Returns from New Zealand's lamb exports may be restrained by the kiwi's strength against the British pound, which is heading back to its highest levels in at least four decades.
The benchmark price of a leg of lamb in the UK was unchanged at 4.35 British pounds per kilogram in December, down from 3.80 pounds/kg six months ago but up from 3.30 pounds/kg in the same month last year. By contrast, lamb flaps, a popular meat in China for traditional hotpot dishes, rose to US$5.40/kg from $5.10/kg in November, having soared from just US$3.40/kg a year ago.
The New Zealand dollar rose as high as 59.26 British pence today, the highest since early November after the Sunday Times reported that British Prime Minister Theresa May will signal this week her intention to drive ahead with plans to exit the European Union. It reached 60.54 pence in October, the highest since the kiwi currency was floated in 1985, and has surged 21 per cent since the UK's European Union membership referendum on June 23 last year.
"The UK is still proving to be the most problematic market, however, this is almost exclusively due to the exchange rate," said AgriHQ analyst Reece Brick. "Every time the kiwi goes up against the British pound, New Zealand dollar returns go down."
Brick said a lack of selling into the market, with many New Zealand exporters carrying low inventories, was helping prevent prices from falling further but as kill volumes rise, "there's no guarantee that prices will hold."
Still, overall overseas lamb markets were "largely stable-to-firmer in recent weeks and, if anything, there's a glimmer of positivity surrounding lamb exports". Exporters have been trying to re-route lamb to Europe from the UK but with mixed results to date, he said.
The New Zealand lamb slaughter for the four weeks to December 17 were 1.73 million, based on NZ Meat Board data, down 21 per cent from a year earlier when farmers sent more animals to be slaughtered in anticipation of drought conditions. Compared to the average of the previous four years, the lamb kill was only down 2 per cent in the December period, NZX Agri said in its monthly sheep & beef report.
Prices for beef exports were more favourable. The US price for benchmark 95CL (bull) beef, the raw ingredient for burger patties, was US$1.97 a pound in December and early January, up from US$1.84 a year earlier although down from an average US$2.16/pound average in the past five years.
Meat and edible offal exports fell 32 per cent in November from a year earlier, according to Statistics New Zealand data released last month. Meat exports fell 12 per cent to $6 billion in the 12 months through November, ranking second to dairy exports at $11.1 billion.