Meat exporters remain jittery

Wool exports are up 40%, beef up 1% and lamb up 1% on the figures for last year. Photo / Martin Sykes

Lamb prices are hitting record highs but one farming leader says the key export sector is nervous about the sustainability of good returns.

Napier farmer Bruce Wills, who farms about 8500 sheep and cattle near Napier, said it had been a long down cycle for the sector.

"Most of us [sheep and cattle farmers] we've got some significant repair to do to our balance sheets, we've got some significant catch-up with repairs and maintenance. Most of us have got significantly more debt than we had five [or] seven years ago."

Wills, who is chairman of Federated Farmers Meat & Fibre, said farmers were in awe at how quickly prices had recovered.

"One of the sad reasons they've recovered so quickly is purely a re-balancing of supply [to] demand because it's been so tough for so long we're now producing significantly less lambs, less wool than we have traditionally done," he said.

"So finally the benefits of lower supply are being shown in higher price and that's coincided with a good commodity boom as well."

Rabobank's latest Agribusiness Review said lamb prices had hit record levels, with March farm-gate average pricing 31 per cent higher than the previous year.

Meanwhile, farm-gate prime beef prices rose 4 per cent during March and were only 10 per cent lower than record levels of September 2008, the report said.

Wills said many people had farmed without profit for years, with losses building and overdrafts capitalised into long-term debt.

Rabobank senior analyst Hayley Moynihan said a contraction in lamb supply had been the largest contributor during the past few years, including most of the major sheep exporting and producing regions globally.

However, demand was also increasing in new markets for what had typically been lower value products, such as offal, Moynihan said.

"There's been an overall increase in demand for protein and of course that flows through to all of the markets in terms of beef and sheep meat as well as things like pork and poultry, and much of that is an emerging markets story," she said.

Higher prices were sustainable over multiple seasons "provided we don't have any major shocks in those markets".

"Perhaps not sustainable necessarily at very, very high levels but certainly at higher than historical levels."

Beef and sheep meat were typically at the higher end of the meat spectrum in terms of price, Moynihan said.

"That's the other risk, if that gap gets too big consumers may trade across species."

BNZ economist Doug Steel said domestic consumer meat prices had risen 4.1 per cent during the year ended February.

"Looking forward and through 2011 you'd expect to see some further upward pressure on domestic prices for meat," Steel said.

Beef and Lamb New Zealand's mid-season update in February forecasted lamb export receipts of $2.6 billion for the year ended September, up 1 per cent on the previous year but with the number of head exported down 7.7 per cent to 19.3 million.

Wool prices were predicted to be up 40 per cent for the year ending June, with raw wool export receipts of $799.8 million.

Beef export volumes were predicted to drop 3.9 per cent for the year ending September, although the value would be up slightly at $2.3 billion.

Beef and Lamb New Zealand chairman Mike Petersen said meat sector prices were outstanding.

"The reality is that we actually need these levels to remain because we've only just got to the stage where returns are likely to stem the land use change."

The issue of confidence was massive.

"It's really easy when things go up like this for people to say, 'Well crikey this can't last', and yet it can last," Petersen said.

Higher prices could be sustained for a number of reasons, he said.

Food security was the number one issue facing the world, supply looked constrained and not likely to rise substantially in the near future.

It had been acknowledged worldwide that a steep decline in the proportion of disposable income spent on food was at an end, and price increases had been broad based.

There was an opportunity to re-build stocks and invest in farms, Petersen said.

"There's no time for complacency," he said. "There's still big productivity gains that can be made by most farmers just by adopting the existing tools and technologies that are out there," he said.

Beef and Lamb New Zealand's mid-season update said the average profit per sheep and beef farm was forecast to be $67,600 for 2010/11 - up 11 per cent on the previous year and the highest since 2004/05.

"You can't live on equity but it makes a hell of a difference to the viability of some businesses when you look at just the increased value in capital stock."