Thursday, March 28, 2024

PULSE: Crunch time for lamb prices looms

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We are nearing crunch time for the lamb prices as export values are heading in the wrong direction and farmgate prices are already around $1/kg below last year.
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Last month, lamb export prices averaged $9.61/kg. This pales in comparison to the $11.13/kg achieved in July last year, which subsequently lifted August 2019 farmgate prices to $8-$8.35/kg.

And it didn’t stop there.

Market demand continued to surge, leading to record farmgate prices later in the year.

Unsurprisingly, farmers and traders within the industry were hopeful of a repeat this year, and prices paid for store lambs earlier in winter confirms this theory.

However, there’s a slow realisation that farmgate prices may struggle to even reach the high $7/kg mark this spring.

Export values remain much softer than the last two-and-a-half seasons, and are the key driver preventing any lift in farmgate lamb prices. This is a consequence of covid-19’s ongoing influence on overseas demand.

July’s export values are not only lower year-on-year, but they were also lower than the $9.84/kg reported in June.

On paper it would appear export values are heading in the wrong direction. However, it’s not uncommon to see a drop in value between June and July.

AgriHQ data shows past drops between June and July haven’t had any negative impact on farmgate lamb prices in August.

Surprisingly, even if values fall between June and July, they have always recovered and posted a lift in August. Some of this is related to a lift in chilled lamb as a proportion of total exports through August.

Despite the recent headwinds for lamb, chilled export values have held up relatively well, matching feedback from NZ exporters.

Chilled lamb exports averaged $15.20/kg in July, only a little below last year’s $15.92/kg.

In contrast, there’s been a drop in frozen lamb cuts, which fell to a $8.75/kg average in July. July 2019 averaged $10.30/kg.

Given our high reliance on the frozen export markets, it becomes clear why overall export values have fallen.

Exporters appear focused on maintaining or lifting chilled volumes and values, but what we need to see is a corresponding recovery in frozen values.

Over the next three months, frozen cuts account for 80-83% of our lamb exports. Yet frozen values haven’t been this low since March 2018.

Any improvement around frozen lamb exports will provide some support for farmgate prices.

However, time is ticking for this to generate any sort of recovery. Even if our export fortunes improve over the coming weeks, we have to accept farmgate prices for lamb are going to round out 2020 at a much lower level than 12 months earlier.

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