11 Sep 2015

Falling demand for sheep meat brings prices down

3:18 pm on 11 September 2015

A new Rabobank report shows weaker demand for some sheep meat is behind falling lamb and mutton prices.

The report has found weaker overseas demand, particularly for shoulder cuts in China, has softened farmgate prices.

One of the authors, Rabobank animal protein analyst Matthew Costello, said the report examined the different sheep meat cuts and what demand different export markets had for them.

Mr Costello said it gave farmers a more in-depth look at what was behind the animal value.

"Quite often we just talk about why farmers get paid and what essentially they get paid in a per head or per kilogram basis, but obviously the animal is broken down into many different products.

"Whether it be the co-products of skins, wool, offal and the different by-products, but also the carcass.

"To give you an example, the forequarter part of the carcass yields about 28 percent of the total volumes, but if you look at what the returns are, they're about 24 percent.

"If I compare that to the higher valued middle part of the carcass, the racks and loins etc, it only yields 16 percent but it returns 24 percent: so, much difference in yield but higher returning value."

He said breaking it down made it easier to recognise why price fell may be occurring.

He said weaker demand from China and the European Union, New Zealand's two key markets, was behind this year's fall in prices.

"Chinese production between 2007 and 2013 remained pretty flat, coinciding with increased demand and growing populations, so what we saw was demand outstripping supply.

"Coinciding with that, both New Zealand and Australia have seen record exports into that market, particularly in 2014, which was large volumes out of the market.

"But what we saw in 2014, also out of China, was a large increase in their own domestic production.

"What we saw was a four million tonne market increase to 4.2 million tonnes, so that is about eight times the size of what New Zealand produces."

Mr Costello said he expected prices would firm up next season with a tighter lamb supply in New Zealand.

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