June 2022 Farmer Update

AFFCO

FARMERS’ UPDATE

JUNE 2022

FARMER UPDATE

A MESSAGE FROM OUR CEO & NATIONAL LIVESTOCK MANAGER

As we close in on winter it is pleasing to see rain across some very dry parts of both islands. Hopefully this is not too late, and there is some mild weather following to enable grass growth. We need to see some pasture before winter arrives in full force.

Our AFFCO plants have been processing at full capacity for quite some time now after emerging from the Covid wave which kept many employees at home and reduced our production levels for a period of time. It is no secret that all processors are finding it hard to source enough labour for their processing sites. On top of this, supply chain and storage issues, combined with Covid related operating protocols, has made managing our meat processing plants extremely difficult. While we haven’t managed to operate at the production levels we would like, and we are very conscious of the impact on suppliers, it is fair to say that other processors have been impacted equally. The AFFCO livestock buying team and suppliers have worked well together to ensure a smooth approach to getting livestock processed. We would like to thank you for your patience over this period.

As we head into the winter months we still have spare cattle waiting to be processed. Our ovine plants are now up to date, but the lamb kill remains well behind in both islands. If you are a lamb finisher and have lambs that are at an acceptable weight, we would urge you to book them in now. Don’t leave them for too long as we are fast approaching the bobby calf processing season and that will definitely put pressure on available plant capacity. To assist catching up on the backlog, and provide sufficient capacity for the winter months, we have modified our usual seasonal plant closure programme to minimize processing downtime. At the same time, we need to give our employees a break after a long hard season, so it’s a balancing act.

No doubt you are aware that livestock values are at historically high levels, as is the dairy pay out. Hopefully you have been able to take advantage of this and will see a healthy bottom line at seasons end. In general, export sales markets remain extremely strong, although pricing for some items appears to have reached a ceiling with pricing resistance now being met. Additionally, the well-publicised supply chain and shipping issues show no sign of easing, and this continues to make it extremely challenging and costly to get our products to market. To assist easing these pressures, we have continued with our AFFCO programme of chartering our own vessels to take our products to North America. Our full market update provides further details.

After being hamstrung by Covid last year, we are looking forward to running a series of supplier road shows through the winter months, and it would be great to see you there. We will shortly advise the locations and dates.

Once again, thank you for your support, and heres to a mild winter!

For much of the past quarter, markets have held both demand and pricing levels. More recently however we have seen the impact of events such as the protracted Shanghai/Ningbo COVID lockdowns, and the war in Ukraine, begin to impact on buyer sentiment. While it is wrong to say that current conditions are poor, we are starting to see pricing for some key Chinese and European products begin to soften. The weak NZD is protecting us from this fall right now, but it is doubtful this will last.

There has been some recent discussion around carbon-zero product and potential for additional value. It is therefore worthwhile that AFFCO clarify its position on this; • Currently AFFCO have no major markets demanding, nor willing to pay a premium for, a low/zero carbon beef or lamb offer. While there is a noisy-minority, and niche pockets of demand, scale markets remain focused on consistent quality (in particular as it relates to personal wellbeing such as lean meat, no antibiotics or hormonal growth promotants) and delivery performance.

• AFFCO are extremely reticent to specifically ‘brand’ low/zero carbon product. We firmly believe that NZ supply-base is not yet ready – even if the market did actually exist at scale – and there is significant risk of value-destruction through an implied high carbon footprint for the remaining majority of the NZ herd.

• NZ livestock arguably already has one of the lowest carbon-footprints in the globe, and we believe there needs to be an industry-wide approach to promote this, rather than individual programmes for what is currently a tiny representation of the national herd.

• Make no mistake, there is a real need for NZ to remain the leader in this area, and there will be an increasing requirement to prove audited carbon reduction so that we maintain and enhance the premium pricing we currently enjoy over other nations. As such AFFCO will increasingly drive NZ-wide initiatives such as NZFAP and He Waka Eke Noa, but we have no current intention to pursue an AFFCO branded low/zero carbon programme.

• If you have any questions whatsoever regarding this, please contact your AFFCO representative.

Recent months have shown an excellent return for Prime steer product. As mentioned earlier however events in China and Europe are dampening demand, and while the US market remains strong for high-end Prime cuts, there is some downward pressure. Overall, the majority of this season’s kill has been processed at excellent farm gate returns and the reducing volume from now should do little to impact a very positive year.

Bull and Manufacturing Cow grinding meat pricing was positively affected by US West Coast port congestion for much of the season. Currently, domestic US cow kills are at very high levels and, combined strong South American import volumes, prices for cow grind have seen marked softening in recent weeks. Chinese demand for lean beef continues however, and with Prime/Bull volumes diminishing there are options to redirect away from US buyers.

Lamb Legs, Racks and Loin products remain at very good levels in UK/Europe and USA markets in particular.

While there is some increasing Ukraine-induced nervousness in the European markets in particular, buyers understand that processing capacity is limited and the season is nearing its conclusion.

Key Chinese products such as Forequarter and Flaps are under some pressure on the back of a weakening RMB/Yuan, and ongoing COVID-lockdown challenges. Many restaurants up-and-down the coast of China are experiencing enforced closures, and buyers are cautious as they manage cashflows and inventories.

Most experienced Chinese buyers however realise there is limited time to secure seasonal volume pre-CNY - Chinese New Year.

AFFCO have just completed unloading of the fourth charter vessel for the USA. As per previous vessels, this was a conventional reefer ship with large under-deck refrigerated holds not requiring containers. This vessel was shared with two other meat companies but also initial volumes of NZ wine and hops.

AFFCO will complete one further sailing this year – to Philadelphia on the East Coast – and will then wait until December to coincide with the beginning of next season’s Bull kill.

Container shipping remains difficult, however the scale of our business – when combined with our sister companies Open Country Dairy and Talley’s – has meant we have been able to maintain regular dispatches.

NEW DATE FOR NATIONAL FIELDAYS As we are sure you are all aware- the National Fieldays have been rescheduled for the 30th of November through to the 3rd of December- AFFCO will be there- and we look forward to seeing you all in t-shirts rather than gumboots!

TAIL DOCKING REMINDER Although it is not quite tail docking/tailing time, we thought we would remind you of all the docking rules that came force in May of 2021. MPI announced these new regulations, to improve sheep welfare by clarifying how tail-docking should be done and who can do it.

A sheep’s tail cannot be docked shorter than the distal end of the caudal fold. This means the tail needs to be long enough to cover the vulva in ewes and a similar length in rams. Docking too short can result in a fine of $500, or $1500 for a business, and if multiple sheep are involved it could lead to court proceedings. Docking of sheep under six months old must be done using a hot iron or rubber ring. Any other method could result in a $500 fine. For sheep older than six months, the procedure can only be carried out by a veterinarian, using pain relief. Not doing so could result in a criminal conviction and fine of up to $3,000, or $15,000 for a business.

MORE INFORMATION

HE WAKA EKE NOA The He Waka Eke Noa Partneship is in the process of releasing their recommendations, we will be able to update you more in the next week or so, which we will do via a separate update.

FROM THE ARCHIVES

As AFFCO has been a New Zealand Institution since 1904, we have a wealth of history to celebrate.

The first Meat Export License for AFFCO Horotiu dated 15th of April 1916.