Lamb price higher than expected

The 2016-17 season average lamb price is shaping up to be a bit over $5 per kg, economists predict.

While that was not quite as low as previously thought, it was still below its five-year average, BNZ’s latest Rural Wrap said.

Lamb prices have lifted some 15% in the UK over the past six months but the plunge in the British pound following the Brexit vote had "offset all of that and then some", creating very challenging conditions for New Zealand exporters.

Chinese demand indicators have been positive and fewer New Zealand and Australian lambs had added some support to prices.

BNZ economist Doug Steel said the bank’s best guess was that this season’s lamb numbers were similar to, although probably marginally lower than initial industry estimates, perhaps about 23.5million.

Early-season lamb slaughter numbers had been substantially lower than a year earlier, Fewer lambs being born was compounded by poor weather restricting weight gain. Numbers in October through December were 13% lower than for the corresponding period last season.

One consolation was fewer lambs offered some support to prices, although it was hardly the best way to create some upward pressure, Mr Steel said.

Stronger demand would be much preferred, along the lines of what was being seen for lamb flaps at present amid reported strong demand from China.

Statistics New Zealand’s provisional livestock numbers recorded a small rise in the number of dairy cattle as at June 30 last year, compared to a year earlier, while industry figures showed a mild decline.

Regardless, cow numbers were not as low as they might have been given the very low milk prices that had prevailed over recent years, he said.

The latest cow number estimates, along with lower cull numbers for the current season to date, added support to the idea that the current season’s milk production declines were being driven by less milk per cow, associated with such things as less supplementary feed use and pockets of unfavourable weather in some parts of the country.

That increased the likelihood of a production bounce back next season, weather willing.

Mr Steel believed New Zealand’s milk production in the 2016-17 would be down around 3% to 4% on the previous season.

That assumed the second half of the season would show declines similar to those in  to the first half.

Risks around that view were evenly balanced.

Improved milk prices were  potentially encouraging some additional late season supply, while spreading dry conditions in the north and east of the North Island were pushing the other way.

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