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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The strength of the NZD will have the biggest impact on sheep and beef farm gate receipts and profitability, according to M&WNZ’s Mid-Season Update for 2009-10. Economic Service Director, Rob Davison says the NZ dollar  appreciated remarkably over 2009, compared with the previous year. “Unfortunately for the sheep and beef sector, the NZD strength has been against the US dollar , British pound  and Euro where the majority of NZ’s beef and lamb are sold.  We expect this will continue in the first six months of 2010.

“We estimate there will be an 8.6 per cent decrease in total gross farm revenue to $317,600 for the average NZ sheep and beef farm in 2009-10. On-farm input prices are expected to remain stable (+0.5 per cent) which will be a welcome relief from the 9.7 and 7.6 per cent increases experienced in the previous two years. However, this leaves per farm, profit before tax at $37,400, a significant decrease from 2008-09’s $58,800.”

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A pre-Christmas shortage of lamb in British supermarkets has caused a spike in the amount of chilled product being air-freighted from NZ to the UK. Meat & Wool NZ’s Economic Service says 7700 tonnes of lamb were despatched from New Zealand in November reports Radio NZ.

About 3% of this – a couple of hundred tonnes – had to be airfreighted to meet demand. This is much more than last year. Executive director Rob Davison says UK lamb supplies are quite tight due to a wet summer and autumn there and domestic prices are quite high

With the currency falling in the UK, local farmers are sending their product to European markets at good value, and leaving opportunities for NZ lamb this Xmas. Don’t hear any moans about food miles and NZ product from UK sheep farmers at the moment.

The 2009 MAF pastoral monitoring national sheep and beef budget has been released and shows EFS /ha is predicted to be half what is was last year. They are budgeting on an average lamb of $75/hd, which according to Rob Davison M&WNZ Economic Service is too optimistic on recent currency levels. Lambing percentage reflects the good conditions at 124% but an average wool price of $2.12/kg reflects the poor state of that sector. Cattle income is predicted to be at a level lower than the past four years and reflects the pressure the high US exchange rate is putting on beef.

Farm costs are expected to increase from last year to a $44 a su but interest costs are budgeted to fall. Overall this model predicts a cash deficit and the need for more borrowings as well as a fall  in the value of total assets and equity. Not a good look to start a year that only a few months ago held so much promise.

Sheep farmers’ returns look like plumbing the depths seen before last year’s boom unless the NZ  dollar takes a dive reports Rural News. Meat & Wool NZ economic service director Rob Davison says last week’s post-float record for the kiwi against Sterling, combined with continued strength against the Euro and US dollar, suggests the average lamb price will be back to $66.‘That’s not a good price given there has been a 21% increase in on-farm inflation in the last three years.’

Average prices achieved in 2005-06, 2006-07 and 2007-08 were $56.20, $53.60 and $57.90 respectively. Last year’s lift to $89 was about 55% currency driven and 45% market related. Fortunately, those in-market gains look like holding with a lamb crop similar in size to last year, says Davison.

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In-market prices for lamb and beef are expected to remain solid in the coming year, and exchange rates are likely to have the greatest impact on farm-gate returns, according to M&WNZ’s New Season Outlook for 2009-10. M&W Economic Service Executive Director, Rob Davison says despite the weakened global economy, the good retail and wholesale lamb prices achieved in the last year look set to remain though the recession places a ceiling on beef prices, especially in the North Asia and European markets. There may be slight firming of in-market wool prices, which saw a significant drop last year, particularly for medium and fine wool.

Mr Davison says uncertainty in the global economy, and the timing and strength of New Zealand’s economic recovery make it extremely difficult to forecast where the New Zealand dollar will go over the next year and how farm-gate returns will be affected. 

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M&WNZ’s Economic Service says drought and dairy expansion have continued to reduce sheep numbers, resulting in a 2.8 per cent drop in total sheep numbers, to 33.14 million for the year to 30 June 2009.  Economic Director Rob Davison says its annual stock number survey, which establishes the productive base of livestock for 2009-10, shows North Island sheep numbers decreased by 5.9 per cent (-1.0 million) while numbers remained almost static (+0.3 per cent) in the South Island.  “In the North Island, three consecutive years of drought in the East Coast regions has caused successive reductions in sheep numbers. In addition, drought in the summer and autumn of 2008, coupled with dairy herd expansion, resulted in significantly fewer lambs in 2008-09 (-12 per cent) than in the previous year.

The flow-on effect was fewer lambs for export and fewer lambs to keep as replacements at 30 June 2009. Farmers’ need for cash flow and improved lamb prices compared with the last three years, particularly in the latter part of 2008-09, prompted more lambs to be drafted for export instead of being kept as replacements.”  “The total number of hoggets or young sheep was almost static but there was a major difference between islands. North Island hogget numbers were down 12.2 per cent but South Island numbers were up 15.8 per cent. The South Island increase is measured against very low hogget retentions in the previous year. Some of this increase is likely to be lambs held over for slaughter in late winter.”

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The Meat Industry Action Group (MIAG) says it has received an overwhelming mandate to continue but will take a more conciliatory ‘watchdog’ role in its efforts to bring about reform. ‘We are hugely proud of what MIAG has tried to achieve,’ says chairman John Gregan, who was reappointed at the group’s annual meeting in Dunedin last month reports Rural News. ‘A group of concerned, self motivated farmers whose only concern was to improve the industry they were a part of, stepped up to the plate. But we also recognise MIAG has not always got it right.’

So in future the group aims to work with meat industry companies and organisations to facilitate consolidation or greater cross-industry co-operation, rather than trying to force reforms as it has in the past. ‘The problems in the industry that all the companies agreed existed are still there… We need a plan for a better industry. This survival of the fittest is not healthy for farmers because effectively the companies are continually beating each other up.’ Deals where one farmer receives a better price than another for the same weight and grade lambs, sold to the same company, on the same day, for no apparent reason remain rife, as do inefficiencies due to a fragmented, uncooperative industry structure, says Gregan.

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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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Dairy expansion and drought have carved into lamb numbers born this spring, prompting predictions of a $450 million drop in export earnings for the meat industry. M&WNZ in a media release has said 4.7 mil fewer lambs were born this year, and with farmers intending to keep more ewe lambs to rebuild breeding flocks, this may mean 6.1 mill fewer lambs will be killed for export.

The latest figures come as Silver Fern Farms, reports confidence returning to overseas markets after three weeks of uncertainty, adding to good news in Ballance Agri-Nutrients’ announcement of a 17% drop in the urea fertiliser price to $910 a tonne. Further cuts are expected.

M&W economist Rob Davison said export lamb numbers would drop by 23%. However, heavier lamb carcass weights this year were expected to help offset the export fall, and rise by 7.5% on last year to 17.7 kg. The ewe lambing percentage fell from 118 to 113%, reflecting drought in many regions.