Prices paid for nearly 4000 halfbred lambs at Tom and Julia Waldron’s on-farm sale last week may have exceeded expectations, but the Central Otago farmers say rising costs will absorb any gains. Photo Jan MacKenzie
An insatiable global appetite for protein has helped push average New Zealand export lamb prices and the Global Dairy Trade index to record levels and pushed milk price forecasts closer to a $10/kg MS.
Current milk price predictions are in the range $9.30 to $9.60, with Fonterra leading the way with the midpoint of its range $9.30-$9.90.
Bank analysts are speculating a price of $9.50, although they comment about strong upside risk to that number.
On March 1 the GDT price index rose 5.1%, the fourth consecutive rise of that magnitude, and is now 19.5% higher than the start of January and up 36% from the season low point back in August.
It is a similar story for lamb and beef.
Average export lamb prices for January set a new record of $13.28/kg, more than $3/kg higher than January last year.
The average export price in October was $12.89/kg, while the five-year average export price for lamb in January is $9.84/kg.
The average export price in January for beef was similarly elevated at $9.56, 55c/kg higher than December and well above the $7/kg five-year average for January.
GlobalHQ senior analyst Mel Croad said red meat prices are being forced higher as buyers replenish depleted stocks, easing pandemic restrictions reigniting demand from foodservice, while supply chains are disrupted by shipping delays and labour shortages in processing plants.
“All of a sudden markets are getting back to normal with people eating out or continuing to eat at home, but our own production still has the impact from covid restrictions affecting staffing and processing efficiency,” Croad said.
Dairy prices are being driven by falling production here, down 6.1% in January, and overseas and knock-on effects from the Ukrainian war.
The ASB has increased by 25c/kg MS its forecast milk price for the season to $9.50/kg MS.
“Fonterra’s revised guidance last week is yet more confirmation that a record high dairy price is on the cards for 2021-2022,” a bank analysis said.
All the major dairy commodities rose in value at the latest GDT, moderating the risk that Fonterra will be unable to pay its Milk Price Model outcome based on the reference products.
Anhydrous milk fat, butter and cheese prices are at record highs and milk powders are close to records set in 2014.
Farmers wanting to lock in some of the highest prices can sell milk price future contracts at $9.75 for this season and $9.80 for next season.
Croad said normally export lamb prices peak in October or December and then ease, but this season is unusual as prices have remained firm and she can’t see any reason for prices to fall any time soon.
“It’s all about buyers securing supply rather than haggling over the price, which shows we are in a good position,” she said.
Demand for meat is strong from all markets and Croad expects farm gate prices to stay well above historic levels for the next few months but warns traditional winter premiums may not be as elevated as usual.
Growing compliance obligations and rising costs, with inflation hitting a three-decade high of 5.9% in the December quarter, are eroding benefits from record protein prices.
An AgriHQ comparison of farm gate livestock prices for the week starting February 25, shows high export prices are reflected in returns to farmers.
Farm gate returns for prime steers this year are $5.90/kg (South Island) to $5.95/kg (North Island) compared to $4.60-$5.05/kg a year earlier and a five-year average of $5-$5.21/kg.
For prime lamb prices in late February, the price was $8.25-$8.35/kg compared to $6.25-$6.35/kg a year ago and a five-year average of $6.41-$6.59/kg.
A strong sale
Prices paid for nearly 4000 halfbred lambs at Tom and Julia Waldron’s on-farm sale last week may have exceeded expectations, but the Central Otago farmers say rising costs will absorb any gains.
Prices were on average about $23/head higher than last year, but Waldron says those higher returns will be absorbed by higher prices for fuel, chemicals, labour, fertiliser and compliance.
“When you drill down, I feel I will be standing still.”
Most of the lambs were bought by Otago farmers, with the normal buyers from Canterbury absent, possibly because of delays and issues with this year’s crop harvest.