Meat prices expected to lift as processing capacity returns

A purple patch is expected for farm-gate meat prices once the Omicron outbreak eases. Photo / Stephen Jaquiery

The "very tricky patch" for sheep and beef farmers is set to continue in the short term, with Covid-19 at its heart, Westpac senior agri-economist Nathan Penny says.

In his monthly meat report, Penny said the Omicron outbreak had been felt most acutely in meat processing plants, where it had caused very low operating capacity and delays in processing.

Some plants were operating at as low as 40 per cent capacity and, as a result, some processing delays had blown out to about eight weeks.

Some bookings were being cancelled at the last minute as plants did not know how many workers would be available day to day.

For many farmers, it had become a "real juggling act".

Holding stock for longer than normal was particularly tricky as feed became scarcer as winter approached, and that had inevitably led to higher costs and some cash flow pressures.

It was compounded by drought in some areas, including the South, a general lack of both imported feed and labour, as well as the widespread surge in operational costs.

Meat-processing margins had reflected the impact of the Omicron outbreak.

Bull beef-processing margins shot up more than $2 a kilogram at one stage compared with the same time last year.

That chiefly reflected the lost efficiencies or higher costs of operating plants at reduced capacity.

It was a similar story, albeit of a smaller magnitude, for lamb-processing margins, he said.

Once the Omicron outbreak eased, and as meat-processing capacity rebounded back closer to normal, a "purple patch" for farm-gate meat prices was expected to emerge.

He expected beef and mutton prices to crack $7 a kilogram, while lamb prices were picked to surpass $10 a kilogram for the first time on record.

Global supply factors continued to underpin both global meat prices and the bank's view that a purple patch did lie ahead.

Those factors included the ongoing fallout from Covid, poor weather in key grain-growing regions and the Ukraine-Russia conflict.

ANZ's latest Agri Focus report said the lamb-processing season would be more protracted, with higher than usual numbers processed in May and June.

In addition to processing constraints, there were other reasons why the lamb kill was so much slower this season.

Lambs had not done particularly well, with daily weight gain compromised due to poorer-quality feed.