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Thursday, November 17, 2016

NZ lamb crop contraction to continue

By Matt Dalgleish  |  Source: Stats NZ, BLNZ

Key points

  • Beef & Lamb New Zealand’s new season outlook suggests further tightening of supply for lamb into the 2017 season
  • The beef cattle herd was the only main livestock sector to experience a growth in herd numbers for the period 2015 to 2016, reflecting a continuation of the trend away from sheep/lamb production in NZ.
  • Reduced supply of NZ lamb and an expected tight season in Australia into 2017 points to the prospect of firm prices into next season

2016-11-14 Cattle Fig 2

2016-11-14 Cattle Fig 3

2016-11-14 Cattle Fig 4

Beef and Lamb New Zealand (BLNZ), the equivalent to Meat and Livestock Australia across the ditch, have released their new season outlook for the 2016/17 season. In this piece, we take a look at their expectations for the coming year to determine the possible impact upon our markets, given they are the only other major lamb exporter and our key export competitor offshore.

Figure 1 highlights the yearly NZ lamb crop numbers showing a gradual decline since 2003 from around 33 million head to just under 25 million head. After holding reasonably steady from 2011 to 2015 BLNZ expects the 2016 lamb crop to come in at 24 million head (which represents a 7.1% fall from the 2015 figures) and forecasts the 2017 lamb crop to be 2.4% softer at 23.4 million head.

The decline in lamb numbers representative of a lower breeding ewe flock as NZ farmers remove more older ewes, impacted by one of the worst incidence of facial eczema experienced in more than a decade, and a growing preference to shift into beef cattle production. Indeed, as shown in Table 1, beef cattle the only livestock sector to grow during the 2015 and 2016 seasons. Breeding ewes in NZ unable to post a year on year gain in numbers in a decade, figure 2, and the last three seasons averaging a 2.9% decline in the breeding ewe flock weighing on the lamb crop numbers.

The tighter supply of NZ lamb and sheep in recent years reflective in reductions in the annual combined lamb and mutton export volumes since 2014 and this is expected to continue into the 2017 season with a forecast combined total of 369,000 tonnes – figure 3. Although, as the year on year change to export volumes shows, the rate of decline in combined export volumes is anticipated to reduce from a 2.8% weakening in 2016 to a 2.1% drop forecast for 2017.

What does this mean?

Tighter NZ supply can mean more demand for Australian product from overseas buyers but the effect on local prices of this demand can be varied depending on the local supply conditions. Anticipation of a tighter supply for lamb/sheep points to the prospect of a good season as we head into 2017. However, the release of the October MLA/AWI survey results and analysis of the expected slaughter numbers/revisions to supply will be the next stage to determine local price impact.

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