Typically, we would expect to see 80-95c/kg come out of farm gate prices across the country. Over a period stretching the last 17 weeks, the downside has ranged between 60-70c/kg and much of that was experienced late last year.
Average export values for December show, as expected, a stable market for NZ lamb, which is promising given the increased volume of lamb we have been exporting in recent months. The combination of firmer Chinese demand and a higher volume of chilled exports in January because of the Easter trade production should enable average export values for January to remain in a tight range without showing too much downside compared to December results. That partly explains why there has been minimal downside in farm gate prices for lamb in recent weeks.
Exporters have noted with some surprise that overseas demand, particularly for lamb and mutton has been stronger than expected since the markets reopened in early January. Buyers have upped the ante to secure volumes, appearing to have moved on from their cautious buyer habits that have developed over the last year. The easing NZD has obviously come into play, but there have been a number of other factors that have enabled prices to show some level of stability. The main market currently underpinning demand is China; they have fired out of the starting blocks this side of Christmas, despite their impending Chinese New Year celebrations which usually brings a short-term absence from the market. Deals done now are to secure product for post-Chinese New Year buying.
There are a couple of clouds on this horizon, however that could end the positive run of export values.
With covid-19 infection rates increasing in China, there has been government-led calls to stem public travel through their celebrations period. What impact this could potentially have on consumption rates is currently being overshadowed by congestion and supply issues at key ports. This is starting to have a domino effect on demand, which could stifle some of the recent upside in pricing.
The other concern is that while China is displaying firm interest in our products, there hasn’t been a material change in demand or consumer habits in other key markets. If anything, these markets are simply having to lift asking prices to remain competitive with China and secure product. If China demand softens it will likely reduce the demand seen from these other markets.
This does raise some concern as to how farm gate prices traverse the coming weeks. Drier conditions through parts of the country are also adding another element of uncertainty. The last thing the market needs is for a large offload of lamb as overseas buying tightens up and processing plants here battle with staffing issues.
