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.
