Saturday, December 2, 2023

Good sheep meat prices will last

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Despite global trade wars, Brexit and the impact of African swine fever the trade fundamentals for New Zealand’s sheep meat sector remain among the strongest in living memory.
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Spring lambs at $9 a kilogram and record high mutton prices are not a flash in the pan, Beef + Lamb chief economist Andrew Burtt and senior insight analyst Ben Hancock say. 

And the fundamentals leading to record highs in the sheep industry look set to continue for at least the next three years. 

Burtt said the uncertainty that has defined recent years in the international trade environment and geo-political relationships appears heightened but daily occurrences creating ambiguity in forecasts and risks are not lining up with the fundamentals.

“While AFS is a factor it is the biggest thing that has happened in meat protein circles in last 10-15 years and with pork consumers one sixth of the world’s meat consumption it is significant but at a micro level for sheep meat. 

“Brexit – who knows what’s going to happen there and then the trade wars between China and the United States, all factors where there could be some volatility,” Burtt said.

But the key driver of the buoyancy in the sheep industry goes beyond all three of those factors.

“The actual drivers started back in the 2016-17 season from genuine growth in demand and global population growth.

“China has been taking a lot of meat for the past few seasons, well before ASF.”

The high demand for mutton from China has extended to demand for value cuts of lamb with increased competition for them benefitting the lamb price at a time when Britain, traditionally a significant market, has been in a weaker purchasing position.

“The demand for red meat protein is still there, underlying demand is good and strong and those fundamental drivers are not diminishing despite the ASF noise we are hearing at the moment,” Burtt said.

Hancock said the high export sheep meat prices have been driven by Chinese demand because of growing and solid demand rather than disruption to Chinese production of other proteins.

Disruptions to Australian production and tight NZ supply support demand for NZ sheep meat despite trade uncertainty in Europe, Hancock said.

“The main drivers of the current high prices at the NZ farmgate are being driven by genuine higher demand out of China and these drivers are expected to grow in the short term.”

Disruptions from drought, rain and fires in Australia are playing into NZ’s hands.

With the Australian flock rebuilding as weather conditions permit, the number of lambs and adult sheep processed will fall 9% and 28% respectively as the national flock lifts 4%.

Australia’s tighter supply will have an influence on international trade with Australia and NZ accounting for more than 70% of the international sheep meat volume exported. 

“Markets have strengthened and deepened over the past five years and while China is a market that matured really quickly, the US is a premium market growing in value and volume.

“It’s a good market and a niche market and third largest by volume,” Hancock said.

One of the great strengths of the NZ sheep industry is the diversity of market demand.

“The strength for NZ is its ability to meet demand for specific product to fit the cuisine demands of specific countries.

“Exporters have done a lot of work to produce case-ready product to feed into food manufacturers and consumers as product for various, often niche, purposes and overall this feeds value back to the farm gate.”

So is the NZ sheep industry buoyancy sustainable?

“The drivers over the next three years indicate the current industry buoyancy will continue given the global demand for protein, highlighting the underlying fundamentals of the key driver being demand, with ASF coming on top of that,” Burtt said.

But the challenge for individual farmers and processors will be keeping the right balance of production.

“Given all that – now and over the next few years is a good time to invest for the future,” Hancock said.

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