Farm gate prices have boosted sheepmeat producers to levels not seen for nearly a decade and a recently-released industry report suggests farmers can expect to continue to enjoy high prices and favourable offshore market conditions in the year ahead.
Rabobank analyst Rebecca Redmond says as the “fairytale 2010/2011 season” draws to a close, the future continues to look bright.
“Even at higher prices, overall demand for New Zealand sheepmeat has been holding steady in developed markets,” Redmond said.
“Although some consumers are struggling to pay the higher prices, there are those that continue to enjoy lamb and the lift in revenue is balancing the fall in consumption.”
Redmond, the author of the report New Zealand sheepmeat – how long will the fairytale last? expects demand for sheepmeat to soften slightly in developed markets while economic conditions remain soft.
This will be balanced by demand from emerging markets such as China, however which is expected to lift with income growth and the modernisation of supply chains in the retail and food service sectors.
“In 2010 a Chinese consumer in the top 20 percent of the income bracket consumed 1.5kg of sheepmeat per year, while a consumer in the bottom 20 percent of the income bracket consumed one kilogram of sheepmeat on average. Lifting income levels has the potential to increase sheepmeat consumption by 50 percent in this market.”
The Rabobank report says a decade of shortening of supply from key sheepmeat exporters including New Zealand, Australia and the United Kingdom, along with a decline in the world’s biggest domestic flock in China, reflect the changing dynamic around sheepmeat production.
“This limited supply is a key driver of the high prices,” Redmond said.
“The reason these pressures haven’t always been apparent to New Zealand producers through farmgate price increases has been due to the lifts in production volumes during extended periods of drought, such as in Australia, and changes in land use increasing production from the reduction in capital stock across the globe”.
Production recovery from New Zealand is likely to remain limited for the next few seasons due to higher-than-average mutton slaughter in 2011, lower lamb numbers in 2010/2011 and some ewe losses after the September 2010 storms.
Rabobank’s forecast is that global sheepmeat supply adjustments will happen but not for at least three years. Even then, the supply lift will not return to levels of the past decade.
“It is important to recognise that food markets are increasingly affected by non-food influences including the activities of speculators, government policy, coupled with exchange rate uncertainty,” Redmond said.