We want to provide you with an update on El Niño, livestock processing and the farm-gate pricing situation.
The El Niño weather pattern typically means dry conditions along the east coast of both islands, although to date it has been a mixed bag for farmers across the country.
In the North Island, there is generally still plenty of grass and still enough rain to maintain pasture growth, although parts of the East Coast are drying out rapidly. Areas of the South Island are beginning to dry out, particularly Marlborough, Canterbury, Central Otago and parts of Southland. Within each region, there will be local variations, depending on soil moisture levels.
With good feed conditions in many parts of the country, lamb processing livestock flows have been soft with farmers electing to put weight on animals. There is also no significant pressure on beef processing capacity.
We encourage farmers to stay in touch with their livestock representative and be mindful of a potential squeeze on processing capacity in the event of extreme dry conditions over the next few weeks.
Pricing
Lamb and mutton prices remain weak due to significant excess supply out of Australia and the poor economic conditions in China.
Approximately 50 per cent of New Zealand’s lamb exports and over 85 percent of our total mutton exports go to China, so market conditions there are a major driver of pricing.
Lamb prices are currently around 19 per cent lower than last year and 20 percent below the 5-year average. Mutton prices are currently about 37 per cent lower than last year and 50 per cent below the 5-year average.
Beef is holding up better as it is a more highly traded product with more markets. US demand for beef is also up and export supply down due to the ongoing drought in that country. Beef prices are currently about five per cent lower than last year but one per cent above the 5-year average.
Profitability
The weak farmgate prices, combined with the continued rising on-farm costs due to inflation, is putting massive pressure on farm profitability and rural communities.
On farm inflation was 16.3 per cent in the year to March 2023, after a 10 per cent increase in inflation the previous year. B+LNZ will be updating inflation data in March, and while we expect a reduction, it will still be high compared to the 10-year average.
Last November, at the start of the production season, B+LNZ was forecasting the worst year from a profitability perspective for 15 years, with a 63 per cent reduction in profit over the last two years. However, lamb and mutton prices have been much lower than forecast, and we expect profitability to deteriorate as a result. B+LNZ is updating our forecast for the season and will be releasing this later in this quarter.
At this point, it is difficult to speculate when pricing will begin to recover with any improvement subject to when the Chinese economy lifts and the length of the Australian drought.
However, our sector is resilient and many farmers have been through a downturn like this before. Globally, the long-term outlook for red meat is still strong. However, our thoughts are with those farmers and rural communities experiencing tough times.
In the short-term, many farmers will be tightening their belts and looking to cut back costs and not undertaking any unnecessary expenditure in order to make it through this difficult period.
We encourage farmers to look out for each other and keep in touch with their banks and rural professionals.
B+LNZ has resources to help farmers prepare and manage through dry conditions. For more information, see our drought resources on the Knowledge Hub. See this article for more information and advice on navigating tough times.