That would provide an opening for Australia to grab market share from NZ. There is also a worry a shortage of stock could lead to a single desk seller, thus eliminating procurement competition.
The problem is compounded by the falling number of farmers willing to breed the lambs. Many young farmers are not interested and instead buy in store lambs to fatten.
AgriHQ senior analyst Mel Croad says looking at the Australian sheep industry’s intentions for the next two years there’s reason for caution, signalled initially by Australian lamb exports at 66% of total production, up from 56% five years ago and on the back of a depressed breeding flock.
“Australia has made inroads into the export market very quickly and it’s concerning when we are not seeing any growth here, when our closest opposition is capitalising and playing the long term game.”
First cross ewe lambs in Australia are selling upwards of $370 to go back into the breeding flock and that’s achieving those prices when the schedule is less than $8.
“At $9 a kg here it will be interesting to see if our breeders capitalise and sell their ewe lambs.
“The mutton schedule is $6.20/kg, up from the $2.90/kg in November 2016, but while the combined annual sheep meat exports of NZ and Australia are growing 20,000 tonnes a year, that growth is Australia,” Croad said.
“They have wiped out four million from their sheep flock over the past couple of years, which, as of June 30 this year, is at 66 million but their future forecast data has the flock rebuilding to 74 million by 2022 – that’s a rebuild back to last year and some, despite drought and poor lambing.
“Certainly, there’s nothing coming out of NZ that replicates that upside.”
Croad said productivity gains are not offsetting the lower number of breeding ewes.
“We are in record territory at the moment.
“If the idea is not to increase flock numbers then we need to be investing in genetics and technology. We need to get some confidence.”
AgriHQ analyst Suz Bremner said returns for mutton and lamb are $1/kg CW or $30 a head up on last year and, typically, where buyers are looking to replace ewes they will work on paying $30-$40 a head more than they received for their cull ewes.
That equates to a $60-$70 a head increase in price this year.
Compared to last year’s prices that would put most ewes at an expected $260-$350 this coming breeding ewe fair season but Bremner said there will likely be resistance at the $300 mark.
“I would expect to see a lot of good breeding ewes easily trading at $200-$300 with two-tooths more towards $250-$300 rather than the $200-$290 we saw last year.”
Some will exceed $300 but it’s not predicted to be a regular occurrence though the annual draft Border Leicester-Romney two-tooth ewes sold at Temuka in February will likely push to $350.
“I doubt we will see an influx of new buyers to the market as it seems that having a breeding ewe flock is not an attractive option for much of the younger generation, who would rather buy in and fatten lambs.
“That makes for an interesting future as you can’t produce lambs from trees and crops.”
Livestock broker Peter Walsh said despite the critical level of supply farmers have done all they have been asked for to increase fertility and increase yields.
The volume is a processor issue and the threat of a single desk industry is concerning.
“Just look at Fonterra, it got control, got too big and suddenly efficiency sails away.
“When numbers get down the big players squeeze the little players out and it comes down to control and supply – it’s not about the markets.
“We need to look after the little players. They will keep the big players straight. If we get down to single desk, and that’s the current threat to the industry, we will lose the competition and we are not going to get the best prices.”
Walsh is optimistic new generation sheep farmers will have what it takes to keep the industry going.
“These young people are smart, they bring new thinking and new technologies that us older chaps have trouble with.
“When they see a $150 lamb in the paddock they’ll take it. They are growing up with the technology that will enable them to make it.
“These young fellas are bright young buggers we need to nurture them,” Walsh said.
Federated Farmers meat and wool chairman Miles Anderson said there are many variables affecting the future of the industry but by far the biggest challenge for sheep famers is compliance.
“I expect there would be more interest in running sheep on the back of some fairly positive indicators that the prices we are getting now will be sustainable longer term than we have seen in the past, if it wasn’t for so many variables.
“I am thinking if the lamb and mutton prices stay buoyant the economic drivers would push people to seriously run more sheep if it wasn’t for the legislation challenges such as the freshwater package and national policy statement on biodiversity and generally stronger legislation around farming livestock.”
Anderson said what is holding sheep back too is the wool industry.
“If the wool industry could get some life breathed back into crossbred wool, sheep will be very good.”
Meantime, consultants doubt southern South Island sheep farmers considering options to cash in on high sheep prices will affect ewe numbers.
AbacusBio consultant Simon Glennie said there’s plenty of opportunity to improve margins by increasing lambing percentages, which have plateaued in recent years, and growing those lambs to heavier weights.
“It is better to do that than retain really expensive capital stock.”
Gore consultant Graham Butcher said few farmers will be changing ewe numbers but he expects some will take advantage of high prices by selling store lambs earlier than usual and look at other options such as finishing bulls.
Farmers are focused on increasing the per-head performance of their flocks.
“If you have a gap then maybe keep more ewes but not at the expense of per-head performance,” Butcher said.
