A positive start ruined by the currency

Oct 2009

Once again farmers looking for the perfect season will be disappointed. To get the ingredients of markets, currency, production, and weather all in a line, is just too tough. This year, for many, it's the exchange rate that is out of line. It seems strange that our export driven economy is exposed to currency fluctuations that often do not relate to how our economy is performing. Demand is growing for wool, lamb, dairy products and venison but the rising dollar is taking the cream, just when this year looked favourable

Other than those areas affected by a drought last year, many areas wintered well and faced the spring with reasonable production levels in their livestock. A mild August and September has been followed by a cold blast in October to wet the dry areas, but have disastrous consequences for late lambers especially in the southern Hawkes Bay hills.

The increasing debt of agriculture is now at a level where banks and managers will face some tough decisions in the future. We have seen some adjustment on land prices by 10-50% but some dairy debt is so large that lenders are exposed and will want to withdraw carefully to protect their investment. With the value of hindsight the rapid dairy expansion and with it rapid rise in land values was at a cost.

At this early stage, last years turn round in lamb prices does not appear to be repeated. Early market signals indicate an average lambwill be about $20 per head cheaper than last, and this will be disappointing for all sheep farmers that have suffered low returns for many years. The saving grace for this industry is the lack of numbers worldwide and this will ensure most of the product only enters the top end markets.

Wool is a disaster and farmers have lost hope of a turn around in fortunes and voted as such, to cut their losses and costs with a nil wool levy vote. Promising noises were made by both Elders and Wool Partners International but as yet no positive price signals for the now very cynical farmers. Niched farmer grouped marketing may be the only answer for a few???

The beef industry continues to battle with similar issues its had in the past. Currency and the trading down by consumers to cheaper cuts has cut average price levels to yearly lows. A shortage of cattle in the NI has minimised the fall for store stock but tight cashflow will limit the grass purchase price. With many bobby calves this year returning negative values, future beef numbers will continue to be restricted by the reduced beef herd.

Supply and demand is again behind venisons big rise in prices. At last the breeder is getting a fair return for his efforts, but the question remains are these prices sustainable. Disappointedly at present, there is little evidence of growth back into deer to satisfy the increased market demand.The size in the industry will put pressure on over capacity in some DSPs. Velvet continues its rocky road and whilst good progress has been made in producers marketing their product by the formation of NZVM, the price will need to improve to $100/kg to make this sector sustainable .

The dairy sectors bump has bottomed and every indications show that demand and price are returning. Every dairy country in the world has cut production except NZ and this will help the slow return to profitability. However the speed of recovery will be in the hands of the Europeans and US governments, who control the flow of stored subsidised product back onto the market. Dairy lenders also have taken a big hit and this will ensure future conversions will be better planned and funded than those in the last few years.

Lamb trends

Oct 2009

The downward slide of the lamb schedule continues, as last seasons lambs are all but finished. Farmers have adapted to the reduced numbers of lambs by putting on more weight, with the average carcase being over a kg heavier than the previous year. New season’s schedules are starting to be heard, with one company reported to be starting at $6 but easing back quickly to $5 by the end of November. Silver Fern Farms are offering a Xmas premium of 30c/kg which will put $4-5 per head on early lamb returns. The “Backbone” contract pricing is due, and will attract much interest.

This seasons prices are still above last years but now only by 27c . Most lamb sheets are returning $85-95 in the 16.0-17.5 kg range. Rebate and yield payments may increase this value by $5-7/hd.

The trend is easing . The currency is strong with the US$ now at .74c and the Pound to .46 which is at a level giving concern.

The 2009/10 new season outlook by the Meat and Wool Economic service was released and the influence of a strong currency is seen by a $15/hd difference between the best and worst scenario forlamb. At today's currency lambs will average in the low $70's.

Store lambs in the saleyards have nearly finished, and the first new seasons lambs were seen in Canterbury this week. The local trade schedule of $6/kg has continued for Prime lambs, but volume and quality are falling in all saleyards. The weather conditions have broken, and later lambing areas in the north will have suffered big losses. SFF capital raising closes soon, in a climate where competing rural companies may limit the volume of money available for investment.

The latest Christchurch wool sale saw prices lift for both Merino and mid micron wools, but crossbred clips were steady against the rising currency. Passings were low at 16%. Agriculture minister David Carter held his wool “talkfest” but only the most optimistic will feel much will change, in the coming season.

Beef Trends

Oct 2009

Continued pressure from low domestic prices in the US market, and the rising currency have pushed returns backwards in all areas of beef. NZ has filled its quota to Canada, and with the US re-entering Japan, competition has increased for our customers. Whilst at present, production levels are low, the traditional bull slaughter period is fast approaching, and this will test the market. A third US dairy cow retirement scheme has been organized for October, to further complicate a sensitive supply and demand situation.

The Trend this week is easing for Bull (289c) and easing for Prime grades(324) . Values last year were at a peak in early October. The exchange rate is now at .74c against the US$ and not looking likely to fall and will put further pressure on the schedule.

The prime cattle values at the saleyards are also well back, (see graphs) with values $150-180 per head back on last year!

Local trade schedule prices have followed export schedules at between 330-370c/kg, as supplies decrease.

Bobby calf prices have remained stable, as seasoned rearers have taken a cautious approach in a challenging market.

M&WNZ have released its new season outlook report which at an average currency rate is back on last years prices for both bull and P steers. With the early spring conditions igniting the grass market early, for store cattle purchases, farmers would be well paid to study this document carefully before getting carried away on prices paid. Some evidence is now being seen that supply and demand not market information is influencing cattle prices.

Let us know

Farmers can make publishing of schedule information more tranparent by sharing their killing sheet data from processors who are not listed on this site. If farmers send their fresh killing sheet data to our website we will publish it. As the processing companies will want to provide full and extensive data, not partial and historical information as supplied by farmers, in time they will return to better, more transparent reporting.

To send us your data, either click here >>> or fax it to (03) 329-6325

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