Monday, February 26, 2024

Pressure on processors as stock flow slows

Neal Wallace
Farmers holding back lambs to take advantage of lush pastures.
Australian farmers who sold prime lambs through the yards – much more common than in NZ – have watched prices fall in the past month, at a time when the market is usually lifting. File photo
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Alliance and Silver Fern Farms are reviewing processing capacity and working week to week to fill orders due to slow stock flows as farmers utilise an abundance of feed to take lambs to heavier weights.

The slow season is affecting all processors, with many plants working short weeks and some companies airfreighting lamb to meet chilled orders that could not be filled in time to meet shipping deadlines.

Silver Fern Farms chief executive Dan Boulton said the company is adjusting processing capacity.

“We have to adjust our operational footprints accordingly and have had some shorter weeks with reduced operating capacity.

“This is challenging, but SFF is focused on preserving our workforce through to the bovine processing peak, particularly as our labour situation is positive compared to the same time last year.”

Alliance chief executive Willie Wiese said he understands why farmers are retaining lambs, but they are gambling there will be sufficient capacity later in the season.

He said this season is a challenging balance of matching processing capacity with stock flows and filling orders.

“If we can’t efficiently fill capacity and we have to base it on the flow of livestock, then we may have to take capacity out.”

AgriHQ senior analyst Mel Croad said the North Island lamb kill to January 13 is 177,000 behind the same point last year and 380,000 below the five-year average.

The South Island kill is 5% or 140,000 ahead of last season.

Alliance took a financial hit in its last financial year when it employed staff early at its Lorneville plant due to forecast dry weather, which never eventuated.

Croad said some plants that are working short weeks are struggling to retain staff who are leaving for more reliable jobs.

She said questions are being asked if the forecast lambs are out there.

New Zealand is heavily reliant on China, which takes about half our lamb, compared to Australia where, she said, its top four lamb markets take about equal volume.

NZ has been waiting eight to nine months for China to rebound and Croad is asking whether exporters have a backup plan should demand remain weak.

Wiese said lamb prices in NZ’s key markets have bottomed out, but he is not expecting any rapid improvement.

“It’s going to be a slow period of increases. I don’t see any big jumps at all.”

Prices for some select cuts are rising in China but a 40% decline in the price of pork has created stiff competition. 

Wiese has just returned from the United Kingdom and Europe and said 50%-plus increases in energy costs are soaking up disposable income.

UK food service and hospitality are also under pressure, with the number of restaurants declining 3.6% in the past year and expected to shrink further this year.

On the positive side, Wiese said UK and European Union stocks are low and Easter demand for lamb from wholesalers and retailers has been strong.

In his market analysis, outgoing SFF chief executive Simon Limmer said lower kills in Australia and NZ have lowered inventory, which has helped prices to firm “slightly”.

The Chinese market remains largely unchanged.

“These are small signals but [these] may indicate some green shoots for lamb, with markets starting to make all the right noises.

“Recent conversations with customers have indicated they may soon be keen to buy volumes but this is dependent on the two key upcoming consumption periods – Easter in the UK, and Chinese New Year.”

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