Sheep meat production and prices tipped to rise

The Ministry of Agriculture and Forestry’s (MAF) latest Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF) report into sheep meat production projects a positive future for the country’s sheep farmers.

The 2004 forecasting report says in the period through to 2008, sheep meat production is expected to rise, and despite a fall in international prices next year, lamb schedule prices are projected to increase over the period.

SONZAF is an annual roundup of New Zealand’s main agriculture and forestry industries, covering the major issues and trends, the current situation and the medium-term outlook. Each article is written by an industry specialist, and incorporates both modelled price, production and export projections with industry intelligence. One particular feature of SONZAF is that it includes projections based on two alternative exchange rate tracks as well as the main projections. This enables readers to better understand the prices that could result should exchange rates differ from those used in the main projections.

The report from MAF’s Policy group says in the year to September 2004, lamb and mutton production fell because of lower lamb numbers due to drought at the time of ewe mating in autumn 2003 and an inventory build up of breeding livestock.

Author Rod Forbes, says the lower production led to reduced export volume, and together with reduced supplies of domestic meat in the UK market, led to record high international prices for New Zealand lamb.

“To put it in perspective, though, the appreciating New Zealand dollar (NZD) took the gloss off these higher prices, with the all grades average schedule price around the same as for the previous year to September,” says Rod Forbes.

The report finds the average lamb carcass weight was a record high of 17.3 kg, up 10 percent since 1999, reflecting on-going genetic improvements and favourable growing conditions for lamb finishing.

This improved productivity and rising breeding stock numbers will see a steady rise in sheep meat production through to 2008.

Current international prices are seen as having peaked in the short term with lower prices likely next year. “However, we expect prices will rise again in the medium term because of lower UK and continental EU domestic supplies and rising prices of competitive meats,” Rod Forbes explains.

“Assuming the New Zealand dollar depreciates, and lamb carcass weights increase, we project lamb schedule prices to rise through to 2008.”

In the year June 2002 to June 2003, sheep numbers rose 0.4 percent – the first recorded increase since 1983. Sheep numbers had been falling due to land use changes to dairy cattle, deer and forestry, but prices are now favouring sheep farming.

Rod Forbes says sheep numbers are anticipated to increase further over the next two years.

The report also expects that while there will always be a market for export carcasses to retail butchers, particularly in the UK, the current upward trend in the export of higher value chilled products is expected to continue. “Demand is continuing to favour a move away from frozen to chilled products in high value markets,” says Rod Forbes.

Key Facts from 2004 SONZAF report on sheep meat production

In the year ended September 2004, exports of lamb were provisionally 358 thousand tonnes cwe – down slightly on last year.

Exports of mutton were 87.9 tonnes – down one percent on the previous year.

On an export value basis, lamb generated $1.97 billion and mutton $255 million.

New Zealand lamb was exported to 95 countries and mutton to 64 countries.

Meat and Wool New Zealand Ltd trade data shows the top five destinations for lamb by export quantity are the UK (24 percent), the US (nine percent), France (eight percent), Germany (seven percent) and China (seven percent).

For the year ending September 2005, inspected lamb production is estimated to rise nine percent. Projections out to the year ending September 2008 are for increasing sheep meat production. Exports are projected to increase in line with production.

Current international prices are seen as relatively high, and some downward adjustments in UK wholesale prices are expected in the years ending September 2005 and 2006. Further out, UK wholesale prices for PM grade lamb are projected to increase.

The New Zealand dollar is assumed to depreciate over the outlook period, and in conjunction with rising lamb prices in the UK, results in rising FOB average prices for lamb exports.

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