Too many players in Meat Industry keep prices low

Too many competitors in the meat industry as well the high dollar are being blamed for low lamb prices. A high NZ dollar is blamed for poor prices offered to sheep and beef farmers, yet it has not stopped Fonterra lifting its payout forecast to $6.05/kg milksolids. Unlike Fonterra, meat companies appear to do very little hedging. One industry source said meat companies did not hedge because they could let farmers take all the risk reports Country-wide. If the concept for a super meat company promoted two years ago had been successful and held 80% of the supply then it could have locked in prices in the 60 cents range like Fonterra. They also said British supermarket Tesco had been in NZ recently knocking on meat company doors. Several meat companies, a large processor and a medium-sized one, had caved in to Tesco, accepting a lower price to get quick turnover of product. If other meat companies manage to hold markets and price then the deals with Tesco by the two companies could backfire. Silver Fern Farms' Lambplan programme is offering a guaranteed minimum payment of $1.85/kg liveweight (LW) for store lambs through until the end of February. This could change if the dollar moves. The situation is being reviewed each week. Farmers who take on the lambs to finish for Lambplan have been offered $1.30/kg LW, down on the $1.60/kg LW paid last year. Farmers say the Rissington Breedline contract with British supermarket chain Marks and Spencer initially offered $3.96/kg carcaseweight (CW) but has risen to just over $4/kg. Alliance are offering pre-Christmas store lamb prices of $1.85-$2/kg depending on weight and breed but again a lot depends on currency. It is paying $1.30-$1.50/kg for finishers depending on size and weight. The most popular option offered by Alliance appears to be the yield quality contracts running from October to May. Farmers are paid $4/lamb over the schedule plus pool payments. Last year the average payment was $7.50/lamb above schedule. Lambs have to be in the 14.5-19.5kg weight range. Affco livestock manager Gerald Scantlebury said the company preferred to stick with the spot market value for sheep meat, rather than tie itself or farmers into contracts. "Regarding the store lamb trade, most store-lamb farmers finance their own livestock from the bank, and would rather avoid tying finance and price in together." He said it was not so much an issue of complicating operations, but was sensible business choice to isolate the two. Past contract arrangements had inevitably put farmers in a position where they felt pressure to accept a more attractive spot market price.