"They have fallen a long way in the international markets, which is not that surprising because they were at a pretty high levels," Bank of New Zealand rural economist Doug Steel said.
He said the troubled economies of Britain, Europe and the United States, plus a slight increase in world supply, appeared to be driving prices lower.
Overall, sheep numbers are still at low levels, but not as low as over the last two years, particularly in New Zealand but also in Australia, he said. The "tide" had turned on the supply side.
Steel said demand was unlikely be strong in the key markets of United Kingdom and Europe, but China had increased its imports of New Zealand sheep meat. The People's Republic now takes 9 per cent of New Zealand's exports, up from just 2 per cent 5 years ago.
Britain is still New Zealand's biggest export market, accounting for about 20 per cent of exports. The EU accounts for about half.
Domestically, the price decline has been reflected in the latest food price index for June, which showed prices for mutton, lamb and hogget had fallen 5.5 per cent since June 2011, and 1.4 per cent over June this year alone.
Andrew Murray, who owns The Milford Butcher in Auckland, said customers started to baulk when a standard leg of lamb hit $55 last year.
"It really did scare a lot of people and it became a luxury cut," he said.
"A lot of people were definitely frightened by the price and started using alternatives," Murray told APNZ.
A standard leg of lamb now goes for about $15 to $18 a kg. Some supermarket chains have been discounting lamb to around $9 and $10 a kg - down from $22-$23 a kg just before Christmas.
A standard leg now goes for around $40.
"People have have noticed that the price has come down, which is good because we are surrounded by farms and lamb is what New Zealand is known for," Murray said.
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