New Zealand lamb supply hit by drought

The number of New Zealand lambs is expected to fall 9.3% to 24 million

New Zealand lamb production is forecast to fall 9.3% as a result of drought this season, further tightening global supply and threatening to push up wholesale prices.

The number of lambs is likely to drop to 24 million for the 2013/2014 season, according to initial estimates from producer organisation Beef + Lamb New Zealand. “The drop reflects the severity of the summer/autumn drought, particularly in the North Island,” said Andrew Burtt, chief economist at Beef + Lamb New Zealand.

The drought has affected the condition of ewes this season, causing difficulties in breeding and reducing the number of breeding animals. The reduced output will be a big blow to the industry, which had one of the best lamb seasons on record last year, according to Beef + Lamb New Zealand. It would also have an effect on exports, which were likely to fall 10.5% to 18.2 million lambs, Burtt said.

The cold spring earlier this year is a distant memory - but its impact on utilities prices continues to be felt. Electricity prices have climbed to the top of our commodities tracker, driven up by recent UK gas hikes - at £53.40/MWh, prices are now 26.5% higher than this time last year, having risen by 10.6% over the past month.

Meanwhile, tea prices have continued to slide as Kenyan tea production in May reached 39.6 million kg - an increase of 6% year on year, thanks largely to favourable weather this growing season.

Rye prices also continue to fall thanks to good production prospects - with EU production expected to be 27% higher than in 2012 this year, prices have tumbled by 10.2% month on month and 25.2% year on year.

Beef + Lamb New Zealand forecast the average price paid to New Zealand farmers in 2013/2014 would rise by about 15% to NZD98 per lamb due to a depreciation of the New Zealand dollar, a projected increase in average weight (assuming a more normal season following the drought) and an improvement in returns from export markets, Burtt said.

This could result in higher prices being paid for New Zealand lamb on global markets, said Paul Heyhoe, senior analyst at AHDB and Eblex.

New Zealand’s reduced output would also further tighten global supply. The three other major lamb exporting nations - Australia, the UK and the Republic of Ireland - are all also expected to produce fewer lambs this year.

But a wholesale price rise for lamb would not necessarily lead to an increase in retail prices in the UK, said Heyhoe. “The retailers might just take a bigger hit or promote less”.