June 19, 2008

Lamb Outlook Positive


Lamb prices may be closer to $5/kg than farmers think, says PPCS marketing manager Ken Rouse.

Rouse said it was his view, and not necessarily the company's, that these prices could be reached in the 2009-10 season, based on ongoing reductions in sheep-meat production.

World demand for protein and a reduction in global food supplies from 130 days in 2003 to less than 40 days, indicated a turnaround in prices, he said.

"The forthcoming shortages have been masked by a major reduction in capital stock and this is true in the United States cow herds (and) in Australia right now, and the Brits have been killing off their ewe flocks because of low profitability. This is starting to compound, and when these animals are not being killed we will see the prices spike the other way."

Pork producers are also not replacing breeding stock and are losing $25 to $35 a head in some parts of the world.

Rouse said New Zealand farmers were in a good position as there would be a time lag if European policy makers re- introduced production subsidies because of the food shortage.

Within six months, food shortages will start to bite and in two years the world should be desperate for protein, he said.

"Your lamb may have a five ($5/kg) in front of it, with 20kg lambs bringing in $80 to $100. You have taken a hit the last few years and we appreciate that, but I think you are in for a nice ride," he told farmers last week at a field day in Darfield for the Corriedale Sheep Farmer of the Year Award.

Average-sized lambs can be expected to rise by another $20-$25 a lamb by the end of next year, to $70 to $80 a lamb. This week a 17.5kg lamb was selling for nearly $70, at a stage in the killing season when competition is heating up for remaining supplies, but the yearly average is lower and three months ago the same lamb was worth $58.

PPCS is monitoring the loss of sheep numbers arising from dairy conversions, drought and other factors, and estimates processors could be down in 2008-09 by three million sheep and lamb in the South Island and 2.5m to 3m in the North Island. High interest rates, which have attracted overseas investors and contributed to a high currency, are expected to ease as the effects of city debt becomes apparent.

The large processing company, which has its headquarters in Dunedin, has begun "right-sizing" its processing plants, confirming the closure of the Oringi sheep and lamb processing facility near Dannevirke and the Burnside facility in Dunedin, which has ceased processing of venison, lambskins and deerskins.

The co-operative is about to roll out a large branding exercise under its new name Silver Fern Farms.

Within two years this could extend to images of farmers and their farms on lamb products, said Rouse.

"I think that will be the future. People want to engage with their consumers and the consumers want to engage with the producers."

Market outlooks by PPCS for beef are also strong.


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