Last season, adverse weather conditions exacerbated already falling production levels, resulting in New Zealand’s lowest lambing percentage in 55 years.
According to data from Beef + Lamb New Zealand (B+LNZ), just 25.11m lambs were tailed in spring 2010, a massive 2.8m drop on the year before. Export lamb slaughter plummeted as a result, falling from an already low 20.9m head to just 19m head – their lowest level for 49 years. For the year ended 30 June 2011, lamb shipments were down 15% to 263,000t.
This shortage of supply, against a backdrop of strong global demand, meant that lamb prices soared, giving strong returns to New Zealand farmers. Lamb prices averaged at $116 per head for April 2011, a 53% increase on the $76 per head seen the April before. High prices at farmgate were reflected in export price, with the EU price per tonne up 16% on the previous year, while frozen prices increased 17% and chilled prices rose by 15%.
These high prices were a welcome turnaround for New Zealand’s sheep industry, which has suffered from consistently low prices over recent years and is experiencing a mass exodus to dairy farming as a result. They were less welcome in the markets, however. According to leading processor Silver Fern Farms, lamb market prices increased by as much as 90% during 2011, exceeding the price of domestic lamb in a number of key export markets and leading to a decline in sales and consumption.
Stephen Clapham, manager of AFFCO Europe, notices a similar trend. “It has been a bit of a rollercoaster ride,” he says. “We obviously had the issues of the shortage pushing prices up to very high levels last year, which we all understood and accepted were probably unsustainable in the long term. This year, there has been some consumer resistance, not just in the UK but worldwide.”
The decline in consumer demand has resulted in higher-than-normal in-market stocks, particularly of frozen lamb, which is leading to some buyer resistance in 2012 and putting downward pressure on prices. “We have seen quite a turnaround at the start of this year, something that lamb has been a bit immune to over the past 18 months or so because of short supply,” says Brian Johnston, general manager of New Zealand Farmers. “Frozen commodity prices have fallen quite sharply – maybe as much as 20% on some products. Product is available, but stockholders and the supply chain have their own product that they cannot move, so they don’t want it.”
Johnston predicts the market will eventually balance itself out, however. “There will be a point at which prices find a balance – that is the nature of commodity markets,” he says.
Improving weather
This season, weather conditions have returned to normal, pushing lamb production up slightly, although the country is still looking at its second-lowest lamb crop for 55 years. B+LNZ Economic Service’s annual Lamb Crop Survey for spring 2011 shows the number of lambs tailed was 26.51m, which is 1.72m more than last season, but still the second-lowest crop since 1956. B+LNZ Economic Service director Rob Davison says that while weather at peak lambing allowed lambing percentages to recover slightly from last year’s lows, other factors still threaten production levels.
“The national average was 119 lambs born per 100 ewes, compared to 110 lambs per 100 ewes last year — a nine percentage point lift,” he says. “However, offsetting the increased numbers of lambs born per 100 ewes was a 2.5% decrease in the size of the country’s breeding ewe flock. This reflects the continuing expansion of the dairy herd and last season’s strong mutton prices, which encouraged a higher-than-usual cull of poorer-performing ewes.”
Low production levels will limit the amount of product available for export in 2012. “The number of prime lambs available for export this season is estimated to be 20.6mn. While that’s 1.3m head more than last season, 2010-11 saw a 49-year low in the number of lambs processed, with this season shaping up to be the second-lowest in 49 years,” says Davidson.
Heath Milne, general manager at Anzco Foods UK, warns that current export slaughter levels are actually behind these predictions, potentially posing a threat to the global Easter trade. “Supplies in NZ are still very tight and the production numbers are actually behind this time last year, which was the lowest kill in a generation,” he says. “The prediction from Beef + Lamb New Zealand is that overall numbers are going to be higher than last year, which leads us to think that there is still quite a lot of kill to come, but that it is going to come later in the season. We therefore think that supply is going to be very tight for the Easter trade.”
Several factors are contributing to this delay in slaughter, he adds. “First of all, there was a very kind winter in New Zealand last year, so they started the season with very good growth and that has meant farmers have been holding on to lambs in the early part of the season and putting more weight onto them.
“Secondly, it has been getting quite dry in the southern part of New Zealand of late, so a number of lambs have had to be shifted out as store lambs, as opposed to being finished, which means they won’t be ready in time for that Easter trade.”
With Easter demand expected to be strong in the UK and other markets, this could pose a problem for exporters, although Milne does not expect prices to be affected too badly. “Pricing for Easter will be affected by the lack of supply, but we are anticipating that more product will come in later, which will keep prices from going through the roof,” he says.
Carcase weights are predicted to average 18kg in 2012, down 1.4% on last season’s record high of 18.23kg due to more lambs around to finish. Overall, lamb production on a carcase weight basis is expected to increase 5.3% to 369,000t and the lamb crop is expected to generate $2.9bn in export receipts – $100m more than 2010-11.
Strong demand
Looking past Easter, Milne predicts that low lamb supply will continue to be an issue for the global market. “It looks as if the supply is stabilising, so we wouldn’t anticipate as much volatility in supply that we have seen in the past,” he explains. “However, the global demand for protein continues to increase, despite the economic climate, and so competition for the limited supply we do have is set to remain.”
Johnston agrees that supply will remain limited in 2012, pointing out that even with 1.3m more lambs on the market, export numbers for 2012 will still be well behind the 26m lambs seen three or four years ago. “We won’t see any markets — be it the UK, mainland Europe or North America — become suddenly awash with product. It is just not there,” he says.