Sheep meat

Outlook for 2003/04 to 2006/07

Production

Latest situation and outlook

Statistics New Zealand released their provisional 2003 survey results in February 2004. The sheep breeding flock was up 1 percent to 29.4 million with total sheep at 39.7 million. Sheep numbers are expected to increase slowly out to June 2007 because of a strengthening lamb to beef price ratio and a slowing in the expansion of the national dairy herd. This reverses the trend over the last two decades of declining sheep numbers.

Lamb production in September year 2004 is estimated at the same level as the previous year, while mutton production is up. The use of a new pastoral supply response model by MAF has improved the way mutton production and the numbers of lambs born are estimated. Lamb and mutton production is projected to rise 7 percent in September year 2007 compared to 2004, mainly reflecting a slight increase in sheep numbers.

The autumn 2003 drought, together with localised adverse climate conditions in late September-early October 2003, induced a 6 percent lowering of lambs marked per mated ewe and ewe hogget in spring 2003. However, this loss in production was offset by a rise in the sheep breeding flock numbers as at June 2003. A good supply of pasture for ewes during autumn mating is expected to lift the lambing percentage in spring 2004.

Over the outlook period ongoing productivity gains in terms of lambs marked per ewe and lamb carcass weights are expected. A small increase in carcass weights per adult sheep is also projected.

Significant changes from SONZAF 2003, and reasons for the changes

Lamb production is now estimated higher for September year 2004 because of the rise in the sheep breeding flock as at June 2003. The higher levels of lamb and mutton production compared to SONZAF 2003 are mainly because of a reversal from a decline in sheep numbers to a slow increase over the outlook period. The introduction of a new pastoral supply response model by MAF has improved the forecasting of inventory.

Exports and product prices

Latest situation and outlook

Export production is expected to follow the trends in production. Export quantity of lamb is projected to be up 9 percent and mutton up 4 percent by September year 2007 compared to 2004. In recent years, the share of value added processing - such as chilled meat and a variety of cuts - has increased. Chilled meat processing is expected to continue to increase in the future leading to rising average export prices.

The United Kingdom (UK) meat market is used as a basis for forecasting the trend in international prices for New Zealand lamb. Lamb prices have remained high in the aftermath of the 2001 eradication of Foot and Mouth Disease that resulted in the UK sheep breeding flock dropping by 13 percent. Tight supply conditions in the UK resulted in lamb prices reaching and remaining at record levels from December 2003 with the first drop in prices in the first week of May 2004.

MAF has developed a quarterly lamb price forecasting model that replaces the previous annual model. The model forecasts prices in the UK at FOB, and prices for the all grades average lamb and mutton schedules. The determining factors of the New Zealand lamb prices in the UK are the UK domestic lamb price and the UK sheep meat production. Lamb prices are expected to fall somewhat from current high levels over the next year and then slowly rise over the outlook period to 2007. The UK flock is expected to slowly rebuild over the outlook period.

Significant changes from SONZAF 2003, and reasons for the changes

Wholesale prices of New Zealand lamb in the UK are now projected at a higher level over the outlook period. This reflects the introduction by MAF of an improved price forecasting model.

Schedule prices

Latest situation and outlook

A relatively strong, but declining exchange rate compared to recent years is assumed over the outlook period.

The all grades average schedule price for September year 2004 is estimated to be down 5 percent because of a stronger NZD but is moderated by a slight rise in the average carcass weight. Around 8 percent of the schedule price derives from the payment for pelt and slipe wool. A slight fall is estimated in this payment for September year 2004, but it is then projected to rise because of an improving outlook for international demand, and a declining exchange rate. The all grades mutton price generally follows a similar trend to lamb.

Significant changes from SONZAF 2003, and reasons for the changes

Schedule prices of lamb and mutton are now projected at a higher level over the outlook period and this reflects the introduction by MAF of an improved price forecasting model.

Table 5: Sheep meat situation and outlook

September year Units 2002 2003 2004e 2005f 2006z 2007z
Mated ewes and hoggets (opening) mil 29.4 29.1 29.4 29.3 29.3 29.3
Total sheep (opening)1 mil 40.0 39.5 39.7 40.0 40.1 40.1
Mutton              
Production2 000 t 107 113 114 115 117 119
Exports3 000 t 81.9 88.6 95.0 93.6 95.6 98.6
Schedule price - baseline6 c/kg 223 200 168 170 183 197
All grades average price - baseline6 $/hd 51.80 47.10 39.80 40.60 44.00 47.60
Lamb              
Kill mil hd 24.7 25.7 25.5 25.7 26.3 27.1
Average weight kg/hd 16.8 16.9 17.0 17.1 17.2 17.3
Production2 000 t 414 434 434 439 452 468
Exports3 000 t 350 359 361 364 376 392
UK price4 UK p/kg 213 227 237 225 229 234
NZ FOB5 c/kg 578 552 516 515 545 558
Schedule price - baseline6 c/kg 419 379 359 356 386 403
All grades average price - baseline6 $/hd 70.73 64.23 61.10 60.90 66.40 69.70
NZD/UKP baseline scenario UKP 0.302 0.343 0.366 0.346 0.324 0.320
               

Sources: MWI Economic Service, Statistics New Zealand and MAF

1Opening numbers as at 30 June .
Statistics New Zealand census data as at June 2002 and provisional survey data as at June 2003.
MAF estimates, forecasts and projections for other dates.
2Carcass weight.
3Carcass weight equivalent.
4PM grade carcass, UK wholesale prices as reported by Meat New Zealand for 2002, thereafter MAF estimate, forecast and projections.
5Average FOB price per kg of carcass weight equivalent.
6MWI Economic Service data for 2002 and thereafter MAF estimate, forecast and projections.

Figures may not add or reconcile due to rounding.

Alternative exchange rate scenario analysis

Exchange rate volatility is a major cause of variation in export prices for sheep meat products and the schedule prices received for livestock presented for slaughter. While a range of exchange rates are used in marketing sheep meat products, the UKP currency is used for forecasting.

Table 6: Average lamb schedule prices: baseline and alternative exchange rate scenarios

September year Units 2002 2003 2004e 2005f 2006z 2007z
All grades average lamb prices - baseline exchange rate scenario              
NZD/UKP UKP 0.302 0.343 0.366 0.346 0.324 0.320
Lamb schedule price1 $/hd 70.73 64.23 61.10 60.90 66.40 69.70
All grades average lamb prices - higher exchange rate scenario              
NZD/UKP UKP 0.302 0.343 0.368 0.362 0.356 0.357
Lamb schedule price1 $/hd 70.73 64.23 60.90 59.10 61.60 62.80
All grades average lamb prices - lower exchange rate scenario              
NZD/UKP UKP 0.302 0.343 0.363 0.337 0.315 0.319
Lamb schedule price1 $/hd 70.73 64.23 61.10 62.60 68.00 71.30

1MWI Economic Service data for 2002 and thereafter MAF estimate, forecast and projections.

Over the period 2004 to 2007 the baseline all grades average lamb schedule price is projected to rise by 14 percent. In the high exchange rate scenario, the schedule rises by 3 percent, while in the low scenario the schedule rises by 17 percent over this period.

Comparing the high and low scenarios to the baseline in 2007, a 12 percent appreciation of the NZD/UKP indicates a 10 percent fall in the schedule, and a 0.3 percent depreciation indicates a 2 percent rise in the schedule.

Comparing the low and high scenarios over the outlook period, on average, a one UK pence change in exchange rate is equivalent to a $1.77 rise in schedule price.

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Contact for Enquiries

Peter Gardiner
Manager, Evaluation and Monitoring
MAF Policy
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0623
Fax: +64 4 894 0741
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