Sheep farmers enjoy best prices for decades

OVER THE FENCE

JON MORGAN

OPINION: If you're driving through the hill country this week, keep an eye out for gumbooted fools deliriously cavorting about.

They are sheep farmers enjoying a sudden upturn in incomes not experienced for half a century.

No-one can remember seeing sheep selling for such high prices. At livestock sales around the country records are being smashed.

Ewes fetched up to $232 each at Temuka last week and prime lambs went for more than $200. At Hastings, a line of top-quality lambs sold at $216.

Just a year ago, $100 was being hailed as nirvana and the year before that farmers were lucky to get $80 for their top lambs.

It is just reward for the hill-country farmers who for the past decade have battled killer spring storms, repeated summer-autumn droughts, unkind exchange rates and erratic markets.

The booming stock sale prices are being reflected in the slaughter prices offered by meat companies - $7.55 a kilogram, almost double the best price seen in previous years.

Unfortunately for shoppers, supermarket lamb prices have matched these heights. Leg steaks, mini roasts and racks are all selling for $30 a kg. Even mince is at $20.

The reason for this can be found in the old story of supply and demand.

Because of the droughts and storms, lamb is in short supply on world markets. Shipments to Britain are down 21 per cent on last year.

New Zealand is the biggest exporter to Britain and Europe, the most lucrative markets, and is building useful sales in other parts of the world. Australia is a big rival, particularly in the United States, but it has also suffered from droughts and exports are down.

Prices for lamb are testing shoppers' limits in British and European supermarkets, but some New Zealand exporters are confident enough to offer contracts at $8 a kg carcassweight for lambs due in August-September.

And many farmers are matching this confidence by refusing to take up the contracts - obviously expecting prices to be even higher.

Others may be wary of locking themselves into a contract because of their experience last year. A contract to supply this year's Easter trade at $5.75 a kg was offered by one company last November.

Back then, the money looked good. But when the time came to send the lambs in, the market price was $6.40 and many refused to honour the contract. The company is now believed to be pursuing the contract's $10-a-head penalty clause.

Also adding pressure on livestock and slaughter prices is a shortage of breeding stock. Farmers are keeping ewe lambs and hoggets they would normally reject so they can rebuild their flocks.

To many, this is a bitter-sweet decision. The high prices are tempting, but they have to think of the future. Mild weather and luxuriant grass growth is helping to make up their minds.

As the national flock rebuilds, economists are expecting prices to remain high for at least another year.

Adding weight to this view is news of drought affecting farm production in parts of Britain and northern Europe.

However, signs of resistance to the high prices are emerging. Sales of lamb in Britain over Easter plunged 37 per cent, which the Meat Trades Journal says is due to shoppers looking for cheaper food.

The journal had earlier noted that catering butchers were dropping lamb from food service menus because of high prices. At the same time, Welsh farmers were adding to the problem by exporting more lamb to Europe.

The biggest fear, the journal says, is that consumers will leave lamb, never to return. It quotes a Scottish meat marketer: "If lamb gets too far out of tune with other meats, then it could disappear off the shelf altogether and then we're all stymied."

At the moment sheep farmers aren't worrying about shoppers' preferences on the other side of the world - or at home, for that matter. They are revelling in the once-in-a-decade delight of seeing their incomes matching those of their dairying neighbours.

Or close to it. For although the milksolids payout is also at the magical $8 a kg figure, it is paid for a whole year's supply and it is not subject to seasonal fluctuation. A guide to how much of this bounty will flow through into the wider economy will be seen this week.

The National Fieldays are on at Mystery Creek, near Hamilton, and while it is dairying country, many sheep farmers are likely to be among the crowds, sniffing out bargains for new bikes, utes and tractors.

But, equally, pressure will be on them and their dairying colleagues to reduce debt first. Investment in farm equipment will be a sign of future confidence.

Otherwise, it won't be the locally owned rural traders who gain, but the foreign-owned banks as the export earnings head back overseas.

- © Fairfax NZ News