LIVESTOCK OUTLOOK. New season will see supplies increase. There is an expectation lamb numbers will be up, given the good run many have had to date.

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1 NORTH ISLAND OCTOBER 2017 Key Points LIVESTOCK OUTLOOK BULL - OCT STEER - OCT M COW - OCT Local Trade maintains hot pace China demand positive Strong start to new season Market awaiting new season lambs LAMB - OCT ( $/KG CW 17KG) 7.15 NZD:USD 0.71 VIEWPOINT New season will see supplies increase Mel Croad The new season is upon us, however it will still be a number of weeks before we start to see a sustained rise in slaughter rates. Tighter supplies through late winter have been a feature of the market, particularly for beef. Lamb numbers picked up in recent weeks but have never recovered from the slow start to the season and will post a lower than expected total once the stats are in. Looking to the new season there is an expectation lamb numbers will be up given the good run many have had to date. The er rates of multiples may slow finishing rates unless more favorable spring pasture growth patterns emerge. Some eastern regions are the exception to the rule in terms of cattle condition given the drier end to winter, while elsewhere most are looking for a break in the weather. Warmer weather would help growth rates, however processors maybe faced with slim pickings until closer to November. The flow of stock into processing plants is crucial over the coming months. Key markets are well schooled on the timing of NZ s supply increases. Tighter supplies this season have enabled prices to post strong gains throughout the year. With the potential for export lamb slaughter to be er this season, volumes will have to be carefully managed to maintain a positive return. The season will be shaped on the supply of lambs between November and Christmas. Any rush on supply will be detrimental to pricing There is an expectation lamb numbers will be up, given the good run many have had to date. levels. But its a hard one as farmers will be keen to make the most of the expected er than average pricing levels through this period For beef, it appears to be a waiting game on cattle availability. Current prices for prime remain artificially inflated against stronger Local Trade demand. When the cattle do start to flow expect processors to look to recoup margins. Bull beef prices will follow suit, particularly when US imported prices edge lower. ph info@agrihq.co.nz web agrihq.co.nz

2 PAGE 2 BEEF - PRICE PROJECTIONS Global beef supplies to increase further Farmgate beef prices stabilised through September at our forecast levels. From here the market is expected to drop lower but the timing of this will be dependent on the supply of killable cattle and overseas market demand. It wasn t that long ago that the expectation of a $6/kg schedule for bull and steer in spring was commonplace. However farmgate prices have basically flat-lined over winter, hampered by a much stronger NZD. This has been a key negative influence in farmgate prices for beef in the last six months. The outlook for the NZD is to remain As noted in last months report, US imported beef prices have staged a rally. Driving this has been the tighter imported beef supply and er fed cattle prices. While this may help sustain current farmgate prices, this trend is not expected to continue for much longer given the seasonal trends for this time of the year. From US processors point of view the outlook for US beef is favorable but hinges on domestic and global demand for US beef remaining strong. Local Trade maintains hot pace Local Trade prices have been trading at a 20-40c/kg premium to prime in the last month. History would tell us not to expect it to continue for much longer. Local Trade prices start pulling back into October as buyer demand seasonally reduces. However the lack of supply could keep prices inflated until the supply of cattle picks up. Processors continue to note current Currency volatility to remain Political uncertainty has done little to help the NZD. Although it has moved lower from a recent of US73c, Spring cattle slaughter rates don t typically show any real upside until late October. From there weekly gains are made as processing space is reopened and a greater number of cattle reach finishing weights. The indifferent weather patterns over the island will likely contribute to a slower start to the cattle kill this spring, with many noting cattle weights are back. However earlier signed supply contacts may act to bring more cattle out than normal before Christmas. over US70c into 2018 which will continue to weigh on farmgate returns But this isn t the only concern for the months ahead. Global beef production levels are forecast to rise further in While the markets managed to scrape through relatively unaffected this year it will take another lift in beef demand through 2018 to prevent any sustained pricing downside. Farmgate prices are expected to track sideways this month on tighter supplies. However as spring kill rates start to pick up expect some downside to finally show up in prices. Lower US imported beef prices on the radar Fed cattle supplies will increase dramatically between Nov and Dec. Therefore aggressive marketings will need to occur to keep supplies current. Any backlogs could force cattle and beef prices sharply lower. In the last three years US imported beef prices have dropped between Oct and Dec. Given the expected increase in US domestic production, it is hard to see how this trend could be reversed, although it may be moderated by tighter imported supplies. prime prices are out of line with overseas market conditions and this will see a pull back on these prices in the coming weeks. The rate of fall maybe stronger than normal to compensate for the current market conditions. While historical trends show the biggest fall occurring between Nov- Dec, last year prime prices fell by 20c/ kg between Set and Oct. further downside needs to become a reality. Any drop would support farmgate returns in the months ahead. November touted for start to spring cattle kill B+L NZ are picking a much tighter steer and heifer kill in the 2017/18 season which has the potential to be felt early in the season. The bull kill however is expected to reflect the er volume of calves reared in the last two seasons. Procurement levels are reflective of the current hand to mouth supply of cattle. These rates are likely to remain elevated until a there is a steady stream of cattle for processing. Any downside in market conditions at that point will see procurement rates reeled in faster. BULL - OCT $5.48/kg -13c $1620/hd Average Sep bull price Drop in US95CL bull price to Dec STEER - OCT 5.65 Beef price projections to March kg cwt gross prime steer prices in Dec M COW - OCT 4.30 Oct Nov Dec Jan Feb Mar 95CL US/lb $2.25 $2.22 $2.12 $2.11 $2.14 $2.17 $NZ:$US $0.71 $0.71 $0.71 $0.71 $0.70 $0.70 CIF Price NZ/kg $6.99 $6.89 $6.58 $6.55 $6.74 $6.83 FOP as % of CIF 79% 79% 81% 79% 76% 76% NZ operating price Bull kg $ $5.45 $5.30 $5.20 $5.15 $5.20 Steer kg $5.65 $5.55 $5.40 $5.30 $5.25 $5.30 Cow kg $4.30 $4.30 $4.20 $4.05 $4.00 $4.05 Exchange rate effect on price projections for 300kg bull NZD:USD Oct Nov Dec Jan Feb Mar $0.68 $5.74 $5.69 $5.53 $5.43 $5.30 $5.35 $0.69 $5.66 $5.61 $5.45 $5.35 $5.22 $5.28 $0.70 $5.58 $5.53 $5.38 $5.27 $5.15 $5.20 $0.71 $ $5.45 $5.30 $5.20 $5.08 $5.13 $0.72 $5.42 $5.37 $5.23 $5.13 $5.01 $5.06 $0.73 $5.35 $5.30 $5.15 $5.06 $4.94 $4.99 $0.74 $5.28 $5.23 $5.09 $4.99 $4.87 $4.92 $0.76 $5.14 $5.09 $4.95 $4.86 $4.74 $4.79 $/kg Farmer Operating Price: M2 Bull 300kg % 85% 80% 75% 70% 65% 60% 5-yr Ave Last year This year Procurement - FOP as % of US 95CL 55%

3 PAGE 3 BEEF - OVERSEAS MARKETS US beef production wont slow down US cattle slaughter for the year to 23 September was up by 1.28 million head on 2016 levels to just over 23 million head. Increased steer and heifer slaughter was the main driver, a reflection of the er fed cattle numbers. Slaughter numbers will need to remain current to absorb the increasing volumes over this quarter in order to prevent prices from toppling over. Beef demand has on the whole preformed well this year. Beef demand has on the whole preformed well this year preventing any buildup in supplies and/or corresponding drop in prices. A robust export performance has also absorbed much of the increase in beef production. Industry reports indicate US beef production is set to grow further in 2018, therefore demand, both domestic and export will have to follow suit in order for beef prices to be maintained. An increasing cow kill, a result of recent herd retention will also place a ceiling on import demand. The market BEEF - COMPETITOR WATCH Australian beef supplies surge The on-going dry conditions continue to underpin beef production and export volumes. Cattle are coming forward much earlier than expected. There is the potential this could lead to tighter supplies towards the end of the year. However this will be determined by weather patterns which are only looking 50% favourable. Recent Australian industry forecasts show that NZ can expect a resumption of increased competition within key markets next year, particularly the US. Australia s beef production is forecast to lift 8% leading to exports climbing is already witnessing a renewed push to use fresh domestic beef in place of imported beef. China demand remains positive Demand for NZ beef remains firm with little movement in pricing. Pricing is expected to step up a notch as buying to supply Chinese New Year celebrations gets underway. The real test as to the depth of Chinese demand will occur once our supplies seasonally ramp up next month. Market expansion remains constrained by the increasing volumes of cheaper, South American beef. Tariffs dent imports to Japan NZ posted a significant decline in frozen beef exports to Japan in August, as exporters directed beef to other markets. September volumes were nearly non existent. The implementation of the 50% tariff on frozen beef also hurt US beef imports to Japan. Reportedly US frozen beef exports were down 26% on year ago levels. However weaker currency rates and softer US beef prices look to have partially offset the tariff. The US channeled more beef into chilled, with these volumes lifting by 54%. by close to 100,000t. Despite market conditions weakening in the US, an extra 56,000t of Australian beef is destined for the US market in Brazilian beef exports to grow China appears to be the key driver underpinning growth in Brazilian beef exports in Reports indicate beef exports are set to lift by 6% to 1.9 million tonnes as China s appetite for beef continues to grow. The potential downside for this is stronger competition within China for market share. Already Australia are sighting static growth in beef exports to China this season, despite beef production levels climbing. US$/lb $0.85 $0.80 $0.75 $0.70 $ million -26% +6% Increase in US cattle slaughter this year Drop in US frozen beef exports to Japan NZ$:US$ Forecast increase in Brazilian beef exports $ Demand Indicator: US95CL bull Jun 17-Jul 17-Aug 17-Sep 17-Oct 17-Nov 160 North Island weekly cattle kill Australia cattle kill Jun 16-Aug 16-Oct 16-Dec 5-yr Ave Last Year This Year

4 PAGE 4 LAMB - PRICE PROJECTIONS Strong start to new season The lamb market has performed above expectations since early this year. Month after month Average Export Values (AEV s) have punched er with those returns flowing back to the producer. As the last of the old season lambs head to processors there is already plenty of commentary on the direction of the lamb job in the coming months. It is safe to say as the volumes of new season lambs picks up into the processing plants, farmgate prices will ease back. The speed of this downside will be determined by the flow of lambs into the plants. The positive is that although prices will retreat they are coming off a six year which means any downside will still leave prices in a better position to previous years. A er export lamb kill this season means increased export volumes. While the NZD remains an issue, how lamb export volumes are managed into key markets will be the defining factor that will shape prices this season. AgriHQ s forecasts still point to farmgate lamb prices averaging above $6/kg through December. Compared to December 2016, farmers stand to pocket an extra $15-$20/hd based on the current forecast. LAMB - OCT 7.15 $7.06/kg $107/hd -$10/hd Average Sep lamb price Lamb price projections to March 2018 Average Dec price for 17kg cwt lamb LAMB - NOV 6.90 Average fall in value of 17kg lamb between Nov and Dec NZD:GBP 0.54 Export Market Oct Nov Dec Jan Feb Mar UK CKT Leg /lb $NZ: UK $NZ/kg $8.70 $8.74 $8.74 $8.82 $8.86 $8.90 Average Export Values continue to punch er To date demand from key markets has been strong with a real push coming from smaller EU markets. This has been positive and strong enough to underpin a significant lift in AVE s The concern is whether these values can be maintained. Looking at historical data AEV s typically peak in October, coinciding with the peak chilled demand period. From October AEV s tend to seasonally ease on average B+LNZ have picked a lower the NZ lamb crop this season, due to the drop in breeding ewe numbers. However there is every possibility that increased lamb survival rates combined with a er incidence of multiples could see total numbers push er. What is more crucial however is the flow of these lambs in the opening months of the season. Increased lambs means increased feed requirements and many regions are still behind the eight ball due to on-going wet conditions. Where feed allows its expected there will be a real drive to convert these extra lamb numbers to er drafting by 50c/kg to November as demand from key markets weakens. Any movements through December and January are less certain and tend to fluctuate year on year. But as a rule of thumb AEV s are lower in Dec/Jan than in October, which therefore means farmgate lamb prices will be lower through this period. By just how much will depend on how overseas markets react to our increasing supplies. Can UK/EU handle our increase in supplies Imports of NZ lamb into the UK can double between September and November, reflecting our increasing lamb supply. While the market has been favorable to date, it has been supported by much lower import volumes. There is concern how the market may react to our increased volumes. Plenty of work has been done to Exchange rate volatile The NZD remains has eased in recent weeks against all key trading currencies. However to have any positive impact Market awaiting new season lambs explore and target new and emerging markets. However bulk cuts like legs are likely to feel some pressure in the months ahead as volumes of these increase. If the demand picture isn t that striking in the UK then any oversupply will negatively impact on prices which ultimately flows back to softer farm gate returns. on new season returns the downside needs to be sustained. However current volatility makes it a hard ask. rates pre Christmas to capitalise on the above average farmgate prices expected through this period. Store market prices What is more crucial is the flow of these lambs in the opening months... should also reflect the er processing prices in the early stages of the season, before too many hit the market. In terms of procurement, as the supply of new season lambs increase the incentive to continue to dangle the carrot will be reeled in. Operating Price 17kg CW lamb $/kg $7.15 $6.90 $6.30 $6.05 $5.95 $5.90 $/hd $122 $117 $107 $103 $101 $100 Exchange rate effect on price projections for 17kg CW lamb Exchange Rate Oct Nov Dec Jan Feb Mar $7.57 $7.31 $6.67 $6.35 $6.24 $ $7.43 $7.17 $6.54 $6.22 $6.12 $ $7.35 $7.10 $6.48 $6.17 $6.06 $ $7.28 $7.03 $6.42 $6.11 $6.01 $ $7.22 $6.96 $6.36 $6.05 $5.95 $ $7.15 $6.90 $6.30 $5.99 $5.89 $ $7.08 $6.84 $6.24 $5.94 $5.84 $ $6.96 $6.71 $6.13 $5.83 $5.74 $5.69 $/kg Farmer Operating Price - 17kg cwt lamb % 75% 70% 65% 60% Procurement: FOP as % of export value 55%

5 PAGE 5 LAMB - OVERSEAS MARKETS UK lamb prices under pressure After peaking in June, UK domestic lamb slaughter prices have continued to decline. For the first time in six months these prices have dropped below year ago levels. This reflects the increasing slaughter rates in the last month, which is expected to continue over the remainder of Current challenges include changes to eating habits. Reports out of the UK note the continued struggle with both demand for lamb and consumption rates. Current challenges include changes to eating habits and the growing view that lamb is considered a treat rather than a regular purchase. Fast and convenient meals appeal to the modern consumer. This has knocked lamb sales, particularly sales of roasting joints. This market slowdown has seen the UK place a much greater emphasis on exporting lamb, where demand remains robust. This comes at a time when production is static and imports are declining, backing suggestions that consumption of lamb is down within the UK market. US imports post records Demand for lamb remains firm to strong. In market prices achieved are posting five- year s. There is some concern that as NZ and Australian supplies pick up prices will start to retreat but there is no sign of this yet. Imports of lamb into the US are well above five-year s on the back of tighter domestic production. However stocks in cold storage are also well up which could prevent the market from pushing any er. China hungry for lamb There has been no slowing the return of China to the buying game. As a result the key indicator flap price rose through September and is expected to firm further as supplies are secured for the Chinese New Year Celebrations (CNY). Buying for this period typically ends in December. If this demand can be sustained it will go some way to supporting lamb prices once the Christmas chilled demand comes to an end in early November. NZ$/kg US$/kg Average Export Value for lamb $9.75/kg US$9.35/kg US+48c/kg Estimated Average Export Value in Aug French Rack price into the US in Sep China flap price Lift in flap prices to China 2.00 LAMB - COMPETITOR WATCH Australian lamb kill spikes Lamb slaughter rates spiked through late September at levels er than 2016 and Dry conditions have possibly prompted the er offload, however demand remains robust with prices failing to come under any pressure. The weather outlook points to a wetter October which could tighten the supply of lambs to processors The outlook for lamb points to increasing production rates this season, reflecting the improvement in flock numbers. As a result lamb export volumes will increase but still remain below those levels reached in 2015/16. Australia will target the increasing demand for lamb within China and other key Asian markets, competing directly with NZ for market share. North Island Weekly Lamb Kill 250K 200K 150K 100K 50K 18-Jun 18-Jul 18-Aug 18-Sep 18-Oct 18-Nov Australian lamb kill Jun 16-Aug 16-Oct 16-Dec 5-yr Ave Last Year This Year Disclaimer: This report is published by NZX Rural Limited ( NZX Agri ) for your information only. This report does not constitute an offer, solicitation or recommendation to acquire or dispose of any investment or financial product. No part of this publication may be redistributed or reproduced in any form or by any means or used to make any derivative work without written permission from NZX Agri. NZX Agri (including its group companies and each of their directors, officers, employees and contractors) shall not be liable (except the extent strictly required by law) for the use of the information contained in this report, however arising. This report is published with due care and attention, but NZX Agri and its group companies accept no liability in relation to the completeness, accuracy or timeliness of this report and its contents.