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Thursday, December 10, 2015

New Zealand falling out of love with lambs

By Angus Brown  |  Source: Beef + Lamb NZ, Stats NZ

Key points

  • NZ Lamb crop expected to fall to 53-year lows in 2015, leading to tighter supply.
  • Lamb slaughter in NZ for the coming year expected to be down 7% on 2015.
  • Weaker supply from NZ means demand for Australian lamb should be stronger over the coming year.

2015-12-09 NZ Lamb FIG 1

2015-12-09 NZ Lamb FIG 2

2015-12-09 NZ Lamb FIG 3

2015-12-09 NZ Lamb FIG 4

New Zealand’s equivalent of MLA - Beef + Lamb NZ - has released a bullish report regarding New Zealand lamb supply over the coming year. Given NZ is the only other major lamb exporter and Australia’s biggest competitor, what does that mean for Aussie lamb prices?

Since the early 1980s, sheep and lambs have been losing popularity in New Zealand as farmers and land owners show more affection for dairy cows.  Figure 1 shows the New Zealand lamb crop has fallen by 55% since 1985.  After steadying from 2000 to 2007, NZ lamb production took another tumble, dropping 27%, and in 2015-16, it is expected to be the smallest lamb crop since 1953.

Drought and poor lambing percentages are expected to see the number of lambs marked in NZ to be down 7% on just last year.  This will obviously impact the number of lambs available for slaughter and the amount of lamb able to be exported.

Beef + Lamb NZ is forecasting a significant decline in lamb slaughter for the coming year, with 19.5 million head of lambs expected to go over the hooks (figure 2). This 7% decrease is largely in line with the decrease in marking rates.

NZ lamb slaughter has been lower than this in recent times, with flock rebuilding efforts in 2010-11 and 2011-12 seeing 19.3 and 18.9 million head slaughtered respectively.  It was in those same years that Australian lamb slaughter bottomed out, which seriously impacted world lamb supply and saw record prices achieved.

New Zealand’s lamb supply is much more seasonal than Australia’s, with most lambs turned off between January and April (figure 3). The seasonality shifted in 2015, with the most lambs slaughtered in January, and fewer in autumn. 

With a fall in lamb slaughter, and a return to normal seasonality, 2016 should see lamb numbers run very close to the five-year average. This would see much tighter supplies in January and more lambs slaughtered in March.

What does this mean?

Tighter supply of lambs from NZ can only be good news for Australia. It means that world lamb supply will be down and buyers will have to come to Australia to find product.  How much, and when we will see the impact of tighter NZ lamb supply, is hard to judge. However, we expect that with a more normal season we might return to a March peak, and January might be 25% behind 2015.

This could add extra upward pressure on an Australian lamb market that already looks poised to rise.  In fact, we might see a significant January rally like we saw in 2011 and 2014, with the potential to take the price through 600¢/kg cwt if Australian supply tightens in line with NZ supply.  However, if NZ supply comes early like we saw in 2015, prices rallies might be more subdued.

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