Thursday, July 7, 2022

ANALYST INTEL: June record set for lamb export values

It has been a whirlwind ride for lamb prices this winter. Farmgate prices have lifted by $1.50/kg over the last 10 weeks compared with the usual increase of just 60c/kg. Avid readers of AgriHQ reports will be well versed on some of the key drivers propelling the lamb market into uncharted waters for winter. The reopening of the foodservice sector in key markets combined with tight pipeline supplies of lamb have led to a solid pricing recovery for NZ lamb.

Tighter lamb supplies domestically are also creating an urgency overseas to secure NZ lamb. Slaughter rates here have slumped since June. Current data shows both islands recorded weekly lamb kills below 100,000 head into early July, a significant reduction when aligned with previous years. Season-to-date, the national lamb kill is finally showing signs of falling into line with Beef + Lamb NZ expectations for this season, trailing last season by over 544,000 head. Based on this season’s forecasts, there is still some way to go before those projections are fully realised, suggesting processors still have some particularly lean times ahead of them. Compared to the five-year average, the season-to-date kill is down by 1.04 million head. Despite this AgriHQ aren’t ruling out the potential for short-term backlogs to appear in September, as lambs are currently held back to maximise returns. 

Interestingly, the diminishing supply of lamb has yet to show up in export data. Since markets woke from their slumber in late March, robust overseas demand has enabled export volumes to be maintained. AgriHQ data shows April-to-June export volumes were above the same period last season and in line with historical levels. 

While the volume of NZ lamb shipped in recent months has been maintained, the value attained for our products has been exceptional. After bottoming out in March, average export values for NZ lamb have continued to lift month-on-month. The latest data to the end of June showed values had lifted to $10.98/kg. This is the highest June value recorded, surpassing the previous record hit in 2019 by over 40c/kg. In comparison, 12 months ago supressed global demand for NZ lamb resulted in an average export value of $9.84/kg and a sluggish farmgate price of $7.20/kg.

This is a great example of the strength of these markets as they respond to consumers’ increasing appetite for lamb. The closure of the foodservice sector paved the way for an increased opportunity to target the retail sector for lamb. But this traction has not been lost as the foodservice sector resumed. Rather both sectors are competing head-to-head, creating a sense of urgency to secure NZ lamb, more so given the limited competition from Australia.  

Average export values will need to lift in August to support current farmgate pricing expectations. The lift in August values is usually quite significant, reflecting the tight point in winter production and a lift in chilled volumes exported as markets start to gather supplies. Often September values dip in recognition of the stronger sales in the previous month. As Christmas sales gather pace, export values typically pick up again through October and continue to yo-yo until the year-end.

The average value of our lamb exports is closely linked to what farmers receive at the farmgate. Strong pricing now is unusual, as demand tends to dip as northern hemisphere markets battle hot summer conditions driving less appetite for hot meals. These current values stem from pent up demand globally. This needs to be nurtured over the coming months to allow farmgate prices to continue to respond positively into the new season.

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