long run average will be exceeded.

Beef exports from New Zealand in MY2016 are now estimated at 565,000MT CWE, a three percent reduction from the previous forecast in March and 12% below MY2015. A combination of reduced production, reduced imports and slightly higher domestic consumption has all conspired to drive the export volume lower.

Looking ahead to MY2017 exports from New Zealand will be forced lower as a consequence of reduced production to sit at a forecast 554,000MT CWE. This would be a two percent reduction from MY2016.

Based on the actual volume to date exported to the US, the historical average for second half of the Marketing Year tempered by industry participant expectations it is now forecast total MY2016 exports to the US will be in a range between 266,000 to 273,000MT CWE. With the reduction in exports in MY2017, especially manufacturing beef from the reduced cow kill it is forecast exports to the US will reduce again to 250,000 to 260,000MT CWE.

China is now becoming a serious alternative destination market to the US for New Zealand beef exports. In MY2012 14,687MT CWE was shipped to China. By MY2015 103,775MT CWE was shipped. For the first half of MY2016 58,474MT CWE has already been shipped. For the full year, MY2016, 115,000 to 120,000MT CWE could well be shipped up to China.

Cattle Situation

Inventory Changes

The MY2016 ending inventory is now estimated at 9.9 million (m) head. This is 80,000 head less than anticipated last March and 1.3% less than the MY2015 ending inventory. By the end of MY2017 it is forecast the total herd will stabilize at 9.9m head.

During MY2016 there have been two main drivers behind inventory changes. One, negative: continued milk price weakness is causing dairy farmers to extend herd size reductions. In-calf dairy cows and heifers are estimated to be reduced by 106,000 head (2%) during the year and the total dairy herd, at 6.26m head, is forecast to be down by 231,000 head (3.6%). This driver is outweighing the positive driver: confidence among sheep and beef farmers in the beef sector. The total beef herd is up an estimated 101,000 head (2.8%) to 3.65m head.

There is a general reduction in the average age of the beef herd as more young stock are retained, mostly progeny from the dairy sector. Despite this level of confidence the beef cow herd has continued to decline, down by 16,000 head (1.6%) to 966,000 head in MY2016. A severe drought in the North Canterbury/Marlborough regions of the South Island is the prime reason. This has reduced farm carrying capacities right in the areas where beef breeding cow herds are common. In addition there has been a reduction in beef cow numbers in the west and central North Island owing to localized autumn drought areas and loss of farm infrastructure from storms in 2015. The high beef prices have made it a relatively easy decision for farmers to cull cows when faced with feed shortages.

The main drivers, weak dairy prices and beef price confidence (even if it is misplaced given recent off-shore market developments) are likely to continue through into MY2017 with increases to the beef herd balanced by a further reduction in the dairy herd. Beef and Lamb New Zealand are forecasting a small one percent recovery in beef cow numbers to 975,000 and an overall two percent increase to the entire beef herd to 3.72m head. Some sheep and beef farmers who formerly grazed replacement heifers for the dairy industry have lost this enterprise as dairy farmers retrenched. These sheep and beef farmers have been looking to increase their numbers of beef cattle.

Cattle Production

Total cattle slaughter for MY2016 is now estimated at 4.46m head, which is 14,000 head or 0.3% ahead of the previous forecast but a full eight percent below the MY2015 year. For MY2017 it is forecast total slaughter will reduce again to 4.32m head a three percent drop from MY2016.

With the overall cattle herd stabilizing around 9.9m head in MY2017 it is forecast the cow kill will reduce to 950,000 head which is more of a long run sustainable level given total beef and dairy cow numbers stabilizing at 5.8 to 6m head. With less calves being born and an increase in numbers being retained for the beef herd the calf slaughter is predicted to reduce by 50,000 head (3%) in MY2017. In addition with the beef herd weighted toward younger cattle it will be difficult for farmers to produce any more other adult cattle for slaughter than MY2016. This class is forecast at 1.47million head in MY2017 just 4,000 head less than MY2016 but with a higher probability of being less rather than more.

Production Supply & Demand – Cattle Number

Animal

Numbers

, Cattle

New

Zealand

Official

Data

Post Est.

New Post Data

Official

Data

Post Est.

New Post Data

New Post

Data

% Chang e 2017 New Post Data from 2016 New Post Data

% Chang e 2016 New Post Data from 2016 last Post Est.

Total Cattle Beg. Stks

10,368

10,368

10,368

9,972

9,972

10,033

9,903

-1.3%

0.6%

Dairy Cows

Beg. Stocks

5,176

5,176

5,005

5,003

5,003

5,056

4,95

-1.1%

1.1%

Beef Cows Beg. Stocks

1,012

1,012

1,012

996

996

982

966

-1.6%

-1.4%

Production

5,04

5,04

5,04

5,012

5,012

4,85

4,822

-0.6%

-3.2%

Total Import

0

0

0

0

0

0

0

Total Supply

15,48

15,488

15,48

14,984

14,984

14,883

14,725

-1.1%

-0.7%

Total Export

21

21

21

15

15

25

25

0.0%

66.7%

Cow

1,164

1,164

1,164

1,075

1,075

1,035

950

-8.2%

-3.7%

Calf Slaughter

2,137

2,137

2,137

1,9

1,9

1,95

1,9

-2.6%

2.6%

Other Slaughter

1,538

1,538

1,538

1,469

1,469

1,474

1,47

-0.3%

0.3%

Total

4,839

4,839

4,839

4,444

4,444

4,459

4,32

-3.1%

0.3%

Loss

576

576

515

550

550

496

480

-3.2%

-9.8%

Ending Inventories

9,972

9,972

10,03

9,975

9,975

9,903

9,9

0.0%

-0.7%

Total Distribution

15,48

15,48

15,48

14,984

14,984

14,883

14,725

-1.1%

-0.7%

CY Imp. From US

0

0

0

0

0

0

0

CY. Exp. To US

0

0

0

0

0

0

0

Balance

0

0

0

0

0

0

0

Inventory Balance

(396)

(396)

(335)

3

3

(130)

-3

Inventory Change

2

2

2

-4

-4

-3

-1

Cow Change

3

3

0

-3

-3

0

-1

Production Change

(7)

(7)

(7)

(1)

(1)

(4)

(1)

Production To Cows

81

81

84

84

84

80

81

Slaughter to Inventory

47

47

47

45

45

44

44

Slaughter to Total Supply

31

31

31

30

30

30

29

TS=TD

0

0

0

0

0

0

0

With over half the MY2016 year passed it is unlikely New Zealand beef production will reach previously forecast volumes. Now it is estimated beef production will be 649,000MT CWE, six percent down on the big year in MY2015. Looking forward to MY2017 the forecast is for total beef production to reduce by two percent to be 635,000MT CWE.Beef Production

The historical average beef production for the last ten years is 636,000MT CWE per annum. Given the reduction in cattle inventory over the previous two years coupled with a reduced cow and calf kill in MY2017 and a younger beef herd it is difficult to see how the long term average will be exceeded. If generally normal weather patterns reign for most of MY2017 average carcass weights should be up slightly but not enough to materially influence total production.

Production Supply & Demand – Beef Production

Meat, Beef & Veal New Zealand

(1000hd,1000 MT CWE, kg, %)

Official

Data

Post Est.

New Post Data

Official

Data

Post Est.

New Post Data

Official

Data

New Post

% Chang e 2017N ew Post Data from 2016 New Post

% Chan ge 2016 New Post Data from 2016 last Post Est

Slaughter

4,839

4,839

4,839

4,444

4,444

4,459

4, 320

-3.12%

0.34%

Beginning

0

0

0

0

0

0

0

-

Stock Production

690

690

690

659

659

649

635

-2.16%

1,52%

Imports

16

16

16

20

20

14

14

0

30

Total Supply

706

706

706

679

679

663

649

-2.11%

2, 36%

Total Export

639

639

639

584

584

565

554

-1.95%

3.25%

Dom.

67

67

67

95

95

98

95

-3.06%

3.16%

Other Use, Loses

0

0

0

0

0

0

0

Total Dom. Consumptio n

67

67

67

95

95

98

95

-3.06%

3.16%

Ending Stocks

0

0

0

0

0

0

0

Total Distribution

706

706

706

679

679

663

649

-2.11%

2, 36%

CY Imp.from US

0

0

0

0

0

0

0

CY Imports To US

310

317

317

310

280

270

255

-5.56%

- 5.00%

Balance

0

0

0

0

0

0

0

Inventory Balance

0

0

0

0

0

0

0

Weights

143

143

143

148

148

146

147

0.68%

- 1.35%

Production Change %

5

5

5

(4)

(4)

(6)

(2)

Import Change %

(11)

(11)

(11)

25

25

(13)

0

Export Change %

10

10

10

(9)

(9)

(12)

(2)

Consumptio n Change %

(29)

(29)

(29)

42

42

46

(3)

Imports Percent Consumption

24

24

24

21

21

14

15

Exports Percent Production

93

93

93

89

89

87

87

Population

44383 93

44383 93

44019 16

44745 49

44700 00

44383 93

44700 00

Per Capita Consumption

15.1

15.1

15.2

21.2

21.3

22.1

21.3

TS=TD

0

0

0

0

0

0

0

0

0

0

Exports and Trade

Live Animal Exports

After having reduced significantly the numbers of heifers imported from New Zealand in MY2015, China appears to have become more active in the market again. On the back of China all but ceasing importations in MY2015 total live cattle exports from New Zealand fell from 77,681 head in MY2014 to 13,236 head in MY2015. For MY2016 year to date June live exports are comfortably head of the same period in MY2015. On this basis it is forecast total exports from New Zealand for MY2016 will be 25,000 head (67% head of MY2015). At this stage it is assumed the volume for MY2017 will be similar.

Beef Exports

Beef exports from New Zealand in MY2016 are now estimated at 565,000MT CWE, a three percent reduction from the previous forecast in March and 12% below MY2015. A combination of reduced production, reduced imports and slightly higher domestic consumption has conspired to drive the export volume lower.

Looking ahead to MY2017 exports from New Zealand will be forced lower as a consequence of reduced production to sit at a forecast 554,000MT CWE. This would be a two percent reduction from MY2016.

Based on the actual volume to date exported to the US, the historical average for second half of the MY tempered by industry participant expectations it is now forecast total MY2016 exports to the US will be in a range between 266,000 to 273,000MT CWE. With the reduction in exports in MY2017, especially manufacturing beef from the reduced cow kill it is forecast exports to the US will reduce again to 250,000 to 260,000MT CWE.

China is now becoming a serious alternative destination market to the US for New Zealand beef exports. In MY2012 14,687MT CWE was shipped to China. By MY2015 103,775MT CWE was shipped. For the first half of MY2016 58,474MT CWE has already been shipped. For the full year, MY2016, 115,000 to 120,000MT CWE could well be shipped.