Lamb flap prices rise to 20-month high as higher Chinese demand meets lower NZ supply

Lamb flaps are popular in China for use in traditional hotpot dishes, and traders are buying the meat now to ensure it can be shipped to China in time for New Years. Photo / Michael Craig

Prices for the humble lamb flap are on a tear, hitting their highest level in 20 months, driven by increased demand from China and lower supply from New Zealand.

While prices for a leg of lamb in the UK and beef for meat patties in the US are being impacted by weak demand, the price for lamb flaps rose to US$5.10 (NZ$7.14) per kilogram in November, from US$4.70 (NZ$6.58)/kg in October and US$3.80 (NZ$5.32)/kg for the same period a year earlier, according to AgriHQ's latest monthly sheep & beef report. That's the highest level recorded by AgriHQ's since March 2015.

Lamb flaps are popular in China for use in traditional hotpot dishes, and traders are buying the meat now to ensure it can be shipped to China in time for New Years celebrations starting in late January and to cover demand for the ensuing holiday period. Also known as the 'spring festival', the Chinese New Year falls on Jan. 28 in 2017, ahead of 2016 when it was celebrated on February, 8th. The increased demand is coming at a time when supplies are lower than normal in New Zealand as cold and wet spring weather conditions prompt farmers to retain their stock for longer to increase their weights.

"Buyers are actively seeking lamb for the Chinese New Year period, and with slaughter rates in New Zealand weak for this point in the season, exporters have been able to shift volumes at higher prices," AgriHQ analyst Reece Brick said in his report. "It is still uncertain just how firm demand will be following the Chinese New Year celebrations, especially since NZ lamb production will likely be nearer to normal levels around this point."

AgriHQ's Brick noted that new Chinese lamb buyers had emerged in the market, similar to a previous period of high demand in late 2014 and early 2015.

"This is no doubt good news for short-term demand, but has caused some wariness in New Zealand, as the Chinese market crash in 2015 is still fresh in exporter's minds," he said.

Meanwhile, the benchmark price of a leg of lamb in the UK was unchanged at 4.35 British pounds/kg in November from October, and ahead of 3.40 pounds/kg a year earlier. The price remained steady against expectations of some easing, as the New Zealand dollar pulled back against the British pound, taking some pressure off New Zealand dollar returns, Brick said.

The UK market has been "quiet and nervous" with both importers and exporters uncertain how the market will react once New Zealand lamb production picks up, he said. Buyers from Continental Europe are hesitant to ink forward orders given New Zealand production is about to step up and they are aware of efforts by New Zealand exporters to divert product away from the UK into Continental Europe, he said.

The price for US imported 95CL bull beef, the raw ingredient for meat patties, slipped to US$2.04 (NZ$2.86)a pound, from US$2.10 (NZ$2.94)/lb the previous month, and compared with US$1.98 (NZ$2.65)/lb a year earlier.

AgriHQ's Brick said US imported prices were stable due to lower-than-expected supply, especially from New Zealand.

"This does not bode well for the coming weeks, as production in New Zealand will lift, and it's likely these lower bids will become more tempting for exporters to accept as they need to shift more product," he said. "Just how firm the market is will become clearer in the next week or two as activity picks up following this quiet spell."

Meat is New Zealand's second-largest commodity export product behind dairy, according to the latest annual data published by Statistics New Zealand, but slipped to third place in the monthly rankings behind wood. The value of meat exports declined 8.6 per cent $6.17 billion in the year through October and fell 18 per cent to $315 million for the October month compared with October last year.