Meat price glow may disappoint
Sheep and beef farmers warming their hands in advance of better sheepmeat prices might be disappointed, says Silver Fern Farms (SFF) chief executive Keith Cooper.
The outlook for beef was positive with the market for the burger trade in the United States on a high, but sheepmeat markets appear to be showing resistance against prices rising further.
Cooper said he would have been more enthusiastic about growth a few months ago, but softer market values were pointing to lamb being "in the ballpark" of about $100 a head for the 2014-15 season.
Farmers would like better returns, but confidence that more gains were ahead might need to be tapered, he said.
"I'm probably more cautious. Two months ago I would have said it was looking good for next year, but there is a bit happening.
"First of all the currency is at the higher end of the range and that takes the shine off things. This time last year we went into the season and the starting point was 78c against the US dollar and we are sitting now going into the season at 84c. So we are starting off at a different point and the currency is unhelpful."
The fast growing sheepmeat market of China mostly trades in US currency and the greenback now accounts for two thirds of SFF's trading currency basket when once it was a third.
The pelt market had come off the boil and pelts were selling at [PndStlg]6 in Britain from [PndStlg]12 previously and New Zealand pelt prices were down 30 per cent from this time last year.
High growth in the offal market had reached a plateau, hindered partly by the strong dollar.
Cooper said the price point of sheepmeat appeared over the last 18 months to be impacting on demand and was settling down.
"Many Chinese buyers over the last 18 months have had a go at sheepmeat importing and have found it's not that easy and margins aren't great and the costs are high. I sense there has been significant demand because of a lot of people having a go, didn't like it and we are getting back to the core importers where sheepmeat is their business."
Sheepmeat prices seemed to be at a point where they were now sustainable rather than at an "artificially driven growth curve".
The European and US markets were still struggling economically and lamb was an expensive meat option after prices had risen over the last 18 months.
Cooper said the smaller sheep flock below 30 million was going in the wrong direction, but would need to have dropped two to three million to make a material price difference and it ultimately came down to how many lambs were tailed.
"I feel we have reached a point where we will struggle to maintain demand if we push the price much further."
Beef fortunes were brighter and value was coming from China with demand for grass-fed beef a "positive story". But the main driver was that the US was short of burger meat. There were questions about the cause of rising prices and the sustainability of a commodity market continuing to see demand outstripping supply.
Cooper said some people would argue the market lift was an aberration and others would say it was at a new level.
The new base could only be good for beef production, but SFF was cautious about it being a new level.
Various theories for the lift were that traders had been covering short positions, the US was rebuilding its herd from drought and feedlotting was down with the still recovering economy encouraging consumers to go for cheaper burger dinners. This could change with an influx of cheaper grain after a good growing season in the US. New Zealand was not the driver of higher beef prices as it contributed less than 2 per cent of global trade.