In-market prices for N.Z. lamb, beef to remain solid

by Bryan Salvage
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WELLINGTON, N.Z. — For the coming year, in-market prices for lamb and beef are expected to remain solid and exchange rates are likely to have the greatest impact on farm-gate returns, according to Meat & Wool New Zealand’s New Season Outlook for 2009-10.

Despite the weakened global economy, the good retail and wholesale lamb prices achieved in the last year are expected to remain, although the recession places a ceiling on beef prices, especially in the North Asia and European markets, said Rob Davison, Meat & Wool New Zealand Economic Service executive director.

"We expect the New Zealand dollar to remain volatile over 2009-10, and it has trended upwards in recent months against the continuing weakness of the U.S dollar" he added. "Currently, the New Zealand dollar is also being supported by higher commodity prices and equity markets as a lead economic indicator of a recovery in New Zealand’s trading partners’ economies. This should provide support for more positive in-market pricing for meat and wool products."

However, in practice, the exchange rate is uncertain and there is concern the New Zealand dollar seems to be following the Australian and Canadian exchange rate trends weighted towards the equity markets, oil, mineral and metal commodity trends, not New Zealand’s soft agricultural commodities, he continued.

Based on an optimistic exchange rate "mid-point" for the year of 63 cents/U.S. dollar, up 8% on last year, the forecast per head lamb price of $80 is down 10% on 2008-09’s seven-year high of $89. Beef prices would be expected to be down 11.7% based on the mid-point exchange rate, he said.

"A higher exchange rate for 2009-10 centered around 67 cents/U.S. dollar and its associated cross rates would see beef prices compared with last year drop 17.1% and lamb prices drop to $73 per head (-18%)," Mr. Davison said.

Sheep and beef farmers will see revenue and profit affected by the higher exchange rate and retention of stock to rebuild herd and flock numbers, but lower inflationary pressures and interest rates should abate from the previous year’s highs, he added.

"While the 2009-10 lamb crop is expected to be ahead of last year’s, an increase in ewe lamb retentions will reduce the number of lambs available for export slaughter (-2.2%)," he said. "We also expect a 4.8% decrease in export cattle slaughter from the high last year."

Based on a 63 cents/U.S. dollar exchange rate, sheep and beef farm profit per farm is expected to drop from $56,600 (2008-09) to $39,900 (2009-10). The average sheep and beef farm currently carries 2,770 sheep and 280 beef cattle.

Sheep and beef farm income will also be strongly dependent on the value of the New Zealand dollar at the height of the production season, Mr. Davison said. Farm-gate prices for lamb and beef in the last half of 2008 rose significantly with the rapid depreciation in the value of the New Zealand dollar at that time.

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