This has narrowed the export price gap between whole carcases and the ‘value-add’ frozen lamb cuts. Export statistics for February show that New Zealand lamb processors can usually attain a 75-90c/kg premium on frozen carcase prices by breaking up the carcase and selling individual parts as frozen cuts.
However, this February, strong enquiry for carcases from the Chinese market has pushed the average frozen lamb carcase price up to $8.52/kg, just 31c/kg below the average returns provided by breaking down the carcase. Early indications are that pricing in this market has continued to strengthen throughout March, but hard data is not yet available. This strong Chinese lamb carcase market is also the driving force behind the valuable winter lamb contracts that are revitalising farm gate lamb price forecasts.
Shipping frozen lamb carcases overseas harks back to the old way of doing things. Back in the 1980s, when NZ was at peak sheep numbers, frozen lamb carcases were 30-40% of total lamb exports. Since then, things have evolved into a lower throughput system with more focus on selling processed cuts. Frozen carcases now make up 1-2% of total lamb export volumes.
But value-added lamb products have been at odds with the labour shortages that have plagued the meat processing industry for years. Even before covid-19 border restrictions, it was difficult for NZ exporters to satisfy market demand for labour-intensive cuts such as the “boned rolled tubed” (BRT) lamb shoulder. With covid-19 exacerbating labour shortages and shipping delays frustrating the time-sensitive delivery of some higher-valued chilled products, it is no surprise that the simple option of selling the whole carcase to China is attractive for some processors.
Targeting carcase exports is a bit of a backward step for the industry, with some of the modern plants not set up to freeze many carcases. But, there is enough carcase freezing capacity within NZ to seriously reduce the supply of lamb cuts required to service other markets over winter. Particularly if the NZ lamb supply hits the all-time low suggested by Beef + Lamb NZ projections.
Looking over past data, China’s interest in lamb carcases would be best described as erratic. China has been importing growing quantities of lamb carcases since August 2020, mainly from NZ and Uruguay. But, there is no clear pattern of market growth predating this period. Annual Chinese imports for lamb carcases from all countries jump around between one tonne and 11,000t over the past 10 years with no apparent pattern. For the current calendar year, China has already imported 3360t. Courting this unreliable market might come at the expense of degrading the established markets, which will be needed in the new season when lamb supply lifts again.
On the positive side, this could be a shot in the arm for lamb cut prices in the recovering US and European markets. There have already been some lifts in US and Chinese lamb cut prices recently as buyers reacted to a low supply of forward offers. The UK and EU markets will soon need to follow suit if they want to maintain imported supplies through the NZ offseason. A lack of competing supply from Australia, which is in drought recovery mode, only adds fuel to the fire.
However, there could be long-term repercussions if NZ exporters neglect their hard-won relationships with high-value lamb buyers, particularly if these buyers feel the need to investigate other types of protein in lieu of lamb.
