Sheep farmers are well versed in what happens to lamb prices as the new season gets underway. However, this year that usual downside is gathering speed before processing supplies even start to surge.
The key drivers of the current pricing situation are similar to a month ago, but the tone is decidedly weaker. Since the start of October, pricing downside has been prevalent in China – our largest market for lamb.
While New Zealand hasn’t been saturating the Chinese market this year, 52% of our lamb was shipped last month, as the market weakened – the highest for an October month since 2019. Some of that volume may have been an overhang of sales completed at better prices in September. But where the concern lies is if these volumes continue to increase, with no visible improvement in prices.
Typically, we can count on good in-market support anywhere between October and December as buying for Chinese New Year ramps up, but it’s been deathly quiet on that front. Although there is still a window of opportunity for a short burst of buying, it’s not looking promising. This stems from significant stocks in China and a lack of consumption to readily absorb them.
There has been plenty of discussion about the disruption Australia is causing to export returns. But the interesting feature of the Australian lamb export market is volumes are almost evenly distributed among key markets. In the past three months Australia has exported a total of 94,000 tonnes of lamb versus 60,000t from New Zealand. Its four largest markets have each taken 20-23% of that total.
In comparison, New Zealand exports remain heavily weighted to China, which over the same period has taken 47% of our total lamb exports. The next largest share falls to the European Union market at 15% and then a combination of our “other” markets that absorb 14%.
Beyond that and we are looking at market shares of below 10% to individual markets such as the United States, United Kingdom and Middle East. It’s not surprising that market returns have unravelled hard and fast when our largest market is not preforming to the level we have become accustomed to.
There is no question that the higher concentration of Australian lamb on the export markets this year is having an impact on pricing, especially in this current economic environment. Average export values for Australian lamb plummeted in March, sliding below NZ’s levels. Further pressure was felt by both markets from July, but NZ’s export values still managed to hold that advantage. However, if Australia continues to offer more for less, then ultimately NZ’s exports values will remain under pressure.
The last time lamb slaughter prices averaged below $7/kg in November was back in 2016. It’s easy to understand why you don’t have to go far to find a disgruntled sheep farmer. It’s extremely disheartening position to be in at a time when on-farm costs have sky-rocketed. Worse still, most know farmgate prices still have some way to fall before the bottom is reached.
AgriHQ’s November Livestock Outlook does indicate the possibility of a sub-$6/kg price occurring in early 2024. But if recent history has shown us anything, it’s that once below $6/kg, prices don’t stay there for long. It also means that buying opportunities will arise as inevitably store lamb values mirror slaughter prices.
In 10 out of the past 20 years, lamb slaughter prices have bottomed out in March before showing upside. That still seems a long way off but, taking a positive approach, it does indicate that there is light at the end of the tunnel.
We are currently in the part of the pricing cycle that no one likes.
Clearly work needs to happen to re-establish our position as a price leader – this is a tough ask in this current pricing environment, but is it out of the question? More importantly, we need to look beyond the immediate market downfall and be ready to capture those opportunities when they do return.
This article was written by AgriHQ analyst Mel Croad. Mel reports provide key insights into what makes our sheep and beef markets tick. Subscribe to AgriHQ reports here.
In Focus: The dire state of sheepmeat returns
Senior reporter Neal Wallace joins Bryan to discuss the latest sheepmeat trends (skip to 1:35 minute mark).