Sunday, March 3, 2024

Selling livestock: it’s not how you start, it’s how you finish

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With this much grass waving in the paddocks, there is bound to be a knock-on effect down the line – and it’s already showing up at the processing end of things.
Good interest followed the Albury and Fairlie on-farm lamb and ewe sales, pushing prices above expectation. Photo: Annette Scott
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New Zealand’s livestock markets are hugely dependant on the amount of grass in paddocks. Usually the second half of summer ranges from average to poor in terms of pricing because of this, but this year has been quick to flip in the opposite direction.

All the North Island and parts of the South Island are well-positioned in terms of pasture covers for this point in the year, often to the point where the challenge is in keeping pasture quality under control. The main exception to this rule is around coastal and central Otago and Banks Peninsula, which is starting to move into drought territory according to NIWA maps.

The amount of feed around is obvious when talking to meat companies. Before Christmas both cattle and sheep bookings easily exceeded the amount they could process on a given week. This generated long wait times for prime cattle, ewes, and lambs. Yet in the North Island holes are starting to appear on processing chains already and slaughter prices have almost stabilised for the first time since October. It’s less noticeable, but similar, in the South Island too.

But the biggest change has hit the store markets, with feed availability fuelling prices and driving concerns about future margins. Lambs have often been trading in the mid-$3/kg range. In isolation this doesn’t seem all that impressive, but considering the amount of money being paid by processors currently, this makes them among the strongest selling we’ve seen for this time of the year.

Last week store lambs around 32kg were trading at 48-49% of schedule in the paddock. This is the second-highest level recorded in January over the past 10 years. This means that, on average, those purchasing a 32kg lamb are paying $8-$9/hd more than you’d expect, relative to current slaughter prices. There is a big disconnect between store and slaughter prices right now, with little consideration as to where that slaughter market might be at finishing.

Considering slaughter prices are rarely over $7/kg and are likely to ease further through the rest of summer, that’s going to mean buyers will either have to accept a smaller margin or balance the books by holding onto these lambs for longer to weight-gain per head prices. Which begs the question how this will influence markets going forward. In all likelihood we’re on track to have another big late-peak season/off season kill. The store market could get warped a little, too, through autumn if usual buyers are instead inactive due to pushing lambs bought now to bigger weights.

It’s not just store lambs that are flying high. The paddock market for heavy R2 steers is going strong too. Last week these were trading at 61-63% of schedule on straight-beef types, a good four percentage points above what is typical for this point in the year. If anything these figures are slightly undercooked too, since the yards and on-farm sales have posted much stronger results, and limited volumes are moving via the paddock currently.

Again, this could have a big influence further down the line. Plenty of these cattle will have to be taken to big weights if finishers want to make a meaningful dollar on their trade. It’s not been uncommon for some R2 store cattle to trade for more per head than current prices being paid out by processors for 300kgCW steers.

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

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