Dollar cuts into farming dividends
Red meat is trading reasonably well in spite of a high dollar putting pressure on farmgate returns, says Silver Fern Farms chief executive Keith Cooper.
He said sheepmeat, beef and venison prices were feeling the strong currency, but trading had improved, particularly in lamb with demand rising from lower prices.
"The New Zealand dollar against our trading partners continues to create cross-rates that are towards the high end of the range and higher than last year, and that's removing in-market values."
The strong dollar is trading around the 84 cents against the United States currency, from 80c the same time last year. It remains high against the euro and pound, thus reducing farmgate returns for producers.
Cooper said venison was trading reasonably well from reasonable demand. "But there is cost pressure on higher value cuts coupled with the currency [effect] and that is leading to it being a little softer than last year, but . . . at levels I see the product continuing to be consumed."
Venison is trading in the frozen market following the main chilled market ending November. An average sized stag is priced at about $6.50/kg, down on $7/kg the same time last year, reflecting the higher currency.
Cooper said beef continued to be in good demand, even though grinding beef commodity prices had eased the past few days.
This was normal volatility in the marketplace, he said.
"That said, there has been some good opportunities in the new trading markets that will continue to underpin the future values of trading."
These markets are chiefly China and South East Asia. Some of the value gains from beef were, however, being eroded by the strong dollar as beef is mostly sold in United States dollars. Beef value is sitting at about $4/kg.
Lamb trading seems to have "turned the corner" after consumer resistance to high prices last season. Prices have fallen from the peak of $8/kg in November 2011, with an average sized lamb trading at about $4.60/kg.
Cooper said lamb was selling well on the back of "reset" market prices and was back on home and restaurant menus and on retail shelves.
He said that this trend was apparent in Europe as well as other markets. "We are having to live through the pain of a boom period last year that was unsustainable and now a price rebuilding phase over this season."
Lamb prices are expected to improve later in the year. Easter sales had been positive with all business completed and supplies were adequate for demand. The extra 1.5 million lambs are expected to be absorbed.
Lamb exports nationally rose 33 per cent in the first three months of the new export season from October to December.
Cooper said the export growth showed lamb was being consumed and was bypassing storage, which indicated further demand ahead.
"In my view we are turning the corner.
"We are having to live with some values, but that is enabling some stimulation of demand and over the course of the year will lead to improved revenues."
Farmers were familiar, however, with the economic conditions of Europe and the United States, and this was continuing to make it challenging to sell the high value portions of lamb such as tenderloins, boneless loins and french racks, he said.
Good sales were being made for the rest of the lamb carcass, assisted by China and other markets.
Cooper sensed China would build from a new market into a "business as usual" market.