Thursday, July 7, 2022

ANALYST INTEL: Signs of growth in lamb crop

For the first time in four years, Beef + Lamb New Zealand’s Stock Survey report indicates we can expect more lambs on the ground than last spring. The 2021 lamb crop is forecast to lift back over 23 million head, essentially returning to 2019 levels.

For the first time in four years, Beef + Lamb New Zealand’s Stock Survey report indicates we can expect more lambs on the ground than last spring.

The 2021 lamb crop is forecast to lift back over 23 million head, essentially returning to 2019 levels. The expected lift in lamb numbers is quite a feat, considering breeding ewes remain in decline, having dropped by over two million head in the past five years. Instead, higher scanning rates and favourable weather through early winter underpins expectations of a larger lamb crop. 

It’s debatable just how much influence hogget mating will have on the lamb crop tally this spring. While many may have intended to breed from hoggets this season, those intentions have often been cast aside as trade lamb prices rallied towards $200 in July. 

The key driver behind those high trade lamb prices was the expectation of record farm gate lamb prices by early spring. Underpinning those assumptions was an export market hungry to secure NZ lamb. Since the reopening of the foodservice sector in key export markets, demand for lamb surged, rebuilding depleted stocks and servicing immediate consumer demand. 

As AgriHQ has reported over the past two months, farm gate pricing expectations for December remain well in excess of $8/kg, signalling the current strong market has enough legs to continue well into the new season. 

If this larger lamb crop can be achieved, then it will likely translate into a higher lamb slaughter. That is unless more replacement ewe lambs are retained to capitalise on the strength of global demand. 

Based on the latest information from B+LNZ, if spring lamb numbers return to 2019 levels and flock rebuilding remains off the table, then the export lamb slaughter could increase by one million versus where this season is expected to wash up. 

Historically, a lift in lamb numbers could be viewed as negative for farm gate prices, pressuring prices as supplies peak in summer. But more lambs this spring shouldn’t be viewed as a negative considering the strong gains made in the export markets this season. This level of demand from our key markets is expected to flow into the 2021-22 season, suggesting markets can absorb more lambs without pressuring prices beyond seasonal fluctuations. 

Average export values bottomed out in 2016 at $7.94/kg. Year-to-date they are already averaging $10.61/kg, with more growth expected in the coming months. 

A lift in lamb numbers into the new season, and potentially higher export volumes, gives us the scale to remain competitive within the global market. 

Australia is realising just how profitable the export lamb trade is and is future-proofing by rebuilding flock numbers with speed. Aus is forecasting a rebound in lamb exports, lifting from 264,000t last year to an expected 330,000t by 2023. Over the past five years, NZ’s annual lamb exports only reached a peak of 318,000t, and are forecast to barely scrape over 300,000t this season.

As our main competitor in the lamb export market initiates a large-scale flock rebuild, we risk losing our export advantage to them. There will come a time when productivity gains in the NZ breeding flock and favourable weather conditions through lambing will no longer be able to compensate for the diminishing ewe numbers. Initial findings suggest success this spring, but data has shown, there has never been two consecutive years of upside to the lamb crop tallies.

To ensure critical mass in the export environment, and for NZ to have the ability to service key markets year-round and benefit from growth in export values, change must happen. Unfortunately, the year-on-year lift in lamb returns doesn’t seem enough to convince farmers that rebuilding the breeding flock, even partially, has merit.

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