20 years on, lamb price still low

We’ve been here before. Just happened to find an interesting site on the web that saved old websites from away back – in this case I was looking up Farmnews.

The website is called Wayback Machine for anyone who wants to look back.

Anyway,  happened to notice a press release on Farmnews from 20 years ago – seems like only yesterday, and here we are today with the same problem – poor lamb prices.

Looking on the bright side, there’s been plenty of good years in between but whether they have been good enough to make up for the downs is debatable.

The press release said:

 “Sheep and Beef Farm businesses face a tougher 12 months for the season to 30 June 2004 than in the last 3 seasons.

Dominant in the outlook is the expected full year effect of a stronger New Zealand dollar eroding export prices and profitability. The autumn drought in the lower North Island, northern South Island, and parts of inland Canterbury and Otago will also result in lower production in 2003-04”, according to Rob Davison, Executive Director of Meat and Wool Innovation Economic Service as he commented on their ‘New Season Outlook’ publication about to be released.

The outlook is for gross revenue from sheep and beef farms to decline by $330 million at the farm gate to $4.1 billion in 2003-04. This follows a $480 million decline for the farming year that just ended on 30 June 2003.

For the season just ended the strengthening exchange rate reduced receipts by $710 million with an offset of higher prices leading to the $480 million decline noted. For the forecast year ahead, the exchange rate reduces receipts $345 million with some offset of price increases.

Key exchange rates used in the forecast were US 59 cents, Sterling 36 pence and Euro 0.50.

It should be noted that these exchange rates are close to the average for the NZ dollar since it was floated in 1985. On this basis, the exchange rate “cost” identified above could be seen as the exchange rate “benefit” enjoyed in recent seasons.

Last spring produced a record lamb crop in terms of breeding ewe performance with large numbers of multiple lambs born. The outlook for the coming spring is for lower lamb production with the expectation of fewer multiple lambs born particularly in regions that were subject to the dry autumn – namely the lower North Island, northern South Island and inland Canterbury to Otago. The current outlook is for a 4.4 per cent drop in lambs tailed (-1.6 million) leading to reduced supplies of lamb for export. Beef cattle production is expected to decrease 3.5 per cent with some offset from increased cull cattle from the expanded dairy herd (+4.4%).

Of concern is the expectation that with low beef prices the retention of dairy-beef calves will be down significantly on last year from 520,000 to 390,000 head (-25%). This reduction will not affect beef production until late in the 2004-05 season and in 2005-06.

US beef prices in May and June this year were at a low and down 22 per cent on 12 months earlier. In NZ dollar terms these prices were down 37 per cent, the difference being the stronger New Zealand dollar. US domestic beef supplies are expected to reduce as they retain cattle to rebuild their herds leading to a recovery of the US beef price during the 2003-04 season. Given these factors, the 2003-04 outlook for NZ beef prices is for a 9 per cent decrease on a season average basis compared with 2002-03. This equates to a 23 cents per kilogram season average decrease or $65.00 per head.

Lamb meat prospects in offshore markets remain positive while demand for lambskins and other co-products remain stable. However, higher exchange rates reduce expected lamb prices by 6.5 per cent on the previous season to $59.00 per head. Most wool sold falls into the crossbred wool category where prices are expected to average $3.46 per kilogram greasy at the farm gate which is down 5.0 per cent on 2002-03 largely due to the exchange rate appreciation.

“Tying all of the previous factors together, the outlook for 2003-04 is for sheep and beef farm profit before tax to fall 17 per cent to $75,100 per farm. This will be the second successive year of lower profits measured against the peak of 2001-02. This outlook is for the “average” commercial sheep and beef farm that carries 3,000 sheep, 235 beef cattle and 40 deer which total 3,950 stock units”, says Rob Davison.

While the stronger exchange rate and less favourable seasonal conditions have combined to reduce sheep and beef farm revenue, farm and animal productivity is well ahead of the early 1990s from applied technology and improved management. No one would want to revert to the productivity levels of the past.

For the season just ended export lamb weights held at a high level (-0.7%) relative to last season despite the dry conditions in many parts of the country and lamb production was 5.5 per cent ahead of the previous year due to the excellent lamb crop in the spring of 2002.

Export lamb prices were down (-11%) on the previous year average to an estimated $63.10 per head. Cattle prices reflected weakness in the US market and the rising exchange rate with prices falling $340 per head (-29%) for bull beef and by a similar percentage for prime beef.

In contrast, wool prices were up on the previous year. Crossbred wool prices were up 5.9 per cent while fine wool prices were up 33.0 per cent.

These generally lower prices offset increased production levels for 2002-03, resulting in sheep and beef farm profit before tax falling 22 per cent to $90,800 per farm from the previous year’s peak. Export Receipts Meat and wool export receipts for the season ended 30 June 2003 declined 5.1 per cent to $5.63 billion. While wool prices were up, wool export volumes were down so that wool receipts were little different (-0.6%) from the previous year. Lamb export receipts for meat and co-products were down 2.1 per cent to $2.40 billion while beef export receipts were down 9.8 per cent to $2.1 billion.

“The outlook for 2003-04 is for meat and wool export receipts to decline a further 8.2 per cent to $5.2 billion with the reduction largely due to the stronger exchange rate. Despite the exchange rate effect this represents continued good levels of performance from the sheep and beef sector”, said Rob Davison.

Category: News