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New Zealand companies need to step up their efforts, in view of the hope for better lamb prices this season evaporating faster than a summer shower.
So says Peter Walsh, and independent South Island stock broker and principal of Peter Walsh and Associates.
While NZ 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.
Market analysts at AgriHQ report the benchmark 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 were hurt by the high Kiwi dollar versus the weak British pound. In NZ dollar terms, returns were $7.51/kg in September – up from $7.41/kg in August, but well down on $8.04/kg a year earlier.
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 bolstered prices at the start of the new season, but that’s expected to ease once the main production period begins, thanks to weak demand in Britain and the high level of the Kiwi dollar and the weakening British pound.
Walsh says this is concerning, especially when Australian lamb producers are faring much better than their NZ counterparts: falling numbers and growing demand are hiking prices in Australia.
Despite the growing demand for lamb in Asian and Middle East markets, there are questions about Australia’s ability to supply: recent Meat and Livestock Australia (MLA) data reveals sheep numbers are falling there.
ANZ predicts Australia will need an extra 22 million sheep by 2040 for it to maintain its share of the global market and meet growing protein demand. All up, MLA estimates Australia now has 70 million sheep, and it tips this will grow to 73 million by 2020 if average seasonal conditions prevail.
These lower sheep numbers are being reflected in the slowly climbing prices buyers are paying in Australia. In early October, saleyard numbers were at a three-month high, but prices remained firm at around Australian 600 cents/carcase weight.
Walsh says at these prices Australian producers are getting about $200/lamb, while NZ farmers get only about $100/lamb.
Meanwhile, in NZ there is talk of a procurement war this season, but the meat companies are downplaying this. During its round of shareholder meetings, Alliance said it is ready for any price battle for livestock, but the company does not expect rival co-op 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 big processing plant closures and he concedes that the conditions are ripe for a procurement war.
Alliance chief executive David Surveyor admits that a 700,000 fall in lamb numbers this season has the 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 from any battle for lambs as processor margins are already squeezed.
Silver Fern Farms chair Rob Hewett says his company is not interested in a procurement battle and claims it would be an “irresponsible use of funds”.
However, Peter Walsh questions why the NZ meat sector is faring so badly. He believes farmers will want to see the benefits of the Silver Fern Farms/Shanghai Maling merger in better prices paid to them.
Walsh wonders if the meat industry would benefit from a pan-industry auction system like the dairy sector’s Global Dairy Trade (GDT).
“Putting everything up for auction would really show a market environment,” he says. “Everyone would get to see and compare prices and such a system would set true market value.”
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