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Allan Barber reviews 2013 meat prospects, says neither farmers nor processors are making money from lamb, but in the south at least processors have the upper hand. Your view?

Rural News
Allan Barber reviews 2013 meat prospects, says neither farmers nor processors are making money from lamb, but in the south at least processors have the upper hand. Your view?

By Allan Barber

As we head into the New Year, the Christmas break has provided an opportunity to consider how the meat industry is likely to pan out during 2013.

But literally as I write this speculative opinion piece, the fate of the American economy is still uncertain – although the Senate approved a restructured deal on taxes and expenditure yesterday, Republican dominated Congress has yet again balked at reaching an acceptable conclusion.

By the time you read this, the situation will no doubt have changed again for the better or the worse, but it isn’t easy to predict which.

Unless the USA gets its act together, the first probability is that the US dollar will remain weak and consequently our dollar will stay higher than exporters of any sort would want.

The meat industry is no exception.

It is subject to demand from its markets and two things are certain: one, demand from the USA and those countries which export there (all of our main markets) will be weaker than would otherwise be the case; and two, the prices our exporters receive will not increase to compensate for currency movements.

New Zealand’s domestic consumers will continue to enjoy plenty of cheap meat which should have found its way overseas, but which export market demand is unwilling to digest.

Because of the disproportionate amount of our beef destined for the grinding also known as hamburger beef market which is shipped frozen, the effect on beef will not be as bad as it is likely to be on sheepmeat, particularly lamb.

Bull and prime beef has been hovering above $4 a kilo which is fairly consistent year on year, and although an increase is not likely, there is less downside than with sheepmeat.

There remains demand for chilled lamb from UK and EU retailers, even at reduced prices, but frozen product has been under serious price pressure during 2012 and this appears set to continue this year. This will become especially the case through the peak kill period of April and May with 1 million more lambs expected to be available this season.

Unlike beef which enjoys ready demand, particularly for fast food, lamb is more subject to specialised, higher price demand, like restaurants, butchers and supermarkets.

The lamb price which exceeded $8 a kilo or the magic figure of $150 just over 12 months ago has now gone below $90 and, at present exchange rates and levels of demand, won’t come up again any time soon.

On a brighter note, the fiscal cliff impasse may be averted which would permit the signs of American economic improvement to continue to emerge. This in turn would allow China’s recovery to occur, while allowing Europe to move further back from its own economic disaster.

In turn New Zealand and Australia at the extremes of the South Pacific would be able to avoid the worst impact of an extended downturn or slowdown in their main markets.

As inevitably happens when prices are insufficient to reward everybody as they would like, the meat industry seems likely to retreat further into the two traditional camps of farmer and processor/exporter.

A year ago farmers were ecstatically happy, while meat companies were busy losing millions and millions of dollars.

At the moment, I can’t see either party making much money, but there’s no doubt capacity reduction in the deep south will ensure farmers can’t control the procurement price for lambs.

Beef capacity in the North Island still provides farmers with options, although meat companies are most unlikely to allow themselves to be dragged into a procurement war.

So the big questions for 2013 are whether all meat companies will survive the year and equally whether the tentative steps towards use of on farm data, boosted by online livestock recording systems, will assist the process of cooperation between farmer and meat company.

In the long term, a combination of capacity rationalisation and forward commitment are the factors which will get the industry back into balance on a more secure footing.

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Current lamb prices from all processors and saleyards are here »

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Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country where he runs a boutique B&B with his wife. You can contact him by email at allan@barberstrategic.co.nz or read his blog here »

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10 Comments

Its a global market, same with dairy....which begs the Q how much of others inflation is being exported to us?....ie what is the effect on our CPI?

regards

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The number of markets/countries/regions consumes NZ dairy products (all over the world) is 60 times more than the number that consumes NZ meat products (Only EU and USA).

The consumption of beef/sheep meat is being replaced by poultry and pork.

Have a look at the Situation Outlook for Primary Industries, 2012 from the Ministry for Primary Industries to find the answer yourself.

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I posted how USA are eating less meat per capita, I also expect that we'll see some sort of block by congress in a year or 2.

I now dont eat lamb as its simply over-priced compared to beef...if you need $25+ a kilo then the Q is why.

regards

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Steven, where are you buying your lamb and what cut is it?. Lamb legs in the South are discounted to below $10/kg at one major supermarket chain in the run up to Xmas. Not sure how much cheaper you expect to buy it. Its certainly cheap compared to Salmon at around $100/kg but of course you won't eat that because its too expensive!.

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Sheep meat is suffering same hangover from over inflated prices that venison had in the early 2000s. Also the practice of UK supermarkets to use lamb as a loss leader at traditional xmas and easter consumption periods has created a precedent for priceing expectations from consumers already under financial strain. As with the venison it will take awhile for that demand destruction to correct.Thank goodness for China for whom without we would really be struggling 

I agree beef looks much better and makes me glad I switched a large portion of my stock units over to it over the last couple of years believing the fundamentals to be better. As an internationally traded commodity its a much easier market to follow and make ones own judgements. Sheepmeats are traded behind closed doors between meat companies/middlemen/supermarkets, none of whom are vested interests in telling us the producers whats really going on.

Thankfully good rains over new year have been reasonably widespread which will at least help farmers achieve decent production which is our only hope of retrieveing something out of this season. I say that with due respect to the west coasters who have had a terrible start to the new year weather wise.

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Agree SS.

Q: When was the last annual season you were able to look back with satisfaction on the way lamb marketing was conducted?

and has South Canterbury has held the Ranfurly Shield since?

 

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If I recall SS, venison hit +$10/kg in the early 2000's and last year lamb was $8/kg for a short time. I agree with your comment about lamb being used as a loss leader contributing to negative consumer perception when prices rise. This is nothing new and it would be interesting how this could be stopped. The only way to get transperent pricing and information is if we have have a large meat company handling the processing and marketing similar to Fonteera but thats got about as much chance as that pig that just flew past your window although would be more than happy to be proven wrong.

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Tesco Butcher told me that NZ lamb sales are way back from what they used to be. Most customers want to buy local. He thinks we screwd up our marketing over air miles etc but then thats what we are best at.

 

 Met a few Brits who want to come and visit NZ but are worried, all their friends are telling them its too expensive, I agreed.

  Petrol at £1.30 a liter is far to close to ours, what have we done to our poor country, we have costs like Englands and half the wages. We really have an issue with costs Mr Key, Mr key time to wake up Mr Key, he must still be on a Tropical Island. Oh well never mind.

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Did you look at the cost of lamb and (importantly nz wine)  and if so what is it? When I came here in 95 I was used to low cost and good NZ wine. and lamb...my jaw dropped when the same wine was 2 x or 3x the UK cost here.  

"Local" welsh lamb is fattier and there is still a Q over the nuclear fallout so we had stopped buying it.

"air miles" is an interesting one, but buying local I can understand, I do the same thing, always going NZ first and OZ second.

Petrol, bear in mind though the exchange rate has dropped significantly.

Also check out car insurance costs...in 95 when I shipped my audi out my insurance went from 1500sterling a year to <$400NZ in NZ terms thats $3000NZ at todays rate 2:1 ? , I think it was 2.8 then.  Also power, gas prices. My house contents insurance was so high 850sterling a year that I didnt insure, the stuff I had was of less than 2 years value. Though pop into a B&Q (Bunnings equiv) for the huge choice and low prices, amazing compared to NZ...

regards

 

 

 

 

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Costs, we'll always have those, if you compare the UK health service with ours, ours is less all encompassing. Lost of goods in the UK is like the US, cheaper because of lots of competition. Here fat markups by vendors,  and our industry expects us to pay global prices etc so try less dogma and blaming JK for how things are.

regards

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