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In the latest ASB Commodities Weekly, Mr Penny said the last 18 months or so had been "stellar" for lamb prices.
Prices in 2019 opened at $7.20kg, some 45c/kg lower than where they ended 2018. From the peak price of $8.43kg in September, the per kg price had now fallen $1.23kg, or about 15%.
That fall was a little more than the bank had expected at this stage.
"The average fall over the past five years from the spring peak to autumn low is around $1.20kg.
"In other words, the fall to date has already exceeded the average fall with another two or so months before prices usually bottom out," he said.
Still, prices remained healthy at $7.20kg, although the steepness of the recent fall warranted a "wary eye" on prices over the next two month or two.
"In particular, we will be monitoring closely how Chinese lamb demand develops, given the broader slowing in the Chinese economy," he said.
In an update yesterday, Federated Farmers national meat and wool chairman Miles Anderson said weather conditions had been less than ideal in most areas since mid-December.
Cool, wet weather had slowed growth rates on young stock and created difficulties with hay and silage making and sowing green feed.
Meat companies were reporting lower lamb kills and lower average weights for this time of year, Mr Anderson said.
"Exceptional" on-farm lamb sales in the South Island had experienced record prices and strong demand, reflecting industry confidence and a strong grass market.
Westpac senior economist Anne Boniface said despite the uncertainty about the impact of Brexit on New Zealand exporters, tight lamb supplies in both New Zealand and Australia — as well as reasonable demand from other export markets — should help underpin lamb prices at favourable levels this year.