NZ lamb exports likely to drop this season amid weak demand in China, UK

Wednesday 16th December 2015

New Zealand farmers are heading for lower returns for their lambs this season amid weakness in the country's two largest export markets in China and the UK.

While prices for the first of the new season lambs processed in October and November for the UK Christmas chilled market were similar to last year, that won't be enough to offset weakness in the broader market as the season cranks up to its peak production period from now through till May, according to AgriHQ senior analyst Nick Handley.

According to AgriHQ, the benchmark price for a UK lamb leg has sunk 26 percent from a year earlier to 3.40 British pounds a kilogram. A fall in the New Zealand dollar has helped cushion the decline, with the local currency price down 17 percent. In China, the benchmark lamb flap price is 12 percent weaker than a year earlier at $6.28/kg.

The UK lamb market is weak amid high domestic production and as a decline in the euro against the pound dents UK exports to its traditional European markets, further inflating British supplies and reducing demand for imported product.

Meanwhile in China, where lamb exports have been soaring on demand for traditional lower-value cuts such as lamb flaps for use in hot pots, prices have also declined as the earlier high prices prompted more importers to enter the market, pushing up inventories and weighing on demand.

"Returns are currently down on a year ago and there isn't a lot on the horizon that suggests that trend is going to change through the first half of next year," Handley told BusinessDesk.

Higher-than-normal lamb availability early in the season is also weighing on prices, as farmers sell lambs earlier than normal amid concerns about El Nino drought conditions over summer, meaning meat processing companies aren't having to compete as aggressively for supply, he said.

New Zealand export lamb slaughter is expected to decline 8.1 percent this season to 19.5 million, following a 6.7 percent drop in the number of lambs tailed this spring to 23.9 million, the smallest number in nearly 60 years, according to Beef and Lamb New Zealand's Lamb Crop 2015 report, which cited a drop in the number of breeding ewes and lower lambing percentages.

"Some pretty mediocre returns combined with fewer lambs available doesn't make for a great year," Handley said.

Chinese demand may pick up ahead of the New Year festive period in February, while in the UK it's unlikely that prices will lift as volumes increase heading into the peak production period, he said.

Meat is New Zealand's second-biggest commodity export, behind dairy products.

BusinessDesk.co.nz

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