Healthy demand for NZ lamb, beef to continue

by Meat & Poultry
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WELLNIGTON, NZ – Good demand for New Zealand lamb and beef will continue, predicts Beef + Lamb New Zealand’s New Season Outlook.

Each spring, B+LNZ releases its New Season Outlook and this year it sees beef and lamb export receipts totaling $4.7 billion (US$3.5 billion), 1.6% less than last year. The decrease predominantly reflects a 3.5% decrease in meat shipments to world markets, while lamb prices per tonne held on last year and beef prices lifted 3.0%.

Because New Zealand exports 82% of its beef and 92% of its lamb, it’s the international market prices that drive the sheep and beef sector as it is those prices that dominate, said Rob Davison, B+LNZ economic service director.

“In terms of lamb production, New Zealand’s breeding ewe flock has more or less stabilized [down 0.6%] for lambing this spring, after decreasing 15% over the past two years from land use change and drought,” he said. “Indications from scanning results are that the lambing percentage will be back 2.5 percentage points on last year’s record resulting in a lamb crop of 27.6 million, down 2.5% on last spring. The expectation is that fewer replacement lambs will be kept following a high retention last year to leave export lamb shipments down 1.7% on last year.”

Beef cattle numbers at 3.92 million this June were 1.3% down on the previous year. Beef production shipped this year are expected to decline 5% from a lower cull cow slaughter as new dairy herds consolidate, a continuation of conversions from sheep and beef farms to dairy, but at a slower rate than recent years. There will be some re-stocking in Northland and the Waikato following last season’s dry conditions.

Steer and heifer production reflects the decline in beef cow numbers in recent years though bull beef lifts (up 0.9%) because of a slight increase in bull beef calves in recent years. This was mainly due to improved margins for calf rearers in the spring of 2009. However, more bulls are expected to be finished at 18 to 20 months than in recent years for cash flow reasons.

The New Zealand exchange rate continues to loosely follow Australian and Canadian currency trends that are weighted toward oil and mineral commodities.

“Where the exchange rate lies between November and June when the majority of farm production is sold, will have a large influence on sheep and beef profitability at the farm level and export earnings,” Davison said. “Based on a more optimistic exchange rate assumption than today of a 68 cents/US$ exchange rate and its associated cross rates, all classes average sheep and beef farm profitability before tax is estimated to average $54,000 [US$40,000] per farm for 2010-11, down 5% on 2009-10.

“At a less export favorable exchange rate of 72 cents US to the NZ dollar this would see sheep and beef farm profitability fall to $34,000 [US$25,000] per farm,” he added.

The steep fall in profitability from a less export favorable strong exchange rate links in the short term to farm expenditure remaining largely fixed and Gross Farm Revenue falling from lower per head export prices received at the farm gate.

“Doing the math, at US 72 cents exchange rate compared with US 68 cents equates to a drop in Gross Farm Revenue of $18,000 [US$13,000] per farm, which flows to the bottom line farm profit before tax. Alternatively a more favorable exchange rate would boost farm profitability $22,250 [US$16,681] per farm and would be welcome.”

Davison said everything has been set for this year’s production, but the big uncertainty is where the exchange rate will lie and what this will deliver to the export sector.

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