Store stock prices look set for a major correction, with many observers believing current values were inflated by plentiful grass and unrelated to prime stock prices. Store lamb prices have only recently started falling from about $2.20 a kg liveweight, while calf sale prices have started about $2 a kg liveweight, with many vendors receiving values similar to last year reports The ODT.

There appears little doubt a grass market has driven up prices, but agents and industry observers say that could be about to change, as the area experiencing dry conditions expands and autumn conditions start to bite.Sources say some farmers still have store lambs for sale while the dry conditions may force farmers who traditionally take calves through to spring to quit them at the autumn weaner sales, adding to supply pressures.

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Invercargill-based Alliance Group has recorded an operating surplus of $42.1 million from a turnover of $1.5 billion for the year to September 30. It will make an extra payment of $15m to its farmer shareholders related to the livestock they supplied, as well as pay a 5c full imputed dividend, worth $2.8m, based on share holdings reports The Southland Times. A bonus issue of 18.6 million shares is also planned this year so the company’s farmer owners can share in its growth and receive a larger share of its equity.

Chairman Owen Poole said the company had recorded a strong profit and provided “very good returns” with lamb prices at record levels.”It is somewhat unfortunate that we reflect on a successful year at a time when an unhelpful New Zealand dollar looks set to undermine returns in the year ahead,” he said.

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Alliance Group expects to pay shareholders $15 million in rebates this year, within the $10 to $20 million annual historic range.  Speaking to about 100 shareholders in Milton yesterday, chief executive Grant Cuff said the rebate payment was over and above its yield quality premiums paid for lambs which met its yield target reports The ODT. In a low-key meeting, Mr Cuff was bullish about prospects for sheepmeat, beef and venison, saying markets were generally strong, the world wanted our meat and the only blight on the horizon was the exchange rate.

At current levels of over $US65c to the New Zealand dollar, Mr Cuff said January to March prices for all three species would be about 10% less than last season. Alliance chairman Owen Poole said the company would be meeting suppliers to its two North Island meat works in coming weeks and inviting them to become shareholders. They company bought its first works at Dannevirke in 2003 and had just three North Island shareholders. He said the approach was designed to get a commitment to the company from its other suppliers, while the capital injection “would be useful”.

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Prime lamb prices may be soaring, but analysts still predict a 3% reduction in ewe numbers this year, following a 10% decline last year. M&WNZ’s Economic Service executive director Rob Davison said the expected decrease of one million ewes would be accentuated by an ageing flock, low retention of females, drought and continued land-use change, albeit at a slower rate than in previous years.  This would take the ewe flock to about 33 million, but Mr Davison forecasts a heavier lambing due to favourable conditions when ewes went to the ram reports The ODT. He expected 27.85 million lambs to be born this spring, 850,000 more than last spring. “This outlook, as usual, depends on a normal spring and variations in the outcome depend on actual spring conditions.”

A continued shortage of lamb could see sheep farmers enjoy a second year of close to $90 for their prime lambs. Alliance Group chief executive Grant Cuff could see no reason for lamb prices to ease next year, other than an unfavourable exchange rate. Sales through retail outlets in Europe and the United Kingdom were strong, as the recession encouraged consumers to eat at home. While exchange rate movement remained a threat, banks and observers have forecast it to weaken in the coming year due to a low official cash rate of 2.5%.

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The Alliance Group is not following the lead of Silver Fern Farms by paying the cost of livestock cartage, claiming the move is a procurement incentive. Alliance chief executive Grant Cuff believed Silver Fern Farms was meeting the cost of cartage to compensate for not being competitive in lamb yield and quality payments reports the ODT.

Mr Cuff said farmers would pay somewhere along the way. He gave the example of the North Island, where companies traditionally met the cost of carting stock but farmers paid dedicated meat inspection charges for lamb and sheep meat.  “They don’t pay cartage but they do pay a meat inspection fee [of $1.40 to $2.30 a head] which, I suggest, is higher than the cartage cost,” he said.

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