Analyst Intel

16 October 2020

PULSE | Export prices weaken farm gate returns

By Mel Croad

The recently completed 2019-20 export season has been very different from the previous two seasons. Prior to the 2019-20 season, unwavering demand from key markets and favourable exchange rates supported export returns and underpinned strong farm gate prices right through the season. In comparison, last season could almost be split in three sections.

Insatiable demand from China between October and late December last year drove export and farm gate prices to record levels. Other markets were immediately on the back foot and scrambled to compete for New Zealand exports. 

However, by the start of 2020, export returns felt the impact of lower Chinese buying demand and of course the global spread of covid-19. By June, export markets had settled into a steadier rhythm, allowing NZ the opportunity to ship more lamb and beef, therefore making up for the weaker demand through autumn. This in turn supported some marginal upside in prices at the farm gate. 

While export prices have been influenced by the covid pandemic over the last season, the dominance of China on our export market hasn’t wavered too far.

In the last twelve months to September 30, China accounted for 43% or 386,000 tonnes of NZ’s total lamb, mutton and beef exports. This was down slightly on the 2018-19 export season, where China took 45% of NZ’s total red meat exports. The dominance of China on our red meat export markets means that when asking prices there ease, as they have done in the last season, we feel it more acutely in our export returns and farm gate prices.

A quick look back over the season that has just wound up and it’s safe to say it finished on a softer note for farmers and processors. The record highs of $9/kg last November for lamb masked what has been a challenging time for prices in 2020.  Since February, lamb prices at the farm gate endured much stronger downside, only managing to come to a rest in May. 

Export values and, therefore, lamb farm gate prices have been lower than last year but still in line with historical levels, which is quite a feat during a global pandemic. 

As a result, farm gate lamb prices still made a respectable season average of $7.50/kg in the North Island and $7.36/kg in the South Island. This was down from $7.73/kg and $7.45/kg respectively in the 2018-19 season.

For beef, the messages have been a little mixed. The frenzied buying through November and December last year again masked the weaker market conditions through early 2020. As a result, the overall North Island average bull price lifted higher than the previous season to $5.51/kg and $5.09/kg in the South Island. 

Interestingly, AgriHQ data shows you would need to go back five years to see averages push over these levels. Prime beef prices basically averaged the same as bull for the 2019-20 processing season, coming in at an average of $5.52/kg in the North Island and $5.08/kg in the South Island, however these were both lower than the five-year average of $5.59/kg and $5.34/kg respectively.