Lamb prices bolstered by supply and demand

Lamb prices have increased over February instead of declining as usual. Photo / Warren Buckland.

Lamb prices bucked their normal trend of declining in February, instead rising 10c a kg over the month.

Tight supply generated the lift in prices, with a similar dynamic playing out for beef prices, ASB's latest Farmshed Economics report said.

While improved prices were welcomed, ASB rural economist Nathan Penny cautioned that increasing demand, particularly in lamb markets, was necessary for the gains to be sustained over the rest of the year.

The lamb lift was in stark contrast to previous years when the average price drop from January to February had been about 25c a kg.

Suppliers had bid prices higher in a scramble to fill Easter orders. The scramble followed very low slaughter rates in recent weeks which resulted in lamb supplies tightening.

It was a similar story for broader sheepmeat prices. Both mutton and flaps prices were more than 40% higher than this time last year.

With supply tight, firm sheepmeat prices indicated that demand in the key Chinese market was also firming, the report said.

As slaughter rates were likely to remain low over coming months, prices were expected to maintain their buffer over recent years.

However, the normal seasonal price pattern would still apply and prices were likely to still drift lower as they normally did to April.

''Happy days'' for beef prices were expected to continue for a while longer. A lack of supply both locally and from Australia was continuing to keep New Zealand beef prices high, the report said.

Slaughter rates in New Zealand were very low. In particular, the supply of cull cows had dried up since the milk price forecast surged late last year and dairy farmers began to rebuild herds.

United States demand for imported beef remained firm despite the acceleration of US beef production compared with 2016.

''Indeed, it appears that the increasing US production has not been enough to offset falling Australian and New Zealand production.''

The report extended moderation in prices to the second half of this year.