Lamb prices could return to recent lows

Sheep farmers' returns look like plumbing the depths seen before last year's boom unless the NZ  dollar takes a dive reports Rural News. Meat & Wool NZ economic service director Rob Davison says last week's post-float record for the kiwi against Sterling, combined with continued strength against the Euro and US dollar, suggests the average lamb price will be back to $66."˜That's not a good price given there has been a 21% increase in on-farm inflation in the last three years.' Average prices achieved in 2005-06, 2006-07 and 2007-08 were $56.20, $53.60 and $57.90 respectively. Last year's lift to $89 was about 55% currency driven and 45% market related. Fortunately, those in-market gains look like holding with a lamb crop similar in size to last year, says Davison. That's echoed by Alliance's Owen Poole. "˜The market is standing up quite well. Lamb has been remarkably resilient in a world plagued by recession. If the currency wasn't as strong we would expect the same income as last year.' Davison says about a quarter of lamb goes to the UK, priced in Sterling; about a quarter to mainland Europe, priced in Euros, and most of the remainder is priced in US dollars. Where those exchange rates lie between November and June 2010 is critical. Davison also notes the 2010 lamb drop is unlikely to see much of an increase due to a higher ewe-lamb kill last year, possibly due to better prices, than might otherwise have been expected. "˜It suggests there is some catching up to do [with flock replacements].'