Higher lamb meat prices eroded by high Kiwi dollar

Limited supply of lamb meat is pushing up prices in overseas markets, however the gains for local farmers are being eroded by the higher value of the New Zealand dollar.

The benchmark CKT price for a leg of lamb in the UK rose to 4.10 British pounds per kilogram in August, from 4.05 pounds/kg in July and 3.40 pounds/kg in August last year, according to AgriHQ data. In New Zealand dollar terms, returns declined to $7.41/kg in August, from $7.53/kg in July, and $8.35/kg a year earlier.

New Zealand's lamb numbers fell last season as farmers reduced sheep numbers to cope with drought conditions, and are expected to decline a further 2.9 percent to 23.3 million this spring, according to the Economic Service of farmer-owned industry organisation Beef + Lamb New Zealand. New Zealand slaughter rates were at an all-time low in the four weeks to Aug. 6, with just 559,576 lambs processed, down 34 percent on the same period last year and 29 percent weaker than the five-year average, according to NZ Meat Board production data. The low slaughter rates and limited inventory meant just 17,390 tonnes of lamb was exported in July, down 22 percent on a year ago and the second-lowest export volume ever recorded for the month.

"Two key factors are influencing the international lamb scene, limited supply and exchange rate movements," AgriHQ analysts Reece Brick and Shaye Lee said in their report. "While in-market returns for various cuts of lambs have increased recently, much of the gains made in this area have been lost in NZ dollar returns, as exchange rates continue to hold well above what was observed only three months ago."

The New Zealand dollar recently traded at 72.92 US cents, up from 67 cents at the start of the year and 62.55 cents this time a year ago. It recently traded at 54.86 British pence, up from 46.40 pence at the start of the year and 40.96 pence a year ago.

New Zealand negotiations are underway for the key Christmas chilled lamb trade into the UK and Europe, which will help determine overall prices for the upcoming season. Meat processors typically start releasing contracts around now, however they have held back until there is a clearer picture around export returns, according to AgriHQ.

"Early expectations are for similar results to last year, as lower supply expectations should at least partially offset currency movements," the analysts said in their report.

Meanwhile, the price for US imported 95CL bull beef, the raw ingredient for meat patties, slipped to US$2.18 a pound (weight) in August from US$2.25 in July, due to weaker demand in the US, AgriHQ said, citing expectations of increased local supplies, the approval of Brazilian beef imports into the US and competition from other protein such as pork and poultry.

Meat is New Zealand's second-largest commodity export behind dairy products, and was worth $6.11 billion in the year through July, according to Statistics NZ data.

(BusinessDesk)

Click the hamburger symbol top right of our homepage to access the Rich List 2016 and other sections.