Tuesday, December 5, 2023

Where will store lamb prices end up?

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It’s not looking like a bumper start to the season for lamb or mutton, with export prices and competition between processors softer than usual for this time of the year.
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In some parts of the country docking and tailing crews have been busy for weeks, with tallies pointing to exceptional lamb survival. With lambing only just getting underway for the higher country farms, it is hoped a return to more settled weather will encourage similar results. 

The focus is now shifting to the season ahead and, more importantly, what those lambs will be worth. 

It has not shaped up as a spectacular year for lamb or mutton prices. With overseas markets not banging down the door to secure supplies of New Zealand lamb, export prices and subsequently competition between processors have been softer than usual for this time of the year.

The latest data confirms the state of the export markets for lamb. The average export value (AEV) for August dropped 50c/kg between July and August to land at $10.40/kg. AEVs haven’t been this low since April 2021, which was just before markets started to rally in the covid recovery phase. 

August values were over $1.40/kg lower than June and $2.40/kg lower than August last year. This significant drop in values is the key reason underpinning much weaker farmgate returns in recent months. Export returns through September haven’t shown any solid upwards movement either, with prices instead holding.

Lamb slaughter prices started the new 2023-24 export processing season on October 1 at just over $7.00/kgCW, which is comparable to 2020 and 2017. Time is running out for much more upside before prices start their seasonal descent towards Christmas. While negotiations are well underway for the Christmas chilled market, there are still opportunities for increased demand from China as they secure supplies for Chinese New Year. But that is likely to coincide with higher production out of NZ, limiting any pricing upside.

The likelihood of a drier summer for some regions, combined with additional lambs on farm, means the flow of stock into processors will lift from November and likely remain high. 

Rain last week relieved some immediate feed pressure in some eastern regions. But to buffer the higher stock numbers and maximise growth rates pre-weaning, rain and warm temperatures will need to be the alternating forecast. El Niño has been known to deliver cold spring conditions, which would be counterproductive.

AgriHQ’s September Livestock Outlook report points to lamb slaughter prices tracking at an average of $6.80-$7.00/kgCW through November and $6.60-$6.80/kgCW in December. These forecasts are reviewed monthly and subject to change depending on evolving export market conditions and slaughter rates. However, they provide a good starting point to gauge store lamb values, given the strong connection between the two. 

Store prices as a percent of schedule are at their lowest between December and February, reflecting a general lack of store demand due to usual summer conditions and slaughter prices hitting their low point. 

In the paddock, 25-32kg male lambs average 45% of slaughter prices through November. This would place them at $3.05-$3.15/kgLW, based on the latest AgriHQ Livestock Outlook report. This is 50-60c/kg lower than November 2022. In December the correlation eases back with the store prices only tracking at 44-45% of the farmgate price reflecting softening market signals. That would reduce store lamb prices to average $2.90-$3.05/kg. 

If November/December slaughter prices dip lower than our current expectations, there will be additional downside on store prices too, unless there are regions in a position feedwise to take a punt. 

Last year store prices were even weaker relative to slaughter prices as market conditions unravelled hard and fast. A stable, albeit lower-priced market for lamb means farmgate prices are not forecast to plummet like last year. But weather could be the wild card this spring/summer, which could have a greater influence on prices and that will need some serious consideration.

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