The trading/finishing game has been red hot through late winter. In stark contrast breeding stock appear to be falling out of favour as trading and finishing taking preference. It’s not hard to see why, with the way the market has moved in recent months. The march of forestry has had a significant impact on breeding numbers in recent years. 

Breeding is a long game, raising the potential to miss heated market movements. But it remains a crucial cog in the wheel. Without breeding numbers, we will continue to fight for store stock, therefore pushing prices beyond sustainable levels. Unfortunately we are now playing catch up in terms of understanding just how many breeding stock units have disappeared.

Beef + Lamb NZ’s recent stock survey report indicated in the last five years a decline of 140,000 breeding cows. Expanding that to 10 years for sheep, and we have seen a decline of 5.4 million breeding ewes. This ultimately means lower calf and lamb crops every spring which flows through to less store stock and therefore lower production and exports. 

We have seen the ramifications of reduced stock numbers versus demand this year. Some will argue that lower stock numbers will naturally increase returns. Domestically maybe, but we are bordering on becoming a niche global player for lamb and barely holding on to a top-five spot for beef exporting. Our ability to influence global market prices is reducing as quickly as our breeding base. 

We only have to look at the growth of Australia’s livestock industry in recent years to understand we are quickly moving in opposite directions.

Australia’s sheep flock is currently at a 17-year high of 79m head, bolstered by significant growth in their breeding numbers, sitting at 49m –2024 will stand as the largest lamb slaughter year on record at 27.7m head. Even with some expected flock consolidation, lamb slaughter in 2025 and 2026 will be larger than the preceding 19 years.

A larger flock, coupled with advancements in productivity has placed Australian lamb producers in the box seat, meaning they are well positioned to capitalise on forecast global demand growth. It’s much the same for Australian beef. Although cattle numbers peaked in 2023, the cyclical nature of production means slaughter rates won’t peak until 2025. This means elevated production and exports in the short to medium term and once again the ability to capture any opportunities that arise.

More: Subscribe to AgriHQ Livestock reports to receive the full report. Key points discussed in the this week’s North Island report include: beef and lamb projections in New Zealand and key international markets such the UK, the US, Australia and Asia.

In Focus Podcast | A new strategy for advocacy

AGMARDT and KPMG have released a report that offers a new way of organising our advocacy networks. Common Ground assesses the positives and negatives of the advocacy groups we have now and sets out a strategy that could improve the collaboration and messaging emanating from the farming world. AGMARDT general manager Lee-Ann Marsh joins Bryan to discuss the report.

Winter is usually traversed in quiet, orderly fashion. Those who opt to offload finished stock through late winter are the minority but are duly rewarded for their hard work. This year, however, the winter market has been anything but quiet, especially when viewed in $/kg paid for stock at both the store and slaughter level. 

Falling slaughter supplies are the key reason market conditions have changed so quickly. The store market has reacted swiftly to the steep climb in slaughter prices. Buyers have fought hard to secure lambs or cattle with early finishing capabilities. 

There is an underlying assumption that if the slaughter market is this strong now, it can only lift higher from here, since spring is when slaughter prices usually peak. 

If the current upside was derived from a widespread lift in export prices, it would be easier to justify a continuation of these strong slaughter prices. However, the market is quickly feeling unsustainable due to it being heavily procurement driven. 

It needs to be reiterated that these sudden higher prices are only covering a very small portion of the kill and wouldn’t have eventuated if slaughter rates hadn’t fallen off a cliff.  

AgriHQ’s Livestock Outlook report for August delves deep into the drivers of current prices, providing insights into where the market is expected to track through to January, encompassing the crucial start of the new season. 

It’s hard to get the message across that the key driver has been domestic competition. After a dismal 12-18 months battling shockingly low returns amid fast-paced cost increases, any upside has been welcomed, but not questioned.  

The concerns raised in the recent report highlight what happens when supplies in New Zealand do start to lift and procurement competition disappears. 

Meat companies will see a lift in volumes between now and December. Key markets are very aware of the cyclical nature of our slaughter rates and will adjust prices accordingly when we have more to offer. This will lead to downside for slaughter prices – the level of which will be determined by how long and hard meat companies compete until they have the numbers they need. 

Breeding farms need to factor in current market movements as they will impact returns, particularly new season lamb’s prices. 

The more money meat companies punch into schedules now because of procurement, the thinner returns will be early in the new season. 

Last December lamb slaughter prices averaged between $6.15-$6.25/kg, which was a kick in the guts. Despite current returns being much stronger, AgriHQ’s latest outlook for the new season shows some improvement on December 2023 levels but nowhere near enough to encourage growth in the sector. 

More: This article was written by AgriHQ analyst Mel Croad, whose reports provide key insights into what makes our sheep and beef markets tick. Subscribe to AgriHQ reports here.

In Focus Podcast | Costs bite for farmers but data driving decisions

New data from Farm Focus highlights the significant financial challenges farmers have faced over the past year. The agri-business software platform supports $9 billion in farming annual income, an analysis of which paints a clear picture of what farming businesses are facing. 

Farm Focus CEO Auriga Martin said farmers are increasingly hands-on with their business finances and recognise the importance of knowing their numbers and managing finances effectively.

Store and slaughter prices have skyrocketed in recent weeks, buoyed by a shortage of finished stock and a need to replenish on-farm stocking rates. 

In the past four weeks, lamb slaughter prices have lifted by 40-45c/kg and store lamb prices by 35-65c/kg, while cattle slaughter prices have lifted 25c-75c/kg over the same period. 

But the cattle market was already climbing in early June and some slaughter classes are now over a $1/kg higher than eight weeks ago. 

While lamb prices have been higher at this point before, cattle prices are in uncharted waters for this time of the season. This is in stark contrast to last year when prices were already falling on the back of weakening export demand.

Without question, local trade demand has driven the market higher since June as end users hunt for supplies to service domestic needs, sheltered from the volatility of export markets. This has unleashed procurement pressure on the market like we haven’t seen for some time. 

The knee-jerk reaction is to lift prices to entice stock into the processors, but if prices lift too hard and fast, sellers tend to sit on their hands waiting for further upside, shortening supplies even further. 

Procurement pressure can quickly add extra cents/kg if the stars align and there is a shortage of stock relative to processing capacity. Usually procurement is led by export demand, but this time the lift in farmgate prices doesn’t match what we are seeing in some export markets. 

Therein lies the key concern: although lamb and beef prices have risen well above normal in the space of a few weeks, there hasn’t been a corresponding jump in pricing from markets that focus on prime beef and lamb.

This current upside is largely being influenced by domestic forces, which has happened due to plummeting supply of stock for processing. Slaughter rates generally bottom out through the winter months but the drop this year has happened earlier and quicker than normal, catching some by surprise.

By early July, the weekly New Zealand lamb kill had dropped to 130,000 head. This represents the lowest lamb kill for this time of the season in three years. National cattle slaughter rates have also slumped well below average. Last year market conditions were quickly deteriorating, forcing a higher offload to processors to offset further pricing downside. 

Now we are seeing the opposite occur, whereby there’s a growing expectation that if prices are lifting now, they will simply continue to march higher to spring. It’s clear this is underpinning prices paid for store stock.

The rapid upside in slaughter prices has sparked life into the store markets and encouraged buyers to return to the rails and compete. In some cases, processors are competing against the strength of the store market as it pulls livestock away from them and back to the paddock. 

This has further magnified the shortage of available stock for processing. The prices paid for good R2 cattle and trade lambs means a further delay before these reach processing plants as buyers will look to pump weights to secure required margins. 

That won’t necessarily mean a continuation of strong procurement pressure. Rather, processors will be looking at when supplies are set to favour them. They have paid more for livestock versus export returns in recent weeks and at some point they will look to recoup. This will happen as supplies lift to a level that dampens the need to compete. 

This is the downside of a procurement battle. When it occurs, with no material lift in market support, it generally has a short life span and creates a volatile pricing environment.

While those with cattle will be able to ride it out for longer, the window to offload this season’s lambs is now condensed down to roughly eight weeks, with a little extra leeway for later South Island lambs. If there is no lift in export demand and lamb numbers spike, chances are prices may start to fall faster than earlier expectations.

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

In Focus Podcast | Making topsoil top of mind

A feature documentary film, Six Inches of Soil, has been screened in NZ cinemas recently. It follows three young British farmers through their first year of transitioning to regenerative practices.

The film has been brought here by regenerative farmer network Quorum Sense and its chair Becks Smith talks with Bryan about the network, the film and why we’ve been talking about regenerative agriculture the wrong way.

Anyone who’s farmed sheep for long enough will clearly remember the pinch point summer weather conditions would create at processors early each year. Weather patterns have knocked that trend on the head over the past couple of years, but it returned this year, minus the usual complaints about backlogs.

In the six weeks to late March, New Zealand processors made short work of 3.4 million lambs, reminiscent of earlier years when lamb numbers were plentiful. This was 700,000-800,000 more than same period in 2022 and 2023, when processors were plagued with staffing issues alongside favourable on-farm feed conditions. 

April saw slaughter rates interrupted by public holidays, and while May throughput started trending lower, weekly kill rates still managed to hold above average.

Higher lamb production has led to higher exports. In the first five months of 2024, NZ shipped 157,000 tonnes – a return to more traditional volumes. Given the lower production between January and May in the past two years, this supersedes those years by 12,000-19,000t.

The increased availability of NZ lamb has been readily absorbed by willing markets, many of which had been in the shadow of China in recent years. 

However, these higher volumes have moved at prices much lower than we have enjoyed in recent years. The flow-on of this is weaker farmgate returns, which continue to slink along below $7/kg.

As we have encouraged a greater uptake of lamb into our global markets, the next step needs to be rebuilding prices to a sustainable level. To drive the value of NZ lamb exports higher we need to play to our strengths and remind markets that it is quality then quantity that counts. 

We still need to ensure our sheep industry maintains the scale needed to compete globally, but we also have to reposition ourselves as price setters, not takers.

What may come as a surprise is that China still remains our largest export market for lamb, even though shipments there have declined below five-year average levels. The need to remain visible and maintain relationships within the Chinese market is necessary. Export conditions there remain subdued with only a faint hint of light at the end of a very long tunnel. But as that light brightens, being at the front of the queue will be essential to ensure we capture any opportunities that may arise. Otherwise, we risk Australia nabbing that spot.

Recent reports from Meat & Livestock Australia suggest they believe they have the upper hand in the export scene in the months ahead based on their expectation that our production and export volumes are slumping, while theirs continue to break records.

There is some truth to that statement. NZ export lamb slaughter numbers for the 2023-24 season were expected to land just over 17 million head.  Season to date, the national kill is sitting just over 15 million head. On this basis, it would leave a remaining lamb slaughter tally to September 30 well off the pace of anything we have seen in at least the past five years. 

This would lead to a considerable reduction in export volumes through to spring. While markets are showing glimpses of positivity, a drop-off in our production to drive export prices is a temporary fix. 

We have been in this space before, but it’s never coincided with record-breaking production out of Australia. 

For the first five months of 2024, Australia exported 155,000t of lamb, a 40,000t hike from normal. With weekly lamb slaughter rates continuing to spike over 500,000 head, annual export volumes will hit another record in 2024 of well over 300,000t. 

This puts Australia in a powerful position to consistently supply export markets at a price it can dictate.  

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

Farmgate beef prices are finally gathering some momentum. The return of procurement competition has partly influenced this upside as slaughter-ready supplies have slumped. 

High slaughter rates developed in late summer and stretched right through autumn. The ability to turn on capacity as needed resulted in national kill rates varying between 78,000-80,000 head per week for five weeks between April and May. Despite this, reports during early May indicated processors could have handled more cattle, especially cull cows. 

AgriHQ data shows farmgate prices lifted for all classes of cattle through May, even though slaughter rates tracked higher than the five-year average. 

The hunt for cattle has intensified in the weeks since, with prices following suit. While procurement might be influencing some of this recent upside, the intensity wouldn’t be there if there wasn’t strong support from our export markets.

When we spread the net wider, we can see that the real driver to market gains since January has been increasing export returns in our largest beef market – the United States.

The US market continues to go from strength to strength. Imported beef prices have lifted by 34-41USc/lb on average since the start of the year to be sitting well ahead of the five-year average for June. 

Whereas US imported beef prices were falling this time last year, there is currently a resurgence in buying. NZ exporters are expecting further pricing upside as our export volumes tighten into winter.

Reduced US domestic beef supplies and solid consumer demand have been driving the US beef market higher. Fed cattle supplies are set to reduce, but weekly cow slaughter rates have already slumped, pushing domestic 90CL cow prices to sit above US$3.50/lb. Over the past 10 years, this indicator has only pushed over US$3/lb a handful of times. However this year, it’s maintained a plus US$3/lb level since early February. This highlights the strength of beef demand within the US, and its ability to withstand the high cost of living while trumping other meats competing for consumers’ attention. 

To take advantage of the strong US market, total NZ beef exports there have climbed by over 20,000 tonnes to 129,000t this season. That additional beef has come at the expense of exports to China, which have fallen by 19,000t. 

This has been achieved by reducing the volume of manufacturing beef and frozen boneless cuts to China, the latter which has butted heads with cheaper Brazilian cuts.  As a result of these changing trading dynamics, the US and China now equally account for 70% of NZ beef trade (based on volume) this season.

As you would expect, other beef exporting countries desperately want a slice of the action within the US and have therefore ramped up exports to gain that advantage. Recent industry reports indicate the US hasn’t seen these sort of import volumes for nearly a decade. Yet this has failed to dampen import prices. In the past five months, at 126,000t, Australia has shipped almost double the volume to the US compared to the same period in 2023. On top of that Brazil seems intent on supplying a steady stream of beef to the US, despite now incurring hefty tariff charges.

The supply side of the equation within the US appears one-sided but fortunately the market is transversing a heavy demand period. History would suggest that US import prices will continue to edge higher to spring, given their falling beef supplies. 

This would cement a strong pricing result for those with finished cattle in spring. AgriHQ’s latest Livestock Outlook backs this up with forecasts pointing to spring prices lifting above last year and the five-year average.

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

China upping sticks this time last year threw a spanner in the works for our entire sheep industry. It was the first signal that sheepmeat prices were about to spiral downwards. 

There was plenty of expectation it would be temporary, but here we are 12 months later, battling low prices and a fragile outlook.

There has been plenty of focus on the demise of the lamb job, but mutton has also imploded. Current farmgate prices for mutton are $2.35/kg behind the five-year average for May. On a 25kg CW cull ewe that equates to a per-head loss of $59. 

Between June 2017 and January 2023, mutton prices never fell below $4/kg, buoyed by strong export demand out of China. Yet the average return at the farmgate over the past 11 months ranges from $2.87-$2.95/kg. 

The low prices for cull ewes at the farmgate are directly connected to the amount of money exporters are receiving in-market. Average export values for mutton are the lowest they have been in over five years. 

To put it in perspective, first-quarter 2024 average export values sat at $5.10/kg, $1/kg below the same period last year and well below 2022 levels when mutton was in strong demand. These lower values are completely influenced by the low prices on offer from China. China still takes 75% of our mutton despite growing concerns that market demand from China has a long road to recovery. 

Therein lies the problem. With China effectively on the sidelines, there is no market in a position to step up and demand mutton at a price anywhere near to what has been on offer over the past seven years. 

We have seen a rally in exports to the Middle East and United Kingdom this season and the values attained have been stronger than what can be achieved out of China. But the volumes are still small, accounting for 7.5% of total mutton exports this season, therefore not having any sway on what other markets will pay for mutton. 

Australia is also having an impact on the global market for mutton. Increased availability has dampened its own domestic market, meaning mutton can be sold for less into export markets while still creating a processor margin. Year-to-date, the Australian mutton kill stands at over 3 million head, 400,000 head above the same period last year, but close to 1 million head above the five-year average for this period. 

This has seen Australia outpace us in export terms, shipping nearly double the amount of mutton NZ has this year. 

Meat and Livestock Australia are forecasting peak mutton kill in 2024, as producers work to return sheep numbers to more normal levels following the earlier rebuild. All going to plan, this will reduce their presence within export markets but volumes will still be higher than through 2020-2022. 

The ban on live sheep exports from 2028, announced this week, could also impact ewe slaughter rates as Western Australian producers come to grips with what this means for the industry.

Fresh data from StatsNZ points to a significant readjustment to breeding ewe numbers in NZ as of June 30, 2023. This situation is not expected to reverse, especially given the current low returns across the sheep sector. 

Weak mutton and lamb prices flow through to low returns for breeding ewes and store lambs. Low purchase prices usually are enough to generate some demand as buyers take a punt. But the sheep industry is reeling from a lack of confidence and who can blame it after 12 months of going backwards?

There needs to be a new game plan to mitigate current losses and re-establish confidence in the sector before it’s too late.

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

In Focus Podcast: Hewett’s view from the director’s chair

Rob Hewett has been a fixture in the boardrooms of farming companies and co-ops for almost two decades. After speaking at the recent Institute of Directors leadership conference, he talks with Bryan about the importance of good governance, how a board interacts with management and how market evolution is tackled by NZ exporters.

The United States beef market is delivering some interesting dynamics that we haven’t seen for several years. After a few false starts, beef production is finally feeling the impact of years of drought-induced herd liquidation. 

Not only are cattle slaughter and therefore production volumes sliding, but US stocks of beef in cold storage – usually a useful backup –  are the lowest they have been in years.

For those in the game long enough, the current dynamics playing out in the US beef market should spark some optimism. Not since 2014 have we seen a combination of these factors driving the market. 

US beef production is on a slippery slide and there is no immediate fix. Admittedly, external volatility has shaped the global markets in recent years, making it somewhat challenging to align current fundamentals with previous years. But there is no reason New Zealand beef producers shouldn’t benefit from this firming demand period. 

AgriHQ’s latest outlook points to pricing upside in the months ahead for beef, based on these fundamentals. But as we have seen with any pricing lift, it’s not always about how long they last, it’s about being prepared for when they happen so the benefits can be enjoyed for longer. And that means early on-farm decisions are key. 

In 2014, US beef production was heading to a 20-year low amid favourable feed conditions that were the catalyst for herd rebuilding. The gap in US production made way for higher supplies from overseas, while still supporting a strong run-up of both domestic and imported beef prices. 

This occurred even though consumers were beginning to find beef pricey. In 2014 and 2015 Australia shipped record volumes of beef into the US, lifting to either side of 400,000 tonnes. NZ also managed to ship 230,000t in the 2014-15 season, far above anything shipped there in recent years. 

This year, the sudden fall in US cow slaughter and production rates has resulted in a remarkable lift in US domestic 90CL cow prices, surging by US90c/lb since January. Typically, the upside is more like 16c/lb. 

US imported beef prices have lifted by US 42-48c/lb since January, which is similar to this time last year. Farmgate bull prices are currently the same as a year ago. 

The fast-paced changes in US beef production have caught some US end users on the hop. The need to secure supplies of beef has pushed prices higher. A further demand boost leading into peak grilling season in the US should ensure a good run to spring, price-wise. 

A year ago, the market was driven higher by the expectation that US lean beef supplies would topple over. That didn’t eventuate to the extent expected and demand failed to fire – a hangover of the economic implications of covid. This resulted in an early peak in US demand and a subsequent drop in imported beef prices and farmgate returns here.

This year those factors appear to have changed. US domestic cow supplies are indeed tanking and will continue throughout 2024. There will be no last-ditch surge in US beef production, rather a greater reliance on imported beef to fill the gaps. 

US economic data suggests a settled outlook with the possibility of some subtle growth, which should lead to improved consumer confidence. There are always risks involved when prices lift so quickly and as we have seen in recent years demand is very quick to react to outside influences. 

This raised awareness does bring a level of caution in creating an overheated market but there is little to indicate the market has reached that point yet.

Earlier forecasts pointed to a blanket drop in average farmgate lamb prices to mid-$5/kg by February. Fortunately, the lack of lambs into processing plants from late-January to March meant no one had to suffer that fate. That’s not to say that the fall in AgriHQ’s lamb indicators to $5.80-$6.10/kg has been anything to crow about, but it still looks better against earlier budgets.

While a shortage of lamb over the past six weeks put a floor into lamb prices, we have also seen some improvement in demand from some of our more traditional markets. Many customers held off buying late last year, on the back of our potential drought and surge in supply. They are now finding their inventories are lower than they would like. If this momentum can be maintained it will be positive for farmgate prices.

What needs to be determined, however, is if this current lift in interest is a directional shift in demand or is being driven by the recent lack of product out of New Zealand. Ultimately a solid recovery in export prices and therefore farmgate returns needs to be demand driven rather than reactionary to supply constraints.

The broader global picture still points to supplies outpacing demand, especially when we add Australia into the equation. While this drove export prices down, it enabled the continued flow of lamb into markets, preventing any build-up of stocks. 

Global consumers are still showing willingness to purchase lamb, but their ability to pay a high price has eroded. The lower prices have helped keep lamb on the menu for a lot of consumers, which is considered a win during an almost global cost-of-living crisis. This crisis is determining how and where consumers choose to spend their money – and consumer spending is expected to remain sluggish through 2024.

Driving most of the upside in global supplies have been shipments out of Australia, signalling growth in its breeding flock and subsequent lamb production. In the 10 months to the end of February 2024, Australia exported 294,000 tonnes of lamb. This is a 70,000t increase on the same period for the four years prior.

Recent analysis from Meat & Livestock Australia (MLA) highlights another big production year for Australian lamb, with 2024 exports forecast to lift by another 9000t to a record 335,000t. Heading in the opposite direction are NZ lamb production and exports. 

Tighter supplies may have supported NZ returns on an individual market basis in recent weeks, but that advantage almost evaporates on a wider, global scale. Australia’s sheer size on the global market now means it sways the direction of global lamb prices. If this sounds familiar, it’s because it wasn’t long ago that NZ held this position.

MLA is forecasting Australian lamb production to peak in 2024. On face value that should mean NZ will start to face less competition in our export markets in the years following. But it’s not that simple.

Not only has the Australian sheep flock experienced significant growth in the past two years, but productivity gains have also been substantial. Any downside is only forecast to drop production and exports back to the 2023 levels. 

Balancing this, however, is the expectation that global demand will start to outpace supplies as economic conditions improve from later this year. Ultimately this means a further wait for a sustained improvement in export returns and farmgate prices. 

The alternative scenario is that global economic conditions improve faster than forecast and the upside to farmgate prices is felt sooner. This aligns with sheep farmers’ wish for the sector, but gut feel is that we are not quite at that scenario yet.

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

For the third straight year, summer has started on a soggy note for most. Grass growth rates are humming, but dry conditions are starting to creep in here and there across various parts of the country. While having few feed pressures to worry about is positive, ticking off on-farm jobs has been a long, drawn-out process. 

No one wants a repeat of a summer void of sun and warmth like last year, but plenty could have done with an early dose of vitamin D through November. There is no question that the flow of new season lambs and finished cattle is behind the eight-ball in the North Island. Lamb growth rates remain marginal, and cattle are still shaking off the remnants of their winter coats. The season has been slightly different in the South Island. Early draft lambs were lacking a bit, but supplies have since picked up into December. It’s been a split decision for those with cattle – to go now or utilise the feed that is around to add weight.  

Having the ability to dodge low farmgate returns in favour of adding a few more kilos of liveweight has been favoured where feed is flush. However, that must be weighed up with carrying additional mouths into the new year, when the prospect of a drought is present. Fortunately, staffing rates at processing plants has improved from the last two summers, but that doesn’t erase the possibility of backlogs appearing between January and March. 

Overall, market conditions haven’t changed a great deal since last month. The volume of NZ lamb being exported is still at relatively good levels but that reflects the lower pricing point rather than improving demand. There have been some subtle signs of improvement within the Chinese market, but most are hesitant to read too much into this yet. Key markets are well versed that the next three months will see large volumes of lamb and mutton being produced in NZ and therefore exported. 

On the beef front, seasonal pricing pressure has started to filter in as slaughter numbers start to build to summer levels. But looking further out and all eyes are on the US market.  Once US producers put an end to herd liquidation, this market has the potential to be a shining light for returns in 2024. 

 With a new year just around the corner, the need to see an improvement in market conditions is vitally important for the sector. The current phase of global supplies outweighing demand particularly for lamb isn’t going to change in the short-term. We need to move past blaming Australia for our current low prices and start focusing on what we can control so when the tables turn, we are in the best position to capitalise on it. A timely reminder to markets on the merits of quality over quantity wouldn’t go a miss either.

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

It has been an interesting start to the new season for lambs. Weather has actively played a part in dampening down the flow of lambs into the processors, especially in the North Island. Slaughter rates continue to lag expectations and, as such, the downward pressure on prices has reduced. The flow of lambs into South Island processing plants appears more normal and this has been reflected in a sharper fall in farmgate returns in the past two weeks.

The AgriHQ lamb indicator ranges from $6.15-$6.20/kg this week, versus $7.45-$7.65/kg a year ago. Last year, however, export demand was slumping with speed. This was reflected in farmgate prices that dropped by over $2/kg from their peak in early October to Christmas. 

This year the downside has reduced to 90c/kg but, having started from a much lower position, it has been equally as tough to bear.

With lower farmgate returns come lower store prices. Store prices haven’t been this low for December since 2017. However, back then, a different driver was in control. A hot, dry start to summer drew large volumes of lambs onto the market. With very little appetite from buyers, prices plunged, falling by 50-80c/kg from their November levels to average $2.60-$2.90/kg.

This time around the downside has been more gradual, month to month, and the key driver is weaker export markets rather than a blazing hot start to summer. Current store prices in the paddock for 28kg lambs are averaging $74 and $76 in the North and South Island respectively. A year ago 28kg lambs were trading for $87 and $91– a $13-15 premium on current returns. 

Back in December 2021 buyers had deep pockets, buoyed by farmgate returns still holding at $8.65-$8.75/kg, and 28kg lambs traded for $108-$110.

The lower buy-in price this year has encouraged some to take a punt on store lambs for an early summer trade, before switching to the usual winter trade. Those looking to double their lamb trades this season are being selective in their requirements, opting for something closer to 30kgLW that they can keep moving. Most are steering clear of lighter, longer-term lambs that may struggle through a dry summer, if that is what eventuates.

The aim of the game will be to drive weights to ensure a decent return, something that was lacking on winter trade lambs earlier in the year. Taking that 28kg lamb through to a 20kgCW would see it offloaded in late March/early April, depending on the systems implemented on farm. Based on forecasts within AgriHQ’s December Livestock Outlook report, that lamb is estimated to gross $44/head before costs. 

Depending on the scale of these summer trades and their success, it has to the potential to slow the flow of lambs into processing plants through February, particularly if more lambs are weight-gaining under summer-safe grazing systems.

The big question for some contemplating diving into the store market is, will store prices go even lower from here? Store prices invariably mirror the direction of slaughter prices and with more downside forecast in that space, it’s reasonable to expect store lambs have room to move lower into the new year. 

Based on the five-year average relativity with slaughter prices, this would place January store prices for 28kg lambs at $2.60 and $2.75/kg in the North Island and South Island respectively.

A falling store market in January contrasts with what occurred through January this year. A clear disconnect between store and slaughter prices developed due to too much feed and not enough mouths to control it. As a result, store lamb prices continued to climb through January, despite flat to softer slaughter prices.

While most are in a feed-positive situation currently, a drier summer outlook has been on the radar for some time. This increases the chance of store prices returning to normal trends through January as opposed to what happened earlier this year. 

If securing a lamb at the cheapest price possible is desired then generally that needs to occur before mid-February as AgriHQ data shows from that point, store prices start to ratchet higher.

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