Brief Bites, 10th April

In this edition:

• Extreme dry conditions
• Capacity update
• North America market visit
• Minimum Price Contracts
• Know Your Co-operative
• Global market update

Extreme dry conditions

While the recent rain in the lower South Island will provide some relief to our farmers, we are all hoping more is on the way. The rainfall has delivered much-needed respite for Southland’s rivers and aquifers, although it is still too early to determine the full impact. The long-term effect of the extreme dry conditions is likely to be felt by many farmers over the winter and into spring.

We are here to support farmers through these challenging times. We continue to work with our industry colleagues to ensure the needs of farmers and those sectors supporting farmers are well understood by Government.

An Alliance representative attended an industry meeting with Ministers Damien O’Connor (Agriculture) and Meka Whaitiri (Associate Minister Agriculture) in Invercargill on Thursday, and we understand an announcement on support for the sector will be made by the Government next week.

It is important that we continue to connect with and support each other. We were thrilled to help Ag Proud bring people together by providing product for the Brews & Banter ‘drought shout’ events in Southland recently. Our local livestock reps and regional managers got along to the events, and all commented on just how great it was to see communities reconnecting.

Capacity update

We appreciate our farmers’ support and patience over the past weeks as we have managed the impact on processing capacity. Capacity across much of our network is now recovering however Southland remains a challenge and we have as much capacity as we can turned on to process livestock.

Our Mataura plant is operating both shifts and overtime and continuing to work through the back-log of animals.

A number of our Lorneville Plant employees are isolating or having to stay at home to look after family members. This is creating resourcing challenges, affecting the plant configuration and reducing effective processing capacity.

That said, we are running overtime this weekend even though it will be inefficient/ at lower capacity so that we maximise the number of animals we process for farmers. We are also running extended hours next week. We are hopeful that next week we will see a significant number of our people back to work.

The co-operative is doing everything we can to mitigate the impact of the situation including moving livestock across our network to maximise our processing volumes. Beef + Lamb New Zealand has also provided advice for farmers and an update on the nationwide livestock processing situation.

North America market visit

Over the past two weeks, Alliance General Manager Sales Shane Kingston and I have been visiting Canada and the United States, our first offshore market visit for more than two years. We have been evaluating the protein category and consumer changes post-pandemic, reconnecting with existing customers and visiting recently formed and potential new partnerships.

Lamb and beef are very much in demand across the food service and retail sectors. Although lamb has been performing strongly over the past two years, there remains some commentary about the variability of New Zealand lamb, which can disappoint some shoppers. We must continue to create a more consistent end product, across carcass weights, fat coverage and pH levels.

Sustainability and regenerative practices exist in messaging but these themes are not as evident as one would expect. However, we must continue to be able to describe the way we produce our red meat in line with these practices.

Venison is becoming more present in retail through 1lb mince packs, which is proving an effective means of getting consumers to try the protein. Cuts are also appearing on food services sector menus, although there is still a long way to go. Our immediate opportunity is to recruit Bison consumers through stronger messaging on the lean properties of venison.

Plant-based protein still exists, but has much reduced space and visibility in outlets, and in most cases, is subject to heavy price discounting to drive sales.

There is a strong sense of inflationary pressure starting to play out for many mainstream North American consumers, with visible recent increases in beef mince sales versus cuts and shifts from some red meat protein to white meat such as chicken. This is is not, however, reflected in the higher net worth consumer market. Based on current pricing, indications are that high quality proteins are somewhat insulated.

Pet food as a category continues to grow in scale, but beef, lamb and venison formulations are much the lesser part of the overall category, with fish, chicken and turkey forming the main base ingredients for dry pet food products. Price and available volume supply remain key drivers here.

Across our customer base, there is continuing demand for New Zealand-sourced product, across all species, recognising the pasture-raised systems we have in place. Our antibiotic-free, non-GMO, hormone growth promotant-free attributes remain important considerations for consumers in North America.

Minimum Price Contracts

Given the capacity constraints and the volatility we have seen in foreign exchange rates in recent times, we want to provide some price certainty for farmers. This week, we have issued a number of MPCs.

When you sign an MPC, you can on the day of supply choose to supply under the contract or on the schedule – whichever option gives you the best price. With uncertainty on so many fronts, we would encourage our farmers to use MPCs.

Current offers include:
• Handpicked Beef (Apr’22-Jun’22)
• South Island Cow Grazing Premium (Jul ‘22-Aug ‘22)
• North Island Cow Grazing Premium (Jul ‘22)
• South Island Lamb MPC (May ‘22 – Jun ‘22)
• South Island Ewe MPC (May ‘22 – Jun ‘22)
• Silere (Aug ‘21-Jul ‘22)
• Handpicked Lamb (Aug ‘21-Sep ‘22)
• Angus Supply Programme (Jan ‘22-Sep ‘22)

Know Your Co-operative

Applications for our third ‘Know Your Co-operative’ seminar are now open.

The seminar in Christchurch on 24-26 May 2022 will give 12 shareholders the opportunity to gain a more in-depth understanding of Alliance Group and will appeal to those shareholders that may be looking to contribute to Alliance as a director in the future.

Preference will be given to applicants who can demonstrate their desire to positively influence our co-operative into the future. Successful applicants are likely to be involved in, or aspire to, leadership roles in their community. We are looking for a diverse group who will not only benefit from the seminar but
will also provide thought-provoking challenges to other participants and the Alliance team.

Alliance will cover the costs of the seminar including meals and accommodation. Successful applicants will fund their own travel.

Applicants must be shareholders either directly or by way of a beneficial interest in a shareholding entity and be platinum or gold suppliers.

If more applications are received than we have places available, the Board’s People Committee will decide the successful applicants.

The application form can be found here.

If you have any questions, please email: communications@alliance.co.nz

Update from our global markets

Lamb
Post-Easter production remains focused on frozen key account programmes, while reduced processing capacity continues to restrict added value cut volumes. Inflation, interest rates and the Ukraine conflict is creating increased food and energy costs, which is starting to negatively affect market sentiment. European Union demand remains strong as in-market stocks are low but price levels have peaked. The UK market remains steady but increased frozen leg supply caused by diversification away from China is starting to impact pricing. The North American market is firm in retail and food service but inflationary pressures remain a concern. The COVID-19 lockdown in parts of China is impacting consumption and putting some pressure on pricing. The Middle East market is firm as inventory builds for post-Ramadan.

Mutton
Mutton processing is well advanced although at a reduced capacity. This is causing a backlog of stock, which remains on grazing. The key volume market of China has eased due to COVID-19 inventory build in the regions that consume significant volumes of mutton. North America and wider Asia are now coming under pressure as exporters divert more product away from China. An appreciating NZ dollar is a concern as it will affect our ability to maintain market returns.

Venison
Frozen negotiations have concluded to all key European customers and attention is now focused on chilled negotiations for the 2022 Game Season. Early indications suggest that both price and demand will be an improvement on levels achieved in 2021. There remains concern about the global supply chain issues. We are continuing to diversify sales of volume products to support retail programmes in China and North America.

Beef
Although stable, the Chinese market is facing challenges as the latest COVID-19 outbreak impacts high population cities. Due to this outbreak, the key port of Shanghai has been closed to contain the spread. With significant volumes of beef about to arrive in Shanghai, we are working with shipping lines to direct product to alternative ports. Demand is stable and pricing is unchanged at wholesale level, with the grinding market still very firm, especially across lean fore and hind packs.

US importers continue to talk the market down, which has led to us switching grinding production to China. Brazil has now filled the 2022 quota for grinding meat to the US, meaning any further sales will incur extra duty (26.4%), with NZ and Australia both having a lot of room left on their US quota. Asian market demand remains firm with strong grinding values and good demand across most beef cuts.

Co-products/ Specialty Ingredients & Materials
Demand across co-products is high with shipping constraints the main challenge to overcome. Tallow continues to hit record high pricing, driven by demand and enabled by rising fuel costs. Pet food ingredients prices are steady as we prepare to auction Q2 volumes.

Warm Regards
David Surveyor – Chief Executive