NZ lamb prices lift; weak demand likely to weigh on future returns

New Zealand lamb meat prices advanced last month on lower supplies but analysts expect the uplift will be temporary due to weak demand in the UK market, where around two-thirds of the country's lamb legs are exported.

The benchmark CKT price for a leg of lamb in the UK rose to £4.20 a kilogram in September, from £4.10 pounds/kg in August and £3.40/kg in September last year, according to AgriHQ data. In New Zealand dollar terms, returns were $7.51/kg in September, from $7.41/kg in August, and compared with $8.04/kg a year earlier.

In New Zealand, the average price from local meat processors lifted to $5.80/kg, from $5.68/kg in August and compared with $6.05/kg a year earlier, AgriHQ said.

New Zealand lamb numbers are forecast to decline this season after the number of breeding ewes fell 3.1% last season, the 10th consecutive annual decline. While the lower supply has bolstered prices in recent weeks, that's expected to ease once the main production period gets under way due to weak demand in the UK and as export returns are hurt by the elevated level of the kiwi dollar combined with a weak British pound.

"UK demand for New Zealand product is low, not helped by low consumer demand for lamb, which is priced much higher than alternative proteins such as chicken and pork," AgriHQ analysts Reece Brick and Shaye Lee said in their report. "A larger portion of UK lamb is continuing to stay within the local market as well, providing little incentive for buyers to source from New Zealand."

Major supermarket chains in the UK have indicated they will be taking a step back from promoting chilled lamb this Christmas as they are unwilling to absorb the same losses generated in previous seasons, according to the report.

The lower prices mean it won't be economic for many meat processors to air freight lamb meat to the UK, resulting in a narrower production window and ensuring there will be very few new seasons lambs ready in time to make the slaughter window for sea freight, it said.

NZ exporters are looking at how to divert product away from the dominant UK market, he said.

Meanwhile, the price for US imported 95CL bull beef, the raw ingredient for meat patties, slipped to $US2.02 a pound (weight) in September from $US2.18/lb in August, AgriHQ said, citing increased local US production, uncertainty around the potential for increased supply following the approval of Brazilian beef imports, and competition from cheaper proteins such as pork and poultry.

"Market signals indicate the imported beef trade will continue to be burdened with weaker prices through until at least the start of 2017," the report said.

Meat is New Zealand's second-largest commodity export behind dairy products, and was worth $6.39 billion in the year through August, according to Statistics NZ data.

(BusinessDesk)