An article headlined ‘Drought, high feed costs hurt sheep ranchers,’ appeared last Friday in the Northern Colorado Business Report, he writes in his latest blog posting. It makes the problems being experienced currently by New Zealand sheep farmers look comparatively pretty small.
This isn’t meant to denigrate the difficulties here, but it puts things in context. One rancher has cut his 2,000 head flock by a third and is losing US$80 on every lamb he sells. According to the article, drought, consolidation of the sheep-packing business, increased feed costs and plummeting lamb prices have created hardship among sheep ranchers across Northern Colorado. The situation has deteriorated so much for ranchers that the federal government is investigating whether meat packers have played a role in the market’s collapse.
In 2011 lamb prices soared above US$2 per pound, or about NZ$5.25 a kilo. But today the same lambs fetch only 85 cents per pound (NZ$2.20), while rearing a lamb costs more than $1.30 per pound (NZ$3.40 a kilo). Feed costs have also risen from $250 per ton of grain in 2011 to $400 in 2012.
As lamb prices declined in 2012 demand also softened, causing the US Department of Agriculture to buy $10 million worth of lamb as a drought relief measure. An insurance policy designed to insulate ranchers against fluctuating lamb prices is too expensive at present price levels.
There is also a suspicion that the packers may have been manipulating the market by buying lamb supplies and holding them on feedlots to guard against being caught with insufficient stock to process profitably. This is apparently in violation of the Packers and Stockyards Act which prohibits price manipulation.
A further disadvantage is the fact Japan has been closed as an export market for sheepmeat for 10 years because of mad cow disease – I’m not sure why this was the case, as sheep were not the problem and lambs are too young to pose a risk.
The USDA has asked for any evidence of price manipulation by the packers, as it ‘takes allegations of anti-competitive behaviour very seriously.’ But it doesn’t look as though there will be any relief for sheep farmers any time soon because of low consumer demand and the high cost of feed as a result of the drought.
None of this will be any comfort to New Zealand sheep farmers, especially with the implications for export demand from the USA, but at least our exporters have developed a much broader range of markets for sheepmeat and co-products. This spreads the risk for producers. Equally farmers here don’t have the same worries about feed costs, as the vast majority of sheep and lamb feed generally grows naturally as a result of regular rain.
That said, it is important for New Zealand’s sheep industry, as distinct from its beef industry, to develop a strategy which can ensure our industry doesn’t fall into the same hole as that of Colorado.
Allan Barber is a meat industry and agribusiness commentator. This article has appeared at www.interest.co.nz and also at Allan’s own blog Barber’s Meaty Issues.