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Thursday, May 26, 2016

Sheep offtake in NZ – what’s going on?

By Andrew Woods  |  Source: Statistics NZ, FAO, RBA, ICS

Key points

  • The New Zealand sheep flock has continued to shrink in recent years.
  • The NZ sheep offtake has remained above 14% for most of the past three years, flagging downward pressure on sheep numbers.
  • The last time rainfall was well above median in 2011 and 2012 the sheep offtake fell to low levels and the flock size stabilised.

2016-05-26 Nz Fig 1

2016-05-25 Nz Fig 2

2016-05-25 Nz Fig 3

It is two years since Mecardo last looked at the sheep offtake in New Zealand and its implications for the sheep flock there. This article updates the sheep and lamb offtake, and looks to answer whether the Kiwi relationship with sheep will continue.

Mecardo looked at lamb numbers coming out of New Zealand in March ‘Will Kimi lambs give us a boost’ and last December ‘NZ falling out of love with lambs’. In May 2014 ‘NZ Sheep Offtake’, Mecardo looked at the sheep offtake and its implications for sheep numbers in New Zealand.  The New Zealand flock has been shrinking for three decades.

Figure 1 shows the New Zealand flock size (left hand axis) along with the rolling 12 month total of adult sheep sales to abattoirs expressed as a proportion of the flock size (sheep offtake). The shaded areas represent periods when the sheep offtake is below 12%, when the flock size should be reasonably stable to growing. The sheep offtake explains around two thirds of the change in flock size, so it is the major contributor to variations in the flock size.

Since April 2014 the NZ sheep offtake has consistently been 14% of higher, with the flock size slipping from around 31 million to under 30 million. The last time New Zealand rainfall (in regions with sheep) was above median was in 2011 and 2012, when the sheep offtake dropped away and the flock size stabilised. It appears that the New Zealand flock is in a similar position to Australia with dry conditions continuing to put downward pressure on sheep numbers.

Figure 2 shows the New Zealand lamb offtake, which has had a similar rising trend to the Australian lamb offtake. The New Zealand lamb offtake has been rising since the late 1980s. It is currently in the 70-75% range, about double that of the Australian flock which reflects the different flock structure. As with Australia, the lamb offtake shows little relationship to the flock size.

For the past three decades the size of the dairy herd has risen in New Zealand while the sheep flock has shrunk. Conversion of sheep farms to dairy offers a jump in productivity of the land by a factor of 3 to 4 which in turn requires a large infusion of capital. This intensification of land use has been behind the shrinking New Zealand sheep flock. Figure 3 shows the FAO Dairy Index, adjusted for the New Zealand dollar. The fall in dairy prices since early 2014 stands out clearly. Presumably this fall in dairy prices will slow the switch of land use from sheep to dairy.

What does this mean?

The New Zealand flock remains under downward pressure with the sheep offtake close to 14% (as of March). Dry conditions in the past year have helped to keep the offtake higher. In 2011 and 2012 when rainfall permitted the sheep offtake fell and the flock stabilised, as it did in Australia. It appears the New Zealand flock is like the Australian flock, waiting for sufficient rainfall to allow stabilisation and maybe some expansion.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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