After pushing to near record heights, lamb prices have very quickly spiralled downwards and unfortunately mutton is also following suit.
The pullback in prices has been global and has occurred almost simultaneously.
Key markets such as Europe, the United Kingdom, the United States and China are all displaying similar trends. This is the core issue driving prices lower.
In other years at least one market could be called upon to move product to, balancing out the downside elsewhere.
That market was usually China, but it can’t be relied on as a backstop this time around.
Its staunch position on eradicating covid has weakened its economy, causing restaurants to close as the country yo-yos in and out of lockdowns.
This reduced consumption means stockpiles of lamb cuts are building.
Yet in the 12 months to September 30, New Zealand’s shipments of lamb to China had fallen by 40,000t year-on-year.
There is a sense that we are returning to the pre-covid days, when the bubble of demand that pushed prices to record levels is quickly evaporating.
After being cleaned out through the early covid lockdown days, global markets scurried to rebuild pipeline supplies to establish greater food security.
This helped drive prices significantly higher. But now consumers aren’t absorbing the supplies like they were.
Cost of living and inflation have seen consumer spending reeled in, especially on high-priced cuts such as lamb.
The economic pain in China due to its covid-zero policy is also reducing demand for lamb but hitting lower priced mutton equally hard.
Only eight weeks ago, export markets for lamb and mutton were still okay.
There had been indications that prices were starting to struggle against falling demand but that hadn’t been reflected in any pricing downside.
But since then, the pressure has really come on and the speed at which in-market prices have unravelled has caught many by surprise.
This has seen slaughter prices for lamb plummet. Since peaking in early October at $9.60/kg across both islands, prices are currently almost $1/kg lower. This is the result of widespread weekly downside of at least 20c/kg for lamb and up to 30c/kg for mutton.
According to AgriHQ’s November Livestock Outlook, that downside is far from over. By Christmas, lamb prices are forecast to be under $8/kg. Even that figure is subject to change, depending on if we see a further deterioration of export demand and pricing.
We haven’t ever seen prices fall this hard and fast at this time of the year before. In 2015 we got close with slaughter prices falling at least $1/kg between October and December.
Weak demand from key markets, including limited interest from China, drove export prices lower, which immediately flowed back to the farmgate.
Back then, however, prices started falling from a much lower October peak of $6.10-$6.25/kg. They bottomed out through March/April the following year at between $4.65-$4.85/kg.
The message then was to not write the lamb job off and after bottoming out in early 2016, lamb prices did recover and continued to do so until global covid-19 lockdowns stepped in the way.
Interestingly, we are facing many of the similar drivers now as we were back then. Christmas chilled trade and Chinese New Year buying are barely registering a mention. Exporters face a very challenging period as deteriorating market conditions mean some deals are being renegotiated just as production seasonally ramps up.
While the current downside is a real blow to the bottom line, those that tough it out will find global lamb prices will reach a point where they encourage buyers back to lamb, allowing demand to build and prices to recover. AgriHQ’s current outlook points to further pricing downside into early 2023 but at levels that still remain historically strong.
