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.
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