Poor sheepmeat pricing has been a huge frustration in recent times for New Zealand sheep farmers, but the Beef + Lamb NZ’s Economic Service has been doing some analysis of the lamb market, which has thrown up some interesting points, including another confirmation of a looming New Zealand lamb shortage.
In his most recent communication, Beef + Lamb NZ (B+LNZ) chairman James Parsons, notes that in mid-January, New Zealand’s lamb processing was 14 percent ahead of last season, but due to lighter carcases production was only 11 percent ahead. In addition, lower exchange rates have only mitigated a weaker market price rather than improving returns, as was hoped. Prices for chilled product have remained consistent year-on-year, but frozen product has been well down. Frozen lamb makes up 78 percent of New Zealand’s total lamb exports, so poor frozen prices have a significant impact on farm-gate returns.
In China, high inventory levels of frozen product in China caused frozen lamb prices to fall significantly and the culling of China’s domestic lamb market has exacerbated the oversupply. It’s worth noting that chilled New Zealand meat exports are not permitted into China, says Parsons.
“This is something we have been continually elevating to government as a market access priority,” he says.
Exports into the Middle East region are also very flat with weaker lamb prices than last year. Oil prices, which drive many Middle Eastern economies, are at very low levels, the analysis shows.
In Europe, the UK experienced a big lift in lamb production during their season, which is now drawing to a close. However, with the high £ (sterling), lower volumes of UK lamb crossed the channel to the European continent, Parsons comments.
“This meant more locally produced product appeared on UK supermarket shelves and in butcher shops. Even worse, some UK lamb which has traditionally been a fresh chilled product has been frozen, so it didn’t go to waste, further impacting New Zealand frozen lamb returns.”
B+LNZ forecasts a lamb slaughter of 19.6 to 20 million head for the year ending 30 September, down six to eight percent on last season. With lamb processing so advanced, and reasonable feed levels around much of the country, there is a shortage of lamb looming.
“We are now more than one month into 2016. Let’s hope it’s a year where improved lamb returns lead a correction in the sheepmeat market,” says Parsons.
The Economic Service is pointing to an estimate for 2015-2016 of export returns achieving an average $94.50 per head for sheepmeat, equating to $5.25 per kg, from all markets. This is based on in-market prices, converted to $NZ at mid-February 2016.
He sees that volatility is still a factor in the forthcoming scenario and another huge frustration for sheepfarmers.
“I wish I could say it would all settle down. However, for farm businesses, my view is we need to learn to manage it. It’s a case of setting ourselves up well to maximise the good times and keeping enough in reserve for the lean times.”
One underlying factor that can’t be ignored is declining demand for lamb around the globe.
“As a multi-billion sector we collectively invest a pitiful amount into telling our story,” says Parsons, adding that B+LNZ has nearly completed its market development review initiated last year. Some options are to be tested with farmers during the winter farmer meeting round.