Broker sees recovery for meat industry

Press, 27 April 1983, Page 33

Broker sees recovery for meat industry

New Zealand meat companies can expect bigger profits in the current financial year, as the troubled meat industry shows signs of improvement, predicts a Wellington firm of sharebrokers, O’Connor Grieve and Company, in an invest-

ment survey of the meat industry. The firm predicts:

@ An absence of trading losses experienced in 198182 with the Meat Producer’s Board now controlling all the - marketing oi sheepmeats;

• Reduced interest charges through the liquidation of lamb stocks;

• Favourable fees under the arrangements between the companies and the Meat Board;

® Increased throughput; ® Improved returns from beef trading.

O’Connor Grieve says that profit will be restrained by a lack of growth in export slaughtering in the medium term, and there will be pressure from farmers to hold killing charges. They also predict it will be “some time” before lamb sales reach a level where SMP payments to farmers cease.

“Under these circumstances, the meat exporting companies would appear unlikely to assume their traditional role for some years.” The problem for New Zealand lamb in Britain, the report says, will be to retain market share in the face of increasing domestic production.

“The outlook for other markets remains uncertain. The political instability in the Middle East and the falling oil price means that the considerable potential there is likely to remain untapped in the near future. “Any recovery in the international economy will assist sales in North America and Japan although processing and marketing costs will make any volume increase in the former difficult.”

There is little prospect in the medium term of export mutton prices recovering to allow the meat companies to assume marketing on their own account, the sharebrokers say. “However, the thrust by the Meat Board towards further processing product will assist those companies with cutting and boning facilities. Both Canterbury Frozen Meat and Waitaki NZR can be expected to benefit from this activity.” The report is more confident about New Zealand beef sales, which unlike mutton and lamb, are not affected by the board’s intervention.

“It now appears that the United States beef cycle, distorted in recent years by the severe recession, is bot-

toming out and that the herd is entering the rebuilding phase.” The fall in Australian production, caused by severe drought, will help New Zealand. “New Zealand beef is likely to have unrestricted access to the North American markets in the next three to five years. During this period, prices are likely to show a gradual improvement, particularly in view of the United States economic recovery, although the Meat Importers’ Council of America Warns that it may take some time for pent-up demand to redevelop fully for beef, lamb and pork. “However, they expect the Australian drought to lead to meat shortages, a factor that should push up the price of New Zealand meat in the U.S. Beef prices have improved more than 30 per cent so far in 1983 in the United States.

“From the companies’ point of view, the outlook for beef trading for the remainder of this season is the brightest for some time. However, this is counterbalanced to some extent by the fall in total cattle numbers in New Zealand,” the report concludes.