This year has been a tough one for sheep meat exporters and farmers alike, following a couple of years of steady price increases. This is the first significant downturn since China’s rise to prominence as a key market for NZ lamb and mutton. It is a blip in the growth and evolution of NZ’s markets, however, not a sign we’ve been heading in the wrong direction.
The growth in demand from China in recent years conveniently coincided with the sharp slowdown in demand from traditional markets. This helped pull lamb returns out of their slump at a much faster pace than otherwise would have occurred. Mutton returns also received a huge boost, with China accounting for 68% of NZ’s mutton exports in 2014, up from just 25% two years earlier. Without exporters shifting more attention to China, farmgate returns simply would not have ridden out the the downturn in traditional markets at the level they did in recent years.
Now, we’ve temporarily lost the luxury of having that huge, growing market sucking up volume. Local supplies are reported to be high and importers look to have overcooked their purchasing in 2014. So they’ve had a serious amount of sheep meat to get through. Exports to China have remained large but buying vigour has dropped, taking prices with it.
In doing so, this has more clearly exposed the status of the recovery in our traditional markets. Under the pressure of greater volumes, pricing into markets such as the UK has slid again, eroding some of the gains of the past couple of years. Strong UK domestic supply and lower shipments to other EU nations haven’t helped this market.
Realistically, this downturn in export prices is likely to continue at least into the first quarter of the new season as inventories are worked through. However, the continual decline of the NZ currency means we may already be past the lowest of returns in NZ dollar terms. On top of that, chilled markets are more buoyant. This bodes well for Christmas and Easter trade returns for those who have lambs that meet specification.
Beyond this soft patch, exporters remain very optimistic about the future of the Chinese market as it develops as a lamb consumer and continues buying a broader range of products. Combined with the gradual recovery in traditional markets, the long term outlook for lamb returns remains bright.
Nick Handley
Head Analyst: AgriHQ
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