After a stellar 18 months early signs are that the market is running out of steam, ASB rural economist Nathan Penny said.
The price fall is steeper but coming off much higher highs than previously, AgriHQ senior livestock analyst Nicola Dennis said.
From a 2018 year-end figure of $7.65/kg the schedule average across the country fell to $7.10 last week.
Going into the latest weekend the schedule was clinging close to that figure after earlier expectations it might hit $7kg.
Dennis expects a price somewhere between those two marks.
“The processors have been paying a lot for limited supply and their margins have been squeezed.
“They are keen to get those back and have been trying to get the schedule to $7.”
Processors have already said in-market price justify a schedule below $7kg.
Plenty of on-farm feed coupled with slower finishing in some areas because of lack of sunshine mean farmers have held lambs back from processing.
Penny notes the year opened at a $7.20 average, down $1.23kg or 15% from the price peak of $8.43/kg in September.
“This was a little more than we expected at this stage,” Penny said in an ASB commodities report.
“The average fall over the last five years from the spring peak to the autumn low is about $1.20/kg.”
The fall so far this year has exceeded the average fall with another two months or so before prices usually bottom out.
Penny believes the price fall has further to run with potential to reach a low in the $6.50/kg to $6.75/kg level. That would put prices below last season’s low of $6.80.
“At $6.50 it’s still a pretty darn good price.”
Many markets are in wait-and-see mode because of economic and trade tensions, notably China, where recent growth figures are okay but with questions on how the year might unfold. The Brexit impact on the British/European market will also be important.
British demand has fallen away over the last 18 months and is unlikely to return to its former glory but Germany has bought more lamb at good prices and other European markets have also stepped up, even though the growth outlook there has deteriorated.
Dennis highlighted the November 30 prices as a guide to how strong the market has been.
From the 2017 level of $7.20/kg in the North Island and $7.25 in the South Island the 2018 levels had jumped to $8.10 and $7.90 respectively. That drove the steep fall since then. So far, store lamb prices have not fallen to match the schedule trend and that is a surprise.
Looking ahead, overseas demand is still good and the market feel is that there is a lack of supply, largely through the extended drought impacts in Australia.
The later Easter this year, Good Friday is on April 19 compared to March 30 last year, will potentially help maintain prices as processors look to fill the valuable chilled Easter market.
That could coincide with greater volumes being killed as more lambs finally reach good processing weights but it is hard to say if supply will be strong enough to push prices lower, Dennis said.
