Dairy, beef and lamb prices aligning

Nathan Penny

Expectations are high that dairy, beef and lamb prices could all reach more than $6 per kilogram this year.

While the forecast $6 dairy payout is far below Fonterra's $8.50 record for the 2013-14 season, the beef and lamb sectors could have a much welcomed windfall if the $6 triple is attained.

ASB senior rural economist Nathan Penny said for the first time the respective commodities could attain the ''magical triple 6''.

''There is a better than fair chance that all three sectors surpass the $6 per kilogram mark simultaneously at some stage this year,'' he said.

As far as Mr Penny was aware, the ''magical triple 6'' had never before been achieved.
He said the dairy sector was already at the $6 mark, with milk price forecasts sitting
at $6 a kg for the current season and $6.75 a kg forecast for the season ahead, while in recent months lamb and beef prices had been ''rapidly closing in'' on the $6/kg price mark as well.

''All up, the outlook for all three sectors is positive, and the fact that all three are strong at the same time is a rare occurrence,'' he said.

While Cyclones Debbie and Cook had left New Zealand in ''storm mode'' for most of April, the saving grace for the dairy sector was that they came late in the season and the major dairy regions escaped the worst of the impacts on production.

''[However] dairy farmers in the Bay of Plenty will be counting the cost of the twin cyclones well into next season.''

Mr Penny sounded another note of caution, saying higher prices would induce an increased supply response.

Spring lamb supply, in particular, was likely to rebound and the improved demand might not be able to offset the extra supply, and lamb prices were likely to fall.

''The other cautionary tale is around input prices.

''With all three sectors healthy, we're likely to see input prices rise, [and] with beef livestock prices already high in some cases, putting pressure on [profit] margins.''

Mr Penny said beef prices had ''drifted higher'' since February and were up 7.9% during that period.

The general tightness in Australian and New Zealand supply, including a lower dairy cow cull, had contributed to the lift.

''More recently, the Brazilian beef scandal has given prices a further boost,'' he said.
Lamb prices have been on a tear over the same period, lifting 13.7%.

This price surge goes against the grain of the normal seasonal pattern, where prices fall.
The main impetus for this lift has been very low local slaughter and thus tight supply this year.

''At this juncture, we expect both meat sectors to at least touch the $6/kg mark over 2017,'' Mr Penny said.

While recent trends and continued tight supply supported the view of attaining the triple $6, Mr Penny threw in a note of caution about whether the prices could last.

''For now, we're optimistic beef and lamb prices can remain high next season, if not above the $6/kg mark,'' he said.

In particular, there were signs that demand was likely to underpin the already tight supply. He singled out growing demand in China and Iran

China had announced this month approvals for chilled beef and lamb exports, which should lift average prices into that market, while the recent lifting of Iranian trade sanctions would eventually give a further boost to demand and prices once exports resumed, he said.

simon.hartley@odt.co.nz