Prime lamb farmgate prices have fallen 50c/kg in the past three weeks, reaching a level where for the first time in 20 years average July prices are lower than those paid in June.
Lamb prices are being driven lower by bulging inventory in China, high export volumes from Australia and the fact that global consumers are not spending.
With no immediate improvement in sight, meat companies are reluctant to predict where new season schedules will open.
AgriHQ senior analyst Mel Croad warns those opening prices in November could be below $7/kg, equating to $40-$45/head lower than the previous two years.
North Island prices this week are $7.20/kg but in the same week a year ago they were $9.10/kg. The South Island lamb price this week was forecast at 7.30/kg compared to $9.20/kg this time last year.
New Zealand exporters were making sales last month, albeit at low prices, but such is the speed at which prices are falling, Croad said, buyers are reluctant to commit to purchases.
She predicted a year ago that the Australian sheep flock was recovering after successive droughts, leading to higher lamb export volumes; this is what is happening.
Last month Australia exported 28,000t of lamb, 8000t more than NZ.
Following three years of above average rainfall, Meat and Livestock Australia reports the sheep flock has hit 78.75 million, its highest level since 2007.
Of that, breeding ewe numbers are 46.14 million.
Lamb carcase weights this year are 7% above the 10-year average at 24.70kg.
Annual lamb production this year is estimated at 540,000t but expected to increase next year to 548,000t before falling to 537,000t in 2025.
It predicts lamb prices to the end of September to increase 4.5% or 24c from its current level to AUS553c/kg, but the National Heavy Lamb Indicator, lambs greater than 26kg, is expected to increase 39c/kg to AUS569c/kg.
Keeping an anxious eye on the prices are Ashburton farmers Richard and Mariana Sim, in their first year taking up the reins of the family farm.
The couple finish several thousand lambs as part of their 250ha cropping and livestock finishing operation, and have fingers crossed for some upside in the lamb market when they come to sell lambs in spring.
Potentially, Sim said, he may be lucky to break even, expecting to lose $30-$40 on last season’s returns for his autumn bought lambs.
“There’s not much upside in the signals at this stage, with quite a few headwinds and not looking so good around cashflow but it could all change in a couple of months, we just don’t know, but it is a concern,” Sim said.
AFFCO chief executive Nigel Stevens said prices paid for NZ sheepmeat in China between January and May this year were 31% lower than for the same time last year.
As China emerged from lockdown earlier this year, importers built up stocks but the expected consumer demand didn’t materialise as people replenished their savings and were apprehensive about the future.
Food service in China is especially hard hit, with turnover down 30% and consumers buying cheaper products and eating smaller dishes.
Stevens hopes the market has bottomed out but such is the market volatility he cannot say what will happen for the rest of this season let alone the start of next season.
A Silver Fern Farms market report notes global sentiment remains negative with buyers and markets selective in what they are buying.
“China remains saturated with a continuous flow of cheaper Australian product entering the market leading to high inventories and continuing to undermine NZ pricing.”
The flood of Australian lamb is also impacting North America and the United Kingdom, with prices falling and demand static. Demand from the Middle East, however, is steady.
Alliance Group’s interim and livestock shareholder services manager, Murray Behrent, said Australian exporters are paying about $AUS5.60/kg for animals which they are selling for about $2/kg less than NZ.
“They’re not dumping product but buying it cheaper and selling lower than NZ product.”
In recent years exporters could with some confidence make market projections six months in advance, but such is the uncertainty, Behrent said it could take some time before inventory levels are depleted and markets recover.
ANZCO supply chain manager Grant Bunting said a company lamb contract “with an eight in front of it” was heavily oversubscribed, indicating an abundance of prime lambs still to be killed.
The company will honour the contract even though the market is closer to $7, but Bunting said industry estimates are that the season kill could be 300,000 to 400,000 lambs behind last year.
“That’s a lot of lambs to be behind year on year when we are sitting in July.”
With the market easing and the bobby calf season about to start, he warns of space restrictions that could have lamb price implications for suppliers.