Wednesday, December 6, 2023

Be realistic with lamb price expectations

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Prices will pick up through the early part of the season, as they usually do, but producers would be wise not to let this go to their heads as they look deeper into the year.
Prices into China are tracking sideways as summer conditions heat up and there’s still plenty of inventory to consume.
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As we knuckle down to winter mode, lamb traders are starting to gather some pace on securing numbers to see them through the rest of the season. There is an expectation that lamb slaughter prices will start to show solid upside in an attempt to recreate the pricing trajectory of last season. 

Delving deeper into this theory shows immediately that this could be a tough ask. And this isn’t just a hunch, but rather reflects a wad of data that shouldn’t be overlooked in favour of merely anticipating a repeat of pricing upside this winter. 

There have been some subtle lifts in asking prices for lamb from key markets in recent months. While prices are looking healthier than last October, they are far from breaking records. Average export values for New Zealand lamb sold into global markets last month came in at $10.90/kg. 

This is not bad when comparing to historical data for this time of the season. However, lining it up with last year’s values shows a vast difference. A little over 12 months ago, NZ exporters were receiving on average $13.60/kg for lamb into global markets. To put it in perspective, March 2022 values were the best it got with values succumbing to weaker demand over the remainder of 2022. 

Current returns are still recovering from the slide in demand witnessed last year. The current softness is not a reflection of our product losing quality but simply that we have lost the attention of some consumers, whose back pockets are no longer bulging with excess cash. 

Softer export returns are already being factored into farmgate prices. Slaughter prices are currently $1/kg behind where they were this time last year, but they are similar to what we were receiving back in autumn 2018 and 2019. Typically slaughter prices lift $1.25-$1.55/kg between May and October. Given the much lower starting point, a push to over $9.50/kg is a far steeper climb than we have endured before and currently remains out of reach.

For slaughter prices to continue to lift, ultimately overseas pricing for NZ lamb has to pick up from where it is currently sitting. The question is whether overseas demand has the stamina to support the lift in farmgate returns many are banking on. Global markets are stable right now and exporters appear positive. But there are some underlying concerns about the strength of lamb demand in the face of global economic turbulence. 

Key markets are mixed with varying levels of movement. China continues to take the bulk of our lamb exports with their market share by volume lifting to nearly 50% this season. But we’re still awaiting a further boost to their demand as covid restrictions subside. The slowing pace of their economy may stretch that time frame out.

Key indicator cuts into China have improved this year, but prices are currently tracking sideways as summer conditions heat up and there’s still plenty of inventory to consume. 

Typically, average export values for lamb continue to lift through winter to peak in October. Against a backdrop of weaker consumer demand, that upside will be softer than what we have witnessed in the last two years, even allowing for favourable currency rates. The expected drop in NZ lamb production through winter will provide some procurement leverage domestically. But with less fat in the system now, it will need to be recouped somewhere down the track, most likely into the new season. 

Despite these concerns, pricing upside through this part of the season is inevitable, but the key is to be realistic this winter, otherwise the chance of securing reasonable margins will be very tricky. 

This article was written by AgriHQ analyst Mel Croad. Mel’s reports provide key insights into what makes our sheep and beef markets tick. Subscribe to AgriHQ reports here.

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