Signs for meat positive

Two forecasts predict the golden run for meat prices to continue for another couple of years.

Westpac and the National Bank both forecast lamb, mutton, beef and venison returns to settle or exceed this season's returns.

However, the forecast was not so bright for milk and wool, with milk prices not expected to improve and wool prices likely to ease.

The only threat to meat prices appears to be the exchange rate, but the National Bank, in its Rural Report publication, said there was no reason the New Zealand dollar should stay high given the country's high debt, large and ongoing current account deficit, and low to no economic growth.

It forecast two years of easing to about US49c before increasing to US60c.

The reports say the sheep meat industry should enjoy good conditions for two more years at least.

The reasons behind this season's high prices - low lamb numbers, a weak pound against the Euro making UK lamb exports viable, and strong retail sales - should remain.

Farmers would also benefit from meat companies competing for lamb.

"The 2009-10 outlook is considered to be steady. Farm gate spring 2009 premiums may reach new records on the back of short supply, but the mid-season price is forecast at $85 a head, similar to the current season," the National Bank said.

Westpac said tight supplies had allowed companies to sell more lamb in chilled form.

Also, more people were eating meals at home, of which lamb was a key ingredient.

But Westpac felt a structural change was occurring for lamb.

"We have long been of the view that international lamb prices are on a structurally high path compared to previous trends. We anticipate prices to average 20% above the trend line since 1990 as global lamb supply contracts."

It based this view on Australian sheep numbers being the lowest since 1916, New Zealand's flock the lowest since 1950, and destocking in the UK and Europe.

"The lack of lamb is expected to offset any weakening in demand in the short term, keeping prices up."

Westpac expects New Zealand's lamb crop next spring to be similar to this season's at 27 million, with prices also similar at $5.30 a kg.

The beef market was far more fluid, due to rising demand and falling supply.

The United States Department of Agriculture (USDA) has forecast a 0.1% reduction in beef production this year, following a high kill last year.

Lower cow numbers would flow through to next year's US beef production, picked to fall another 2%.

The impact of the current cull of 100,000 dairy cows was not known.

In addition, the US was rebuilding beef exports to Asia which would put pressure on domestic supplies, while Argentina was also expecting a lower beef kill with this year's calf crop expected to be 10 million, 3.5 million fewer than normal.

The banks said all this would put upward pressure on prices and they forecast mid-season steer prices at $3.55 a kg and bull at $3.20 a kg.

Wool was expected to stay in the doldrums as its fortunes were linked to economic growth.

The National Bank has picked an easing in the indicator fine wool price from $13.20 a kg clean this year to $12, medium from $6.30 to $5.60 and strong from $3.30 to $3.

The fortunes of the dairy industry may have altered in recent months, but forecasters warn of uncertainty from the fluctuating exchange rate, the resumption of trade subsidies expected to dampen international prices, and soft demand.

Westpac said the USDA was forecasting a 1.5% reduction in dairy cow numbers this year and a 2% fall next year, with US milk production in 2010 to be 1.7% below 2008 levels.

Drought in Latin America would also stifle production.

But, the resumption of trade subsidies could delay the contraction of the US herd and Westpac doubted there would be any sharp increase in prices.

"Even if prices average around current levels for the next 12 months, average prices for 2009-10 will be around 25% below average prices for the 2008-09 season."

Westpac has forecast a milk price for 2009-10 of $4.70 a kg milk solids rising to more than $5 a kg in following seasons.

The National Bank was more optimistic, forecasting a payout of $5.20 per kg of milk solids for the coming season.

Fonterra has forecast an opening price for next season of $4.55 a kg.

A reduced volume of venison and steady demand would help keep prices high.

The National Bank has forecast prices for the coming season to be similar to the current season at $8 a kg.

The deer herd has fallen, with slaughter numbers back to the level last seen nine years ago.

The velvet market has struggled and weak Chinese and Korean economies would not help lift prices.


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