Market conditions cloud outlook for NZ lamb

PETER WATSON AND FAIRFAX
Last updated 09:45 30/10/2012

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Colder spring weather has meant lighter lambs going to the works.

Alliance general manager of processing John Brader said the average weight of lambs being killed at the Stoke plant over the first three weeks of the season was down by about a kilogram on last year.

In week one, lambs had averaged 19.81kg compared with 20.9kg last season, he said. This increased to 20.34kg (21.5kg in 2011) in week two before dropping back to 19.69kg (21.58kg) in week three.

The lower weights reflected a cooler spring which had slowed grass growth and made it more difficult for farmers to finish their lambs, he said. However, there were more lambs about.

Weights were also down around the rest of the South Island but were similar to last year in the North Island.

Stoke opened earlier this season, with the day shift starting on July 23 and the night shift on October 2, bringing the workforce to 230.

Mr Brader said the plant was operating at full capacity.

Meanwhile, Alliance chairman Owen Poole says a $90 return for an 18kg lamb for the new season is "not good enough", but world market conditions are dictating how much the co-operative can pay.

This was on the back of a challenging 2011-12 year, particularly for sheepmeat, he told shareholders at a roadshow meeting in Pleasant Point.

Nelson suppliers are likely to receive a similar message at farm woolshed meetings at Collingwood, Tapawera and Moutere on Thursday.

Mr Poole said market conditions had affected the co-operative's financial result and meant it would record a loss, with no farmer distributions for the 2012 year.

"I know everyone's aspirations will be higher than $90, but we would be misleading you if we thought we could do more than that this year," he told a farmer who challenged the drop in pricing.

The co-operative was also at the mercy of a high exchange rate, he said.

There had been a 30 per cent exchange rate movement between 2009 and 2012, Alliance chief executive Grant Cuff added. "When there is a 30 per cent exchange rate movement in three years, who can improve their productivity and efficiencies by 30 per cent in three years, sensibly? We are being asked to do that, you and us."

The stagnant world economy and high unemployment meant consumers were buying less, and currencies were weak with no letup in sight, he said.

The conditions were starting to hit New Zealand exporters, including Alliance Group. "We're exporting to these debt-laden countries. They have their hands in their pockets - they are unsure about unemployment, and are not buying as much as they used to. They are cautious, and it's tough for New Zealand exporters."

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Mr Cuff said the past year was more extreme than any other he could remember. Customers bought stock on a rising market before the world stopped, took a breath and switched to a more cautious approach.

It was pivotal that lamb legs sold well at Christmas in the northern hemisphere, as this would give retailers confidence, he said. High-value cuts remained under pressure, but there was increased price stability this season.

He tipped mutton prices to come in at $90 for a cull ewe, while venison prices were forecast to stay at last year's levels.

Rival meat processor and export Silver Ferns Farms (SFF) was more upbeat, saying European lamb buyers were in a positive mood despite the continent's debt burdens.

SFF teams have made promising early sales in the past two weeks for chilled lamb as prices have come off their peak of nearly a year ago.

Chief executive Keith Cooper said the positive signs coming out of Europe had substance, and farmers should be heartened by the turnaround.

He said the business was seeing signs of regained confidence in lamb as prices became more achievable to markets.

Mr Cooper said there was no point comparing prices with last November, as at that time lamb was priced too highly for the market.

"With confidence back, we see the value rebuilding in time.

"All [buyers] want to know is if they procure today, then the product won't drop in price tomorrow.

"We have a balanced supply, and I think we see the market prices slowly improving."

SFF remains optimistic about beef markets, with forecasts of $3.60 a kilogram during the season heading to $4.20.

Venison is expected to track up from a low of $6.70/kg to $8 next October.

Lamb is likely to bottom out in the peak of the season after Christmas at $4.80, and progressively rebuild to $5.80 by this time next year.

- Nelson

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