Store stock prices forecast to fall

Store stock prices look set for a major correction, with many observers believing current values were inflated by plentiful grass and unrelated to prime stock prices.

Store lamb prices have only recently started falling from about $2.20 a kg liveweight, while calf sale prices have started about $2 a kg liveweight, with many vendors receiving values similar to last year.

There are accusations of farmers being paid $2.25 a kg liveweight for store lambs when a more realistic market price was $2.10 to $2.15.

There appears little doubt a grass market has driven up prices, but agents and industry observers say that could be about to change, as the area experiencing dry conditions expands and autumn conditions start to bite.

An abundance of grass throughout most of the region has delayed the flow of lambs for processing.

Meat and Wool New Zealand economic service executive director Rob Davison said three years of drought in parts of the country forced early kills, but this year's patterns were typical for a normal year.

At the end of February, the number of lambs killed was 10% behind the previous three years, but that had changed, and to date 13 million lambs had been killed, just 2.7% behind the same time last year and in line with production for a wetter summer.

Mr Davison said North Island plants had killed 5.5 million lambs, 5% behind last season, and the South Island 7.5 million, 1% behind.

Sources say some farmers still have store lambs for sale while the dry conditions may force farmers who traditionally take calves through to spring to quit them at the autumn weaner sales, adding to supply pressures.

One agent said store lambs have been bringing $70 to $75, similar or ahead of prime lamb values, while the average price of calves has been within a few dollars of last year.

Blame for the high store stock prices has been variously levelled at the Silver Fern Farms lamb plan scheme for underpinning the market and also at third party traders competing for fewer animals.

SFF chief executive Keith Cooper said store prices were falling, but because the company bought only directly and not at auction, it was not leading the pricing.

It did not pay auction costs or commission, and last week was paying between $2 and $2.05 a kg liveweight.

Mr Cooper sensed store values would fall further, saying they should never have got so high.

Information supplied by SFF said it targeted lambs 28kg to 32kg liveweight and contracted finishers to take them through to between 40kg and 46kg.

Alliance Group chief executive Grant Cuff was also concerned at the store stock price, describing current levels as "risky".

"If you have a contracted price for guaranteed weight gain based on a high store stock price, you can understand the lack of concern by some farmers."

Mr Cuff said the flow of prime stock had picked up since mid-March and was matching capacity, no doubt helped by signs autumn was drawing near and the area of the country suffering from dry conditions was expanding.

An analysis of NZX Agrifax published schedules show a 17kg YM lamb last week was worth $4.30 a kg carcass weight and would fetch $73, similar values to a month earlier, indicating some procurement pressure from meat companies.

A year ago, the same lamb was bringing $5.35 a kg and returning farmers $91.

Mr Davison said the more favourable season has seen cumulative average slaughter weights increase 2.4% to 17.6kg compared to last year.

South Island average weights were up 2.9% to 17.7kg and North Island weights were up 1.6% to 17.4kg, but the average weight of lambs killed two weeks ago was 17.9kg, up 1.2% on the same week a year earlier.