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Allan Barber points out that the skyrocketing sales of export mutton suggests no slowdown in the slaughter of capital stock

Allan Barber points out that the skyrocketing sales of export mutton suggests no slowdown in the slaughter of capital stock

By Allan Barber

Beef + Lamb NZ’s Economic Service has released meat export figures for the first nine months of the season which show that the value of exports topped $2 billion for the fourth time.

Beef shipment tonnage was 4.4% up on last year, lamb was down 3.6%, but mutton was up by a whopping 17.1%.

The FOB value of these exports was well ahead of the previous year in all cases with lamb earnings rising 10.5% and mutton climbing 32.1%.

Beef sales were more restrained with a 1.3% lift in the price per tonne.

This result is highly satisfactory against the backdrop of the seemingly endless strength of the New Zealand dollar, as well as the difficulties of the last couple of years, when sheep and beef farmers’ incomes are taken into account.

Unfortunately it doesn’t signal a permanent change of fortunes or a magic answer to the well-publicised problems of the red meat sector.

But at least at a time when dairy farming is no longer looking like a guaranteed source of wealth, especially for highly leveraged farmers, it is a pleasure to see some better news coming out of sheep and beef.

However there are some concerns behind the figures just published.

The inexorable rise in mutton exports suggests there is no slowdown in the slaughter of capital stock which will inevitably show up in next season’s lamb production.

Although sheep farmers have consistently lifted lambing percentages and average slaughter weights in recent years, the annual lamb kill has declined and will continue to do so, unless capital stock retention reverses its current trend.

The best news for the sector will be a drop in the ewe kill and mutton exports, not an increase in tonnage.

China is the major force in the increase in lamb and mutton export values, but while the price and volume from that market have increased significantly, the average price of lamb is still about $4,000 per tonne or 40% below the price earned in Europe.

Meat exporters have traditionally done a good job of maximising the price achieved from a basket of markets. But the switch from chilled to frozen lamb and the drop in sales to Europe, offset by sales to North Asia, predominantly China, indicate that there may have been a decline in the most effective market and product mix.

Beef sales were more consistent with product and market mix showing a similar trend to previous years, but with evidence that North Asia is also becoming more important at the expense of North America.

However the US market still pays the highest price for beef for processing, mainly hamburger beef.

On the bright side there is plenty of demand for our meat and a wider range of markets prepared to pay a competitive price for it.

It remains important not to fall into the trap of supplying too much to any one market at the expense of others.

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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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7 Comments

A lot of farmers around here have gone %100 dairy grazing. Sold ewes and cows and become part of the stampede to dairy support.  Chasing rainbows always gets you in trouble.
 The local meat works according to a friend who works  there, was killing 7000 ewes a day a day in March. Thats outside the usual ewe kill and only one works.

The  main reason for volatile prices for sheep and beef farmers is the weather. Sheep and beef farmers have traditionally produced large numbers of store lambs and cattle in the hope that there will be a market for them. This has been encouraged in the past by their farm advisors and stock agents who benefit from this type of farming. Meat companies have also have run their companies on the back of farmers exposure to drought. But now dairy has taken over alot of the good flat land used for fattening, sheep and beef numbers can only build back up with a decline in dairy. Sheep and beef farmers need to lessen there exposure to weather . And they need to figure this out for themselves as their stock agent and meat companies won't advise them to do this as their businesses have traditionally made money from this exposure.

reducing expose to weather comes with exposure to interest rates (either as debt or overcapitalisation).  With continually substandard returns it usually isn't worth increasing production, as all the profit disappears further up the chain..

From the astute article & comments above it seems that the NZ farmer is still being played
and i would contend it about time there was a joint cross farming objective countrywide in place so the endless manipulations of the farmer are as much avoided as possible. We should realise that to export to countries that are great negotiators we must find a better crystal ball if we are not to constantly be chasing the tail of the whims of the countries we sell our total agri production into. A more sophisticated approach and one that meets the needs of the farmer on the ground not the supplier of farm inputs or processing industry.
Algorithmic calculations work in the financial markets and i cannot see why all the inputs of 
be collected to calculate a better overall farming export approach that a piecemeal broken up  view of each individual farming sector whioch as can easily be seen is played one off the other over the year/s by our more sophisticated export market buyers.
Just an observation from outside farming, I may be wrong ?

Now if we could just get Fonterra to honour the commitment to higher product quality, with decent consistant payout value, we could fix some of those intensity and housing issues.

Sadly with what looks like a 25% reduction in price, it's going to be tough to meet Wheelers 7+% push without having to justify extra spending in capital and feedprice risk.  That massive margin reduction has to come out of someones' pocket and I don't know many urban businesses that could survive 25% off everything they sell in a year.

Most sheep and  farmers are good at running their farm. ( that is the day to day hands on stuff). But do they have good businesses? A farmer that owns hills for breeding and irrigated land for fattening may have a better business model that a farm that just produces store stock, but the price drops for everyone if there is too much industry exposure to drought. This is why i think ewe numbers are dropping as farmers realise they need to fatten more of their own lambs or take on dairy grazing.

What worries me about the dairy price drop is that some of the bigger corporate dairy farms with high debt will be sold to foreign interests.

Days to the General Election: 26
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