Eyes on lamb price as supply falls

Time will tell which "fork in the road'' lamb prices will take over the coming months, ASB rural economist Nathan Penny says.

While the good news was that prices had stopped falling, the bad news was that prices remained low.

In the latest ASB rural commodities outlook, Mr Penny said one possibility would be "more of the same'', with prices remaining low until the spring before a modest recovery began.

That pattern would be consistent with demand remaining weak, particularly in Europe and the Middle East.

The other option would see an earlier recovery in prices similar to the path back in 2014.

The catalyst for that scenario was likely to be tightening New Zealand and Australian supply.

He favoured the latter, given that prices had bottomed a little earlier this season than normal, but time would tell, he said.

January lamb slaughter volumes were down 21% month-on-month, given the dry conditions in November and December, and 45% compared with January last year, Rabobank's Agri Monthly showed.

With the Easter chill trade now over, processing numbers were likely to continue to trend downwards.

Total sheepmeat exports finished on a high in December, at 39,650 tonnes swt, up 9% year on year, given the increase in processing levels.

However, average export returns declined slightly over the same time, to average $6.90 free on board (FOB). Average returns in China declined 9% year on year.

New Zealand beef exports finished the 2015 calendar year 12% higher than the previous year, at 449,836 tonnes swt, with the overall increase underpinned by surging beef and veal production volumes, which were up 5%.

The US accounted for 50% of overall exports in 2015, while China accounted for 17% of volumes.

While beef prices were expected to remain high this year, Mr Penny said there were signs that "all good things will eventually come to an end''.

Positives remained in the short term; US beef inventories had run down, bringing buyers back to market and, as the Australian herd rebuilds after heavy slaughtering, less Australian exports should help keep prices high.

On the demand side, Chinese beef consumption continued to grow, while lower Australian exports into Japan and Korea should open up opportunities for beef in those markets.

In the coming years, he expected the rebuilding US herd to mean fewer US imports and, therefore, lower prices.

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