Weak global demand weighs on sheep, cattle prices

Weakening demand in China and Europe, combined with the impact of a nine-month port strike on the US West Coast, have eroded farmgate prices for sheep and cattle, Silver Fern Farms says.

Prices for sheep, lambs and bulls are all lower than forecast by New Zealand's largest meat company, chief executive Dean Hamilton told BusinessDesk.

"From a perspective of where we saw the market in October versus now, certainly end markets are softer," Hamilton said. "There have been a lot of external events that were unpredictable."

While dry weather conditions had prompted farmers to sell their stock to meat processors earlier than normal, the main impact on prices was slower global demand, the company said.

Sheepmeat prices have fallen by about a quarter from $3.80 per kilogram in November as demand dropped from China, as Asia's largest economy stepped up processing of its own domestic supply, damping demand for imported meat. China had been a strong growth market, where the meat is used in stews and hotpots.

"The price has weakened a lot in the last two months as that's happened and so that's been fed back into what we are paying in the paddock," Hamilton said. "At the moment a lot of people are freezing it and crossing their fingers, others are accepting those lower prices and continue to sell in, or you try and find other markets to take that product."

Meanwhile, lamb prices have also fallen. In October, Silver Fern Farms forecast $100 a lamb, or $5.55/kg, however it now expects to pay between $4.70-$5.25/kg amid softer demand in key markets in the UK and Europe where economic growth is weak.

In the US, a protracted labour dispute at 29 West Coast ports, which handle most imports from Asia, has affected demand for imported bull beef typically used in hamburgers as shippers have struggled to get product into the country. The dispute, which some analysts estimate could shave 1 percent off US fourth-quarter GDP, saw the ports operating at reduced capacity as dockworkers slowed cargo movement and port employers cut shifts.

The port dispute caused a record price differential between bull beef imported into the US and the country's domestic supply, with imported product fetching US$2 a pound compared with US$2.80 a pound for domestic beef.

"The imported price has come right down as essentially importers are unable to be confident of getting the product," Hamilton said. "We have seen prices in the US come down on a monthly basis since that strike started."

While dockworkers and shipping companies settled an agreement late last month, it may take four to six weeks to clear the backlog, which will probably keep prices down for awhile, Hamilton said.

Silver Fern Farms expects prices for bull beef will be at the lower end of its $4.50-$5.50/kg range if it doesn't clear quickly and at the higher end if it is cleared quickly.

"Ideally you would want access now," Hamilton said. "We are right in the middle of the bull season. I don't think we'll miss it but I think it is causing everyone heartache."

Still, prices for prime beef, commonly used for steak, have held up as expected in line with earlier forecasts, he said. That meat is expected to fetch $4.75-$5.25/kg.

Shares of Silver Fern Farms, which trade on the Unlisted platform, last changed hands at 40 cents, valuing the company at $40.2 million.

(BusinessDesk)