Lamb price volatility hurting industry

By PATRICK O'SULLIVAN

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After last week's two-tooth fair at Stortford Lodge, where prices for good-quality stock fell up to $120 on last year's record-setting sale, senior PGG Wrightson stock agent Vern Wiggins said lack of confidence in meat schedule prices "will mean a lot of good ewe hoggets will be killed next year instead of being kept for breeding".

"A lot of ewes were bought as ewe lambs and farmed on for this fair for very little margin. We knew last year's prices were good but the gap to this year is way too wide," he said.

The top price paid at the sale was $169 for a line of 250 romneys from Patoka Station. Last year Patoka Station made $253 from similar ewes.

He said the companies paid "way too much" for lamb last year, which had inflated all sheep values.

"We were getting up to $300 for two-tooths and $210-$220 for 5-year-old ewes which was never sustainable. But because the signals were sent by meat companies that lamb was going to be worth $8 per kilogram that made it justifiable. But it wasn't."

He said there had to be more consistency in the signals sent by the meat companies.

"You can't go from $8 a kilogram one year back to $4.40 the following year - someone's got that badly wrong.

Affco operations manager Rowan Ogg said the fall in prices had been well signalled by both meat processors and industry commentators.

Chief executive of Silver Fern Farms, Keith Cooper, said his company had kept farmers well informed.

"Five months ago we started telegraphing our predictions for the current season and we have continuously re-emphasised our forecast.

"As a co-op we are acutely aware of the reasons for forecast models, so people can plan their business."

He said Silver Fern used a similar forecasting model to Fonterra and for those farmers wanting more certainty of price, there were forward contracts available.

Mr Ogg said falling demand overseas and the high New Zealand dollar had been fundamental to price falls for farmers.

Beef + Lamb chairman Mike Petersen, recently returned from Indonesia where he was exploring market opportunities, said 94 per cent of New Zealand lamb was exported.

Prices were particularly sensitive to economic downturns.

"Lamb is a very niche product throughout the world - remember there is more goat meat eaten in the world than sheepmeat, by far. It is a very small product and the problem we have is it is a very expensive protein - it always has been.

"So the New Zealand market is always going to reflect what's happened overseas."

The country needed a viable sheep industry, but it had to be affordable for both farmers and consumers, he said.

"The average-weight lamb in New Zealand fetched $155 last year. Today it is $80.

"We could live quite comfortably somewhere in between.

"The thing that is really hurting the sheep industry is volatility. It is really hard to plan a future."

Meat companies were also hurting and there needed to be "a good hard look beyond the farm gate at the industry structure".

"Two farmer-owned co-operatives between them lost nearly $100 million last year."

He agreed with Mr Wiggins, in that ewe numbers would fall, and predicted a swing towards cattle and dairy support.

A silver lining for Hawke's Bay farmers who had limited options to diversify, was that they would quickly benefit when prices recovered, Mr Petersen said.

"If you look at it long term, and that's what I keep saying to people at the moment, you should be looking at more than one year. Over the last three years the average price is going to be about $105 - it's not too bad."

Mr Cooper said the sheep meat industry was not alone in price uncertainty and echoed outgoing Fonterra chairman Sir Henry van der Heyden's words: "We are now into a new era of volatility and there will be peaks and troughs - that's the way of the world," Mr Cooper said.

Despite the peaks and troughs the long-term trend was for improving prices, because of increasing populations and decreasing food-production land, he said.

- HAWKES BAY TODAY

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