Fears but NZ prices holding

The world is headed towards a recession which many fear could ankle-tap a recovery in some of our key farm commodities. Agribusiness Editor Neal Wallace reports that while the future may be rocky, so far our key exports are showing some resilience.

The financial meltdown could slash demand for beef and lamb by up to 15% in the coming year, but a shortage of lamb and the plummeting exchange rate could negate any financial impact on farmers.

Meat and Wool New Zealand economist Con Williams said there were already signs the financial crisis was forcing more people to eat at home rather than in restaurants.

Australian wool prices last week plummeted to record lows as tight credit conditions meant buyers could not open letters of credit.

Mr Williams said tighter financial conditions could see demand fall for beef and lamb by up to 15%, and while that would affect prices, he could not say by how much.

But he believed the easing exchange rate and a shortage of lamb worldwide could neutralise the impact.

The New Zealand-United States exchange rate peaked at US80c last season, but this week has traded around US55c.

Mr Williams said the exchange rate with the euro and pound sterling had also fallen significantly.

Reduced demand from the food service sector would hit the higher value cuts but Mr Williams said New Zealand only supplied 70% of its beef quota to the US last year.

Shifting consumer demand could also see a move to lower value cuts and fast food which, with manufacturing beef the main export to the US, could be in our favour.

Mr Williams said the beef market was being distorted by some South American exports allowed back into Europe, but also by shipments sitting on Russian wharves as importers sought to renegotiate the price.

Meat exporters believe the worldwide shortage of lamb would be a factor this year.

Silver Fern Farms (SFF) chief executive Keith Cooper described the lamb scene as positive as a result of that shortage.

"It's relatively stable but that is not to say it won't be impacted."

Mr Cooper said the beef market was under pressure from South American product, which had created some nervousness.

In addition, US prices had started to ease as domestic production had increased, but he said these conditions were being driven more by supply and demand rather than pressure from world financial markets.

He said the world was entering uncharted territory.

"I don't know how it is going to play out," he said.

In its weekly market update, SFF said most markets had slowed as importers assessed the longer-term impact on sales, while some lines of credit had been difficult for some importers to secure, forcing them to operate on a "hand-to-mouth basis".

Stocks of lamb pelts were high and customers were reluctant to buy more until they had secured orders.

The deer skin market was steady.

The economic uncertainty was highlighted by venison, with the season about to shift from chilled to frozen loins and leg cuts, but importers were reluctant to commit too far in advance.

The beef market lacked direction due to financial uncertainty.

Alliance Group chief executive Grant Cuff said it was too early to pick what was going to happen to meat markets, but prices for beef and lamb appeared to be holding up.

"So far, for both these products, prices are holding up and the exchange rate has come down."

The financial crisis appeared to have spread to Asia, which could cut demand for premium beef cuts, but there was also pressure in that market from US beef regaining access.

He also pointed to the decline in lamb volumes as a positive for exporters.

"I am not pessimistic about sheep meats."

Council of Wool Exporters executive manager Nick Nicholson said the global crisis had come on top of existing pressures within the wool sector.

There were signs retail sales were slowing as consumers prioritised their spending and exporters feared their key markets were entering a recession.

While a lower exchange rate was welcomed, he said the speed of its fall and volatility was difficult to manage.