It’s not always easy for sheep and beef farmers to focus on the positives when the biggest factors affecting their bottom line are beyond their control.
In recent years, a long list of contributing factors has seen input costs skyrocket. Last year, on-farm inflation was over 16%, the highest it has ever been since the 1980s. Meanwhile, output returns have struggled against strong headwinds. Despite this, the low buy-in price and improved spring forecast schedule offer some positive elements to this season’s market dynamic for traders and finishers.
Unfortunately, the dire bottom lines for farms in recent years have already altered land use. The declining beef supply and plummeting national flock have become a problem for processors.
For lamb, further capacity shake-ups are now necessary for processing a very low remaining kill through winter.
Although operating costs are still high, the cost of buying stock has been relatively low, especially store lambs. Drier than normal conditions in our main sheep-producing regions have doubled down on restricting demand.
The average weights of lambs through Feilding and Stortford Lodge show that hill-country lambs have had a tough run this year, while a general lack of feed heading into winter has kept the store market in check.
The average weight for male lambs through the Feilding saleyards in May was the lowest it’s been since 2008 at 32.6kg. Similarly, ewe lambs and weights for lambs through Stortford Lodge are all below the five-year average. It’s not surprising that the value of store lambs has failed to lift in tandem with recent schedule gains.
Farmgate returns for lamb are still far from generating excitement in farming them. Despite the below-average forecast spring lamb return, the function of a low buy-in price does reflect better confidence in an improved margin for traders this year.
The current buy-in price for store lambs relative to the predicted spring schedule has fallen from 52.1% last year in the North Island to 37.3% – a marginal change of almost 15%. This is the lowest this figure has been since 2013 when most of the North Island was in severe drought.
Last year, male lambs were bought in April at an average price of $3.45/kg, anticipating a $9/kg spring schedule. For the first time in 10 years, the spring price turned out to be less than it was in April at $7/kg.
This year, the evident lack of prime lambs has warranted expectations for processors to continue to lift the schedule to just under $7/kg come spring. This means that male lambs purchased this month for $2.60/kg are expected to generate the highest margin percentage in the past five years.
There is a similar dynamic in play for beef, especially in the South Island, where feed restrictions are restricting the ability to trade through winter. The New Zealand steer and heifer slaughter statistics show from October to mid-May, 816,554 head have been processed, an 11% increase on the five-year average.
Now that we’ve reached the off-season, prime numbers are especially tight. The current spring forecast price for prime beef in September/October this year in the North Island is close to 40c/kg above last year’s spring price. In the South Island, the predicted schedule for spring could be 20-30c/kg above last year.
In contrast, the current buy-in price for R2 steers and heifers is roughly 5c/kg below year-ago levels in the North Island and 60c/kg less in the South. This would make the current R2 steer and heifer price only 47% of the spring schedule, compared to 52% last year. In the South Island, the current R2 steer and heifer price is only 43% of the predicted returns in spring, below the five-year average of 45%.
Based on these forecasts, and much like with lamb, there are opportunities to be had.
