Hard to live off the back of sheepskin

New Zealand exports of sheepskin and lambskin, at their lowest level in more than four years, are unlikely to recover any time soon as a glut of excess stock and weak demand weigh on prices.

The value of raw sheepskin and lambskin exports fell to $128.6 million in the year through April, the 15th straight decline in annual exports and the lowest level since January 2011, according to Statistics NZ data. The latest figures, for May, will be published on Friday.

The market for skins has slumped after tougher environmental regulations led to the shutdown in April 2014 of many tanneries in China, where New Zealand sells as much as 60% of its lambskins. Weaker consumer spending in China and trade sanctions on Russia also hurt demand in key leather markets.

"While the tanneries are starting to get back into action now, there are still huge amounts of product that is sitting there trying to get through the works," says Rachel Agnew, an agricultural analyst at AgriHQ's iFarm. "You are talking about an oversupply of product still waiting to be processed that no one really wants on the global market."

The price for lambskins has halved from the start of last year to about $US50 a dozen from $US95 a dozen, Ms Agnew said.

Compounding the problem further, New Zealand had a higher-than-normal lamb slaughter at the tail end of the season, leaving processors with even more skins.

Many farmers had held on to their lambs for longer in anticipation processors would raise prices near the end of the season as they traditionally compete for supply to fill orders. However, weak global demand kept a lid on prices and farmers were forced to offload their stock as pasture growth slowed heading into winter.

"We've never seen a year where prices didn't increase from about mid-May but this year we are perhaps even looking at some decreases in schedules, which is pretty scary for some sheep farmers," Ms Agnew says.

"They have no choice but to get rid of them and so they've just pressed the offload button. They're all hitting the works all at the same time so it's a bit of a lose-lose situation because the processors don't really want them and farmers aren't really making any money from them.

"Global markets for lamb are very, very depressed at the moment and so no company actually wants to pay any more for the lamb."

Lamb inventories are high following a record Australian slaughter and after a mild winter boosted UK production, while demand remains weak, Ms Agnew says.

Some processors are holding on to the skins, waiting for prices to recover, while others are selling at lower prices, she says.

"It won't help that New Zealand is going to have a little bit of extra product to try to get rid of as well as what they had in inventories," Ms Agnew says. "Because there is so much raw product waiting to be processed in New Zealand, New Zealand companies are trying to get rid of the stock at lower prices so that's not helping either."

(BusinessDesk)