Kiwi dollar's strength wipes out any market price gains for lamb and beef

Tuesday 2nd February 2010

The country’s sheep and beef farmers can expect a tougher year than last season as a strong New Zealand dollar and on-farm capital stock rebuilding decrease returns in a global market recovering from recession.

The Meat and Wool NZ Economic Service outlook for 2009 – 2010 predicts that the All Classes average sheep and beef farm profit before tax this year will be $37,400 per farm; a 36% decrease on the 2008 – 2009 pretax profit of $58,800.

“There’s exasperation among many farmers that they’ve done all the right things on-farm, and prices have improved a bit offshore,” said Meat and Wool NZ executive director Rob Davison. “Then the strengthening exchange rate removes all those gains.”

Part of the decrease is due to the Kiwi dollar’s strength against the greenback, in which most of the country’s beef is traded and the Great Britain Pound, in which most of the lamb is traded. The NZ$ has appreciated 46% against the US$, 30% against the Pound and 29% against the Euro. One comparative bright spot in those figures is that the Australian dollar has appreciated even more than New Zealand’s, increasing the competitiveness of NZ beef and lamb when competing against its Tasman Sea neighbour in export markets.

Total lamb receipts in 2009 – 10 are expected to decrease almost 11% to $2.5 billion, with a record lambing percentage increasing volumes 3.4% to 315,000 tonnes. But an increase in ewe lamb retentions to restock drought ravaged farms will limit the number of lambs available for export. Offshore prices have held as global lamb supply decreases, though the weakened global economy will probably keep a ceiling on high retail and wholesale lamb pricing that was achieved in 2008-09.

On-farm, this is expected to translate to a $72 per head lamb price for a 17.5kg lamb in 2009-10, compared to last year’s average price of $89.

The weakened global economy will probably moderate a major strengthening of beef retail and wholesale pricing, especially in key North Asian and European markets. Competition from lower priced proteins such as pork and poultry will continue to affect consumer spending patterns and demand for beef.

Three-quarters of beef co-products receipts come from the hide, which has been extremely hard hit by the recession and subsequent downturn in demand for high-quality apparel and furnishings. This is not expected to rebound quickly.

Beef export receipts in 2009-10 are forecast to decrease almost 18% to $1.8 billion. This will be made of an export volume decrease of 4.2% and a 17% decrease in price.

However, wool receipts are forecast to increase almost 11% to $631 million, with export volumes up 16% to 134,000 tonnes from the previous season’s low. Volumes are up due to the sale of stored wool, the shearing of wool left on the sheep’s back and sheep being in better condition than last year. The extent of a price firming will be largely dependent on China’s manufacturing sector strength, with indications of increased Middle Kingdom domestic demand for carpets and apparel picking up some of the slack from reduced exports.

As a result total on-farm expenditure for 2009-10 is forecast to drop about 3%. Farmers will be cautious about any extra spending, with poor returns from 2005 – 2008 continuing to encourage debt repayment and servicing instead.

“Farmers can only tighten spending, and respond to the business environment,” said Davison. “Sheep and beef farmers had three awful years, and last year when a lift came it was so necessary there was no real celebration. There has been some lift in overseas prices, but the greater effect of a strengthening exchange rate has been far greater than the lift.”

Businesswire.co.nz

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