Lamb prices rise as farmers hold stock

Farmers holding on to stock has pushed lamb prices higher this season. Photo / Michael Craig

Very low slaughter rates are driving lamb prices higher as farmers continuing to hold stock.

Prices continued to widen the gap compared with this time last season. The per kilogram price for a 17.5kg lamb sat 12% higher than a year ago, ASB's latest Farmshed Economics report said.

Farmers were holding on to stock as feed was plentiful and that was particularly evident in places like Hawke's Bay as, this time last year, feed was scarce and farmers destocked.

As a result, the bank believed some of the current price strength might fade over time. Low slaughter rates now were likely to lead to some catch-up later on.

For prices to remain higher for longer, there needed to be some demand lift. In that regard, there had been some good news following the announcement of Chinese approval for chilled lamb exports.

That deal had the potential to add additional value to what was already New Zealand's largest market by volume.

In a recent update to suppliers, Silver Fern Farms chief executive Dean Hamilton said it had been an unusual season so far. Weather through much of the country had gone from dry in January to wet in March.

That had been particularly accentuated in the North Island and, as a result, sheep and beef numbers being processed were down more than 15% and 30% respectively over the same weeks last year in the island.

Such a sharp reduction had created challenges for Silver Fern Farms, along with other processors, as capacity had to be idled. Three and four-day working weeks were common, Mr Hamilton said.

Competition for lower numbers had pushed procurement prices up as processors sought numbers to cover fixed costs and avoid triggering minimum wage top-ups. Livestock flows were expected to normalise as temperatures cooled further in autumn, he said.

BNZ's latest Rural Wrap said the 2016-17 season average lamb price forecast was pushing up towards the mid-$5kg mark.

Lamb prices in the UK had continued to run higher and prices now were more than a third higher than a year ago. The gains were getting big enough to offset weakness in the pound.

In an update to farmers, Beef + Lamb New Zealand chief executive Sam McIvor said Brexit was going to be a complex process ''with a lot of moving parts'', some of which had potential downsides and others which might lead to opportunities for the industry.

In the short term, the most important thing was that nothing would change while the UK was negotiating its exit from the EU.

Since the Brexit vote, B+LNZ and the Meat Industry Association had been working closely with the New Zealand Government.

The organisations had provided a submission outlining the key considerations /implications for the industry, representatives had met regularly with Trade Minister Todd McClay and Primary Industries Minister Nathan Guy, and there was almost weekly contact with MPI and Mfat officials to share information and analysis.

The EU took nearly 50% of New Zealand's total global sheepmeat exports, worth almost $1.3billion. Of that, nearly half went to the UK.