Meat prices positive but costs up too

 Westpac and National Bank forecasts both paint a positive picture for meat in the next couple of years.

The only threat to meat prices appears to be the exchange rate, but the National Bank, in its Rural Report publication, said there was no reason the New Zealand dollar should stay high given the country’s high debt, large and ongoing current account deficit, and low to no economic growth.

It forecast two years of easing to about US49c before increasing to US60c.

Lamb prices have defied predictions of doom even in the face of a relatively high dollar, partly because of a drop in the ovine population after droughts in Australia and here. The large number of dairy conversions in the past couple of seasons have also led to steep falls in sheep numbers.

While supply has dropped, demand has been steady or risen.

The reports say the sheep meat industry should enjoy good conditions for two more years at least.

The reasons behind this season’s high prices – low lamb numbers, a weak pound against the Euro making UK lamb exports viable, and strong retail sales – should remain.

Farmers would also benefit from meat companies competing for lamb.

Some commentators were expecting a decrease in dining out as the recession bites to dampen demand for lamb but it appears any drop in orders from resaturants has been more than compensated for by increased sales at supermarkets as people rediscover the joys of home cooking.

Beef prices are a little more uncertain although reduced numbers after a big kill in the USA last season and on-going drought in Argentina will impact on supply.

Prices are only one half of the business equaiton and while they have gone up so too have costs.

Meat and Wool Economic Services survey of sheep and beef farm input prices show on-farm costs in the past year went up by 7.6% in the past year.

The biggest rise was in fertiliser which went up 33.8%;local body rates increased 5.6%; interest rates dropped by 6.7% and fuel prices dropped 14.2%.

The overall cumulative on-farm inflation for the five years to March 2009 was 32.2% and over 10 years on-farm inflation rose 50.4%

That compares with consumer prices which increased by 16% over five years.

If interest is excluded the underlying rate of on-farm inflation in the past year was was 10.7 per cent compared with 9.8 per cent for the previous year.

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One Response to Meat prices positive but costs up too

  1. Matt Nolan says:

    “Lamb prices have defied predictions of doom even in the face of a relatively high dollar, partly because of a drop in the ovine population after droughts in Australia and here”

    The big factor for me has been the mass destocking in the UK and Ireland. After they took subsidises off lamb a lots of lambs were slaughtered, as holding them didn’t seem sustainable. That was a big reason why prices have been so low for lamb. With that done there is definite upside.

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