Farmers are being stuck with stock because factors beyond their control are conspiring against them, AgriHQ analyst Mel
Croad says.
Record high farmgate prices in November and early December prompted many farmers to hold stock for longer than usual but
they panicked when the market turned and dry weather began to bite.
Now farmers are short of pasture while they wait up to a month to get stock to meat plants that are overloaded and
working to ease the backlog. A shortage of staff at meat works isn’t helping.
Those factors combined with the normal post-Christmas lull in demand, particularly from China. The slow-down is typical
of the four weeks before the Chinese new year. It is simply what the market does every year.
Unfortunately, coronavirus came to a head when the market was expected to start picking up and consumption collapsed.
“So meat exporters lost the opportunity to clear the stocks they had stockpiled before Christmas.
“Add to this the January production that was waiting in the wings, which is now sitting in coolstores. Asking prices
will be lower than before Christmas but I believe some of this is already factored into farmgate prices.
“The problems began before coronavirus but it adds another level of uncertainty,” Croad said.
However, China still needs to import meat protein and once it has worked through supplies already landed it should
reinvigorate demand.
“It’s a question of when not if.”
Dry conditions in many part of the country and the large backlogs of stock are magnifying the issue.
“If it wasn’t so dry and the need to offload stock wasn’t as real as it is for some then there wouldn’t be the pressure
on space into processors and meat companies could have cleared the pipeline rather than creating backlogs and pressure
in the plants and chillers.
“Meat companies won’t kill if they don’t have an order for the meat.
“However, the problem doesn’t appear to be as great as last week as more info comes to light and freezer space is found
both here and in China.”
Most of New Zealand’s meat exports to China are frozen, which creates some breathing space.
And the European and British markets for lamb are still healthy. The Middle East and some Asian markets are likely to
increase demand while China is not buying.
The United States market for manufacturing beef is stable at lower levels because of the reduction in demand from China
but product is still shifting.
“The dry weather is causing stress for farmers because prices are down on a month ago but the key message is to look
forward not back,” Croad said.
“Farmers should focus on the decisions they can make now rather than dwelling on those they held off making.
“Store lamb prices are still well above historical levels, beaten only by last year.
“But there has been a drop off in demand and some farmers can’t get stock killed in a timely manner.
“Slaughter prices are still higher than this time last year but have endured stronger downside.
“In a dry summer we can expect downside at the farmgate but procurement has been sliced even harder this season to
compensate for the fall in demand from one market.
“Store lamb prices typically bottom out in January but that is likely to be extended, particularly if the dry conditions
continue.
“This is not necessarily corona-driven but what we would tend to expect.”
Similar issues face cattle with the added impact of Mycoplasma bovis restricting buyer demand and prices and meat works
giving priority to killing cull cattle.