Lamb price war unlikely

While New Zealand lamb meat prices rose in September, it was on the back of lower supplies, and analysts are predicting the lift will be temporary due to weak demand in the British market.

According to AgriHQ data, the benchmark CKT price for a leg of lamb in Britain rose to £4.20/kg in September, up from £4.10/kg in August and £3.40/kg in September last year.

However, NZ export returns are being hurt by the high the Kiwi dollar versus a weak British pound. In NZ dollar terms, returns were $7.51/kg in September, up from $7.41/kg in August, but vs $8.04/kg a year earlier.

AgriHQ says in NZ the average price from local meat processors lifted last month to $5.80/kg, up from $5.68/kg in August, but down on $6.05/kg in September last year.

NZ lamb numbers are also forecast to decline this season after the number of breeding ewes fell 3.1% last season, the 10th consecutive annual decline.

This lower supply has bolstered prices in recent weeks, but that’s expected to ease once the main production period begins, thanks to weak demand in Britain and high level of the kiwi dollar and a weakening British pound.

AgriHQ analysts report that UK demand for NZ product is low, due to low consumer demand for lamb priced much higher than alternates such as chicken and pork. They also report that major UK supermarket chains are indicating they will step back from promoting chilled lamb this Christmas because they are unwilling to absorb the level of losses suffered in previous seasons.

Meanwhile, talk of a possible procurement war breaking out between meat processors this season has been dismissed.

During its recent round of shareholder meetings, Alliance said it is ready for any price battle for livestock, but the company does not expect rival co-operative Silver Fern Farms to deliberately provoke a war.

Alliance chair Murray Taggart told shareholders that lamb numbers are down by about two million since the last major processing plant closures and conceded that the conditions were ripe for a procurement war.

However, Taggart and senior company executives told farmers at the meetings that Alliance would be “commercial and sensible” in its livestock pricing. A procurement war instigated by cashed-up Silver Fern Farms with its new shareholder Shanghai Maling is highly unlikely, Taggart says.

He conceded that new partner Shanghai Maling would provide SFF with good access to Chinese markets, but added that Alliance had excellent market channels through its Grand Farm partner.

He was not negative about SFF building up in China as well, saying it could be great for opening up other markets.

Meanwhile, chief executive David Surveyor admits that a 700,000 fall in lamb numbers this season means potential for a price war. However, he says while farmers might welcome a price war, he warns there would be consequences for farmers in the wash-up of any battle for lambs as processor margins are already being squeezed.