Falling NZ lamb numbers may not bolster prices

Thursday 11th August 2016

An expected decline in New Zealand's lamb numbers this season to the lowest level in more than 60 years may not bolster prices amid uncertainty in key markets and as the higher kiwi dollar depresses local returns.

The country's lamb crop is expected to drop for a second consecutive year this spring, slipping 2.9 percent to 23.3 million, which would make it the lowest lamb volume since the early 1950's, according to the Economic Service of farmer-owned industry organisation Beef + Lamb New Zealand.

New Zealand lamb prices have firmed at the farmgate, at saleyards and in overseas markets in response to lower supply, according to AgriHQ's latest monthly data for July. However uncertainty about Britain's plan to leave the European Union, higher local supply in the UK, a weak British pound, a high New Zealand dollar and resistance from customers to further price increases may limit future gains for lamb, AgriHQ said.

"New Zealand exporters are trying to get a bit more money in terms of in-market prices to make up for that currency difference between the New Zealand dollar and the pound at the moment but it's a work in progress to see whether they will actually get it," said AgriHQ analyst Reece Brick. "It's pretty clear that obviously supply is going to be back but just how that translates in terms of the overseas market is still uncertain.

"I don't think there will be a huge change between this season and last season but it might just nudge up a little bit. We will just have to wait and see."

The benchmark CKT price for a leg of lamb in the UK rose to 4.05 British pounds per kilogram in July, from 3.80 pounds/kg in June and 3.60 pounds/kg in July last year, according to AgriHQ data. The benchmark reflects the middle ground from a range of prices from different meat processors and contracts. Local slaughter prices from meat processors were about 15 cents/kg above last year in both islands, and the availability of feed and a lack of stock has also bolstered store lamb prices, AgriHQ said.

Still, Brick said the outlook was uncertain given the UK wasn't exporting as much as it had in past seasons, bolstering its local supply, and Chinese buyers were pushing back on higher prices even though supplies were low.

New Zealand's lamb trade is in a lull between seasons and negotiations have just started for the key Christmas chilled lamb trade into the UK and Europe, which would help determine overall prices for the upcoming season, Brick said.

"It's early days, we don't really know how it's going to play out," he said. "They have been pretty successful so far getting the CKT leg price to come up a little bit but it's really hard to say if it will stay up because there is so little volume being traded at the moment."

Meanwhile, the price for US imported 95CL bull beef, the raw ingredient for meat patties, edged up to US$2.25 a pound (weight) in July from US$2.21 in June, as tight Australian production and a seasonal decline in beef from New Zealand reduced supply and supported prices, AgriHQ said.

Meat is New Zealand's second-largest commodity export behind dairy products, and was worth $6.61 billion in the year through June.

BusinessDesk.co.nz

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