Unlike last year, finishers intending to carry stock into winter and beyond will be in the driver’s seat this season when it comes to squeezing money out of processors. That’s not to say prices will shoot off to great heights, but the slaughter prices should at least push above the benchmarks reached during July-September last year.
There are a few reasons for this more positive outlook, short supplies being the major factor. Lamb kill tallies from late November to early April (which excludes almost all old season lambs) have pushed well above last year – up 410,000 or 12% in the North Island and 353,000 or 7% in the South Island.
By all accounts this difference has grown in the weeks since. That leaves a hole in the winter kill roughly equivalent to approximately three weeks’ production in both Islands.
Changes in the lamb crop could partially fill these gaps, but the wider industry is increasingly doubting forecasts that more lambs were born last spring. And these could be irrelevant for the South Island’s winter kill since the bulk of the remaining lambs are housed in Southland, where stock is usually offloaded pre-winter. Canterbury finishers have battled to get winter crops growing, too.
Processors are expecting cattle to be harder to find this winter as well. The main pinch-point will likely be on manufacturing-grade cattle (that is, bulls and cows). The premium paid for beef-cross dairy calves has meant more of these have been reared in recent years in place of the traditional Friesian calves, impacting the number kept as bulls.
Nationally, processors killed the fewest bulls in seven years through October-March, with the North Island kill through January-March the lowest since 1999.
Usually processors would be chocka with cull cows by now too, but they’ve definitely not caused the usual wait times for cattle finishers this year, especially in the North Island.
More supplementary feed around, a better milk price outlook, and smaller base dairy herd all seem to be keeping more dairy cows on farm, though the main driver is likely the decrease in cow empty rates – 15% this season versus 16.7% last year according to LIC/DairyNZ.
Export markets are providing some reason to be more optimistic. Neither beef nor lamb prices are likely to shoot upwards, but the market conditions are much more settled than a year ago when building negative pressure in China and Europe resulted in prices crashing through early winter.
United States manufacturing beef prices are the main beacon of relief. Heavy supplies entering from overseas are taking the edge off prices, but this has been more than counteracted by shortages in the US cow kill – not to mention the low exchange rate is keeping returns in NZ dollars near record levels.
Although prices here have started to level out, plenty of exporters have reportedly forward-sold large volumes at these high prices, which should secure farmgate prices over the next few months.
Other cuts of beef into the Asian markets aren’t firing to anywhere near the same extent, especially in China and South Korea. But there’s at least some relief that the majority aren’t showing any resistance to current prices.
Lamb cuts into Europe and the US are performing relatively well, at least compared to when the market was at its worst, but exporters need China to perk up considering there’s few alternative markets for most lamb cuts they purchase.
This hasn’t been helped by Australia continuing to push record volumes of its lamb into its main markets – China, the US and the Middle East.
The forward outlook for lamb is mainly stable, though with the number of lambs Australia has burnt through these past months, we could finally start to see less negative pressure from its presence.
This article was written by AgriHQ analyst Reece Brick. Subscribe to AgriHQ reports here.
