Beef prices offset strong NZ dollar

Beef farmers could be in for ''continued happy days'' with further gains in beef prices offsetting much of the impact of the high New Zealand dollar, Westpac economist Nathan Penny says.

New Zealand beef producers have benefited from drought in the northern hemisphere, pushing up competitors' feed costs, particularly in the United States.

''Americans wanting their hamburgers even during a drought has created opportunities for pasture-based producers like New Zealand,'' Mr Penny said.

In contrast, lamb prices had fallen hard over the past year, with the recession in Europe constraining household spending. However, he believed sheep farmers should benefit from growing Chinese demand for wool.

''We expect Chinese growth to accelerate to 8.8% from 7.8% in 2012. As China accounts for 45% of New Zealand's wool exports, this points to upward price pressure over 2013,'' he said.

While sustained Chinese growth was also adding demand for food and supporting food prices, China was not yet a market for ''top-end'' lamb.

There was no reason why New Zealand lamb producers could not develop their own niche along the lines of what the New Zealand tourism industry had done with its top-end Chinese tourism market, he said.

Chinese tourist arrival had overtaken British arrivals in 2012, becoming New Zealand's second-largest market. The challenge for lamb producers would be to develop a niche within that market, he said.

Westpac's latest Agribiz sheep and beef outlook showed beef prices were 8% lower than their early 2011 high, while the November 2012 season peak in lamb prices was 30% lower than the same time in 2011.

Silver Fern Farms' latest market report said the US beef market remained flat, with prices trading in a narrow range in the early part of this month. The trend was for prices to move higher through the second half of February and early March.

China continued to show solid growth on a wide range of beef cuts, mostly in the middle price range. Under the FTA, duty rates had dropped from 5.3% in 2012, and would reduce to 4% in 2013 (2016 would see zero duty rate), which gave a distinct advantage over other North Asian markets (Korea and Japan), where duty rates remained at 40%. European markets continued to be affected by slow demand, with prices of higher value cuts capped,

and down side due to slow demand and cheaper offerings from South America. Meat was at an eight-month high in the ANZ commodity price index for December, with beef prices increasing to an all-time high, while lamb prices dropped to a 32-month low.

The index rose 1% in December, its fifth consecutive monthly rise. The index has risen 7% since last July but was still 14% below its April 2011 peak, economist Steve Edwards said.

For the second consecutive month, pelt prices posted the strongest gain across the export basket, lifting 29% in the month to reach their highest level in seven months. Dairy and aluminium prices lifted to a nine-month high.