While prices upwards of $8 are reserved for the upper-end of the market, not many are paying far below that level.
But easing market prices against new season farmgate prices are creating some bumps in the market, making some processors concerned about unrealistic expectations.
New Zealand’s overseas lamb markets continue to deliver historically high prices but there are signals of headwinds affecting trading conditions and prices in some key markets.
The Europan Union market, which has been a strong performer in recent months, is suffering from a hot summer that has dampened demand.
While that is a typical seasonal trend for the EU, the downwards price movement this year is being felt more acutely by processors as margins become further squeezed, AgriHQ analyst Rachel Agnew said.
While the top has come off frozen prices in the EU it’s better news in the British market, which remains largely steady despite huge political uncertainty.
But Agnew said a red flag is flying around the Chinese market as a result of the US-China trade war.
There is evidence of a slowdown in the Chinese economy with the Chinese yuan devalued significantly against the US dollar since talk of trade wars.
The currency devaluation is being felt by importers and lamb export prices are softening as they try to offset the weaker currency.
Prices for lamb flaps into China have eased as the currency has dropped and forequarters are also reportedly under some pressure.
With 35% of NZ lamb exports now going to China the sector’s fortunes will be linked to the outcome of negotiations between the US and China.
Alliance livestock general manager Heather Stacy said higher inventories of protein in the US and China have potential to affect demand for NZ products in the medium term.
The unknown around Brexit is also a factor as some Unitred Kingdom-EU companies are positioning themselves based more on speculation about what might happen through the negotiation phase.
Despite the uncertainties Alliance has announced its opening season minimum price contract for Christmas chilled lamb at $8.20/kg.
It begins in mid September for product shipped the first week in November.
“After this we will see pricing reduce into the New Year with the mix changing to a higher percentage of frozen product,” Stacy said.
Very high domestic UK prices have helped the co-op achieve good levels but EU prices are under pressure.
“We have not seen the usual summer holiday consumption uptake and there are high inventories at high price points.”
Mutton prices remain strong at $5.35/kg because of limited supply.
“But as we head into spring and summer prices will come back as mutton price points align with the movement of lamb.
“But higher processing numbers over the past few years could see lower predicted slaughter volume that could allow prices to hold more sustainable,” Stacy said.
While falling short of suggesting a procurement war Anzco livestock manager Grant Bunting urged caution.
He confirmed Anzco’s opening season headline rate will be around $8.
“And unless there’s a crash we will all be $7 in January.
“But in saying that I still think, despite some world implications, that demand is still very strong for lamb and greater than supply.”
Bunting said the sensitivity to China is based more on optimising the carcase in a market prepared to take the lower-cost cuts.
“There’s more to lamb than just dollars per kilogram.
“Legs are a UK proposition. We can all sell loins and racks but to optimise the whole carcase it’s right to be sensitive about China.
“The difficulty we have is translating how the domestic market sits in terms of how that is translated in domestic procurement.
“I don’t think it’s catastrophic but the producers are talking to us, indicating they are quite happy in the $7s if it’s more realistic.
“They’re saying we’ll take $8 if you are going to pay it but we are happy to take $7 over the whole season if it means it’s sustainable.”
Silver Fern Farms acting sales general manager Peter Robinson said because of high market prices SFF is carefully monitoring all global markets.
“The caution is not isolated to the China market. It applies to all of our lamb markets with particular pricing pressure being seen in Europe and the UK.
“At this time we are not seeing pricing pressure on flaps and forequarters into China, as suggested, however, we are at the lowest production volumes of the year so this may change as the new season ramps up,” Robinson said.
