Its animal proteins analyst Blake Holgate said the strong market fundamentals experienced this season had resulted in healthy returns for sheep farmers over recent months and are set to persist for at least the rest of 2019.
The outlook for sheep meat pricing is very positive.
“We expect to see pricing levels out to the end of the season in October at least as high as the mid $8 mark per kilo we saw last year. And there could even be some upside potential on top of this.
“This positive sentiment is anticipated to continue into the new season, underpinning ongoing strong pricing, with exact pricing levels to be largely determined by global supply and the degree of local, short-term procurement pressure driven by the flow of stock to the processors.”
Sheep meat supply from New Zealand and Australia, the key exporters to international markets, is expected to remain tight.
“Global supply of sheep meat is likely to remain tight in the next 12 months with limited capacity for NZ to lift domestic production given where ewe numbers are at,” he said.
“Similarly, our major export competitor Australia is unable to lift production due to drought conditions, which have driven capital stock levels of sheep to among the lowest levels seen in 100 years.”
Global lamb markets continue to perform well with demand and in-market pricing for key cuts solid.
“Over the next 12 months we expect to see global demand for sheep meat remain strong with African swine fever predicted to reduce China’s domestic protein availability during this period.
“This will support strong Chinese demand for a range of lamb products and particularly mutton,” he said.
“In addition, United States’ demand for sheep meat should remain firm off the back of a prolonged period of US economic expansion, which has led to increased rates of red meat consumption and more disposable income to spend on expensive products like red meat.”
A weaker NZ dollar is another factor that will play into the hands of sheep meat producers.
But Holgate warns of a number of downside risks could adversely affect prices should one or more eventuate.
“Increasing concerns about a slowing global economy and, in particular, the risk of significant slowdowns in either or both of the US and Chinese economies could have a significantly negative impact on pricing.
“There’s also a risk the speculated demand increase for animal protein stemming from African swine fever isn’t as high as estimated.
“Getting up-to-date, accurate data on the scale is challenging and there is a risk of overestimating the protein gap.
“Brexit is a further downside risk as it’s still unclear how this will play out and affect demand for NZ lamb over the coming 12 months,” he said.
