Analyst Intel

6 May 2019

ACROSS THE RAILS: Lamb continues to shine as demand rolls on

By Mel Croad

This time last year sheep farmers were rubbing their hands in glee. Lamb slaughter prices had catapulted above $7/kg while mutton was on the brink of soaring through the $5/kg barrier. We were cautious last year about extending the market beyond its capabilities. There were concerns that if supply increased it would weaken export values, which would flow through to the farmgate.

What did eventuate was that New Zealand and Australia together exported 22,000t more lamb in 2018 and markets absorbed it willingly. The key driver was the increased spread of lamb into markets that hadn’t really existed in previous years. Non-traditional markets were stepping up to the plate demanding greater volumes, leaving our traditional markets with less to devour. That set the scene for a solid rise in both average export values and farmgate prices. 

Five months into 2019 and the lamb market looks set to follow the same course. Lamb slaughter prices and average export values are strong despite first-quarter lamb exports from NZ and Australia lifting by 19,000t on the corresponding period in 2018 and by 16,000t when compared to the five-year average. In a historical sense, we now rely more heavily on our export markets despite the overall decline in lamb numbers. However, it is unlikely we will record much higher monthly export volumes over the balance of this season.

Lamb supplies both here and in Australia are expected to be much tighter over the remainder of this season and into next. Spring farmgate price expectations are already gaining traction. A supply shortage could drive prices beyond what we saw last year, however, that naturally implies demand fundamentals will be the same if not better. It is becoming obvious key markets are facing a protein shortage but lamb is far from the first option. With that said, global sheep meat consumption is forecast to grow regardless of African swine fever.

With other markets also producing less lamb, if well managed, the NZ sheep industry faces another good season. The challenge will be managing procurement and market expectations to ensure a seamless and positive transition into the new season.