Despite supply chain challenges and processing delays lamb export prices have soared to an unseasonal all-time high.
Continuing the run of record high monthly lamb average export values (AEV) since August last year, AEV reached $13.49 a kilogram for March.
This is the highest ever recorded.
Both chilled and frozen AEV reached NZ$20.67/kg and $12.52/ kg, respectively.
AgriHQ analyst Hayley O’Driscoll says historically it has only been chilled lamb that has been able to reach an AEV of more than $12/kg.
She says frozen lamb typically makes up between 70-85% of New Zealand lamb exports.
“This is really what is supporting high farmgate prices and interestingly this record high AEV has occurred during the month where NZ lamb typically experiences its lowest price for the season.”
March lamb production at processing plants was significantly impacted by Omicron isolation requirements and staffing shortages.
This limited export volumes with March recording only 30,850 tonnes, the lowest export volume ever recorded for the month of March and 658t below the previous low in March 2018.
O’Driscoll says less lamb being exported from NZ and Australia, as well as reports that cold storage volumes in Europe and the US are much lower than normal, is driving values up in these markets.
“Now that their economies have reopened, demand from the US and Europe for higher valued cuts continue and are supporting record high prices.”
One issue for NZ exporters is being able to take full advantage of these higher prices and strong demand.
As well as the Omicron disruption, processors have been struggling all season with a shortage of skilled butchers and have been unable to fully meet the quantities of higher value boneless cuts requested with some meat companies selling more lamb as full carcases.
“Interestingly this record high has occurred during the month where NZ lamb typically experiences its lowest price.”Hayley O’Driscoll
Last year when China was paying a higher price for carcases this was a good option, but the price has since weakened and exporters are noting a further softening on carcase prices because of the lower demand coming from China due to lockdowns and shipping disruptions.
“Typically, the lamb AEV increases each month from March peaking at the end of the season, whether this is the case this season will be interesting to see given March’s AEV is almost $3.90/kg above March 2021 and the five-year average for March.”
Indications that there is still a sizeable number of lambs on farm that will be heading to slaughter in the coming months could also mean that large supply could temper price expectations for the rest of the season,” O’Driscoll said.
Meantime, fewer lambs are waiting to be killed and there is a sense that processors have almost caught up with the backlogs.
Prices are bumping up a little and most processors will be paying between $8.20-8.40/kg this week.
As processors catch up and space becomes available, more fluctuation is expected in the lamb price.
Despite export volumes to the EU and UK remaining subdued, RaboResearch anticipates farmgate lamb and mutton pricing will hold steady at least through May.
Rabobank analyst Genevieve Steven says on a positive note exports to the US in March were up 47% with strong demand from the US for Easter lamb. This is an encouraging sign in the lead up to grilling season that the US demand for NZ lamb through 2021 is likely to continue.
However, while strong demand from key markets continue to underpin high export earnings, it will come back to what consumers are willing to pay.
“With inflation reaching 8.5% in the US in March, consumer willingness to pay could be tested,” Steven said.
Overseas markets remain complicated with China’s management of covid one to watch.
“With widespread lockdowns in China, the key question is how long will they last?
“A significant downside price risk remains if Chinese lockdowns continue for months as opposed to weeks, with a risk of lingering impacts on the Chinese economy.
“We will be monitoring the situation closely, particularly in the lead up to the winter months when sheepmeat consumption is highest,” Steven said.