Tight supplies underpin lamb price optimism

Tight global supplies and rising demand should help keep lamb prices firm for at least the next year, according to Beef and Lamb New Zealand.

The organisation’s chairman Mike Petersen told Farmers Weekly he was very positive about the worldwide outlook for prices over the next 12 months, despite short-term volatility and exchange rate fluctuations.

“The volume of [sheep meat] production is falling around the world, yet the global opportunities are still very strong,” he said.

Of particular interest was demand from China and other developing Asian economies. “China has the biggest sheep flock in the world, but its population and wealth is growing faster than flock numbers. Currently around 80m Chinese people are in the ‘middle class’ category, but this is forecast to rise to 700m by 2020.”

Russia, where about 40% of meat eaten was imported, India, and other parts of Asia also presented significant export opportunities, particularly for “grass-fed” meat, he added. “At the moment the opportunities in Asia are more for beef than lamb, but I think it will become an important lamb market.”

Mr Petersen said established European markets would remain important for New Zealand exports. “About 20% of Europe’s sheep meat consumption is New Zealand lamb. Europe is still our number one market and will be for some time.”

Tonnages were likely to be down this year though, due to poor weather in New Zealand this spring which had caused the loss of about 1m sheep. He estimated volumes into Europe would total around 200,000t this year, compared with a quota tonnage of 227,854t. Of that, around 80,000t typically went to the UK, although that was likely to be down around 10-15% this year.

“We are struggling for production this year, but I think it’ll be a one-off,” he said. “The biggest threat we face is the general decline of lamb as a food category purchased by shoppers. It’s a niche product in the world and there’s a danger it could vanish from the supermarket shelf. We have to work together to make sure that doesn’t happen.”

Exchange rate woes

The strength of the New Zealand dollar is hitting farmgate returns this season. At the forecast exchange rate scenario of NZ$1 to US$0.68 (£0.45) used in the September New Season Outlook, lamb price was expected to average NZ$82 per head for a 17.4kg lamb in 2010/11. That was unchanged from last season, despite a rise in global prices.

Sheep and beef farm profit (before tax, personal and capital expenditure) was estimated at NZ$54,000 per farm, 5% less than 2009/10.

But, the NZD had strengthened since that report and was now worth around $0.76. That could knock NZ$20,000 of farm profit, unless farmgate prices improved, Mr Petersen said.