Old season numbers aren’t huge but are still in excess of plant capacity this early in the season.
There are also signs some farmers have left their old season lambs too long and they’re going in for killing as hoggets after cutting their teeth, producing quite a price gap, GlobalHQ analysts said.
And older, heavier lambs are not meeting the specifications for the Christmas chilled trade for Britain and Europe, analyst Reece Brick said.
Heavy lambs are not wanted.
Processing for the contracts is well under way but the companies want more new lambs before the sea-borne trade deadline after the first week in November.
The two-tier pricing arrangement has been in place in previous years but not recently as stock numbers declined.
The new lamb numbers really step-up at the start of November and Brick said anecdotal reports are that North Island lambs are doing well in areas where they weren’t subject to the early September easterly rain bomb in and near Hawke’s Bay.
Whatever happens, the lamb price will fall once the chilled Christmas orders are completed, Brick said.
From an average August price of $8.50kg there is the possibility prices for the post-chilled Christmas kill will come back to the upper $6s around Christmas and into the peak kill.
“It’s too early to call yet but I think farmers will be happy with anything with a $6 in front of it at that time.
“Above $8 is ridiculous and people accept that.”
The flow of lambs dictates the price and the new season numbers are expected to be lower than the just finished 2017-18 year but likely to prove higher than the forecast 19.5 million head because of larger North Island export kill rates.
Going by Beef + Lamb NZ forecasts, the lamb crop could be down 900,000 on last year, probably meaning 600,000 fewer for processing, Brick and fellow analyst Mel Croad wrote in their Outlook column.
The shortfall could be higher depending on the final tally of losses from the rain storm.
The North Island kill rates indicate a decline in the ewe lamb retention rate on farms, Brick and Croad said.
Through the peak of Average Export Values (AEVs) the analysts said good chilled volumes had pushed values higher than the 2011 peak, which was followed by a big downturn.
The AEV gains had been passed on to farmers via procurement by the processors because of competitive pressure, with their margins up to 13% lower than August 2017 levels, they said.
Processors will now be working to recoup margins.
Market fundamentals have changed since 2011 but the report cautioned about the need to keep lamb prices at sustainable levels.
Overseas factors are an influence on the NZ outlook.
The British lamb kill is only now lifting because of poor lambing conditions and slower finishing rates and harder ewe cull numbers will pressure lamb crop numbers into next year, the Outlook report said.
Lamb prices are easing.
A lack of Australia supply into the United States is supporting NZ prices, with continuing good demand for French racks.
Australian processing numbers are well down because of severe drought though some analysts expect normal kill rates through October and November.
The big worry for Australian producers is the big liquidation of capital stock, Brick and Croad said.
There are expectations of a 6% fall in the flock numbers.
They said a lack of Australian product going to China is also helping maintain firm prices for NZ lamb, with inventory moving quickly through the market channels.
