Competition keeps lamb prices artificially high

Competition among meat companies for a diminishing number of prime lambs is keeping prices higher than they should be.

Traditionally, prices fall after companies have filled Easter shipments, but this year the kill is about 1.5 million behind the corresponding time last year, even though there are an estimated one million more lambs available to kill than last year.

Most of the country has had plenty of grass over summer and farmers have kept back lambs to use the abundant feed, forcing meat works to work short weeks and also creating competition between companies.

Those same bumper growing conditions also meant meat exporters struggled to fill ships supplying the important Easter markets.

Farm gate prices were also unrelated to high sterling, Euro and United States currency exchange rates against the New Zealand dollar.

According to prices published by NZX Agrifax, a 17kg lamb last week was earning farmers $4.30 a kg, the same as in late January and 20c a kg less than a month ago.

Silver Fern Farms chief executive Keith Cooper said plants were full last week, but conceded there was "a lot of procurement money in the prices".

He would not say what percentage of the price was incentives, but pointed out the sterling was at a 25-year high against the New Zealand dollar, and the Euro was also at historic high levels.

Mr Cooper said the industry had reverted to a throughput-driven model, in which farmers were getting lambs killed because they needed them off their farms as they prepared for winter, not because they met market specifications.

The risk was those lambs would not be of a weight and quality that matched markets, he said.

Mr Cooper has been encouraging farmers to change their ways, to be more focused on supplying what the market wants when it is wanted and not what suits farmers and pasture growth patterns.

"In many ways, we are going backwards in terms of market requirements and in terms of supply profile and specifications," he said.

Four years ago, the lamb market crashed because farmers produced too many heavyweight lambs, and Mr Cooper said average weights to date this season were almost 1kg heavier than the average for last season.

Meat and Wool New Zealand's Economic Service executive director Rob Davison said there were still about 10 million lambs to be killed.

The season had been delayed by eastern areas of the North Island recovering from drought and farmers who supplied store stock also having plenty of grass, delaying those lambs coming on the market.

Mr Davison said prices in our main lamb markets remained strong, but that prices paid to farmers were underpinned by companies competing for lamb.