Farmgate prices for hoggs have started 2016 on a positive note for producers by increasing slowly in recent weeks, although they are still well behind prices of a year ago, according to recent Quality Meat Scotland (QMS) analysis.
According to Stuart Ashworth, Head of Economics Services with QMS, some of this short-term strength has been created by lower numbers of hoggs reaching the market, with a tighter supply of prime stock being a feature of the market since October. However, the total volume of prime lambs slaughtered between June and the end of December 2015 was unchanged up on last year.
“Given the 1.1% decline in the UK lamb crop reported in the June census, there remains the possibility of slaughter hogg numbers staying lower than last year for the rest of the marketing year which should support prices,” said Mr Ashworth.
The challenge that remains however, he observed, is the impact of the prolonged bad weather on store lamb finishing growth rates which may result in store lambs being slow to reach slaughter weight, pushing volume later in the season.
“Exports are an important part of the UK sheep market but 2015 has been particularly challenging with strong Sterling and weak demand making exporting difficult and leaving increased volumes of sheepmeat on the home market,” observed Mr Ashworth.
This put pressure on farmgate prices particularly through June to September when domestic production was also higher.
“The exchange rate between Sterling and the Euro can be volatile and move quickly,” commented Mr Ashworth. “Between mid-November and now, Sterling has weakened from 70p to the Euro to around 75p to the Euro. Everything else being equal, this equates to an increase of around 7% in Sterling revenue for a carcase sold to Europe,” he said.
Clearly this offers some support for farmgate prices. Nevertheless, Mr Ashworth stated, this exchange rate remains 9% stronger than the 82p in early 2014 when hogg prices were about 20p/kg, 12% higher than today.
“It is clear then that exchange rate plays a big part in farmgate sheep prices and with concerns about ‘Brexit’ on one side, and a lift in interest rates on the other, exchange rates could be more volatile in the medium term.
“However, with a rise in UK interest rates seemingly being pushed further out, it seems likely that Sterling will remain in the 74-76p range for a while, a similar rate to February last year. In this case hogg prices may see some lift, particularly if the number of animals reaching the market remains lower than last year.”
However, while the prospect of lower hogg numbers and weaker Sterling offers support for farmgate prices, prices will also be influenced by consumer demand and availability of product from New Zealand.
“The biggest challenge remains that of stimulating consumer demand for lamb in the UK and Europe,” said Mr Ashworth. Kantar Worldpanel research of UK supermarket sales continue to show retail purchases of fresh lamb cuts under pressure.
With consumer demand static, any increase in product volume will inevitably pressure prices as in mid-2015. However, he said, with the expectation that hogg numbers will be lower than last year, increased product availability may be more determined by New Zealand activity than UK activity.
“Beef and Lamb New Zealand forecast a lower lamb crop for 2015-2016 but, because of drought conditions, these lambs have been arriving at abattoirs quicker than last year. The November New Zealand lamb kill, for example, was 24% higher than last year, carcase weights 1% lower and producer prices around 10% lower on the year,” he said.
However, earlier concerns about reduced trade with China do seem to have eased, with volumes of New Zealand sheep meat reaching China over October and November holding up well, said Mr Ashworth.
This did mean, though, that New Zealand had more sheep meat to market during November and some build-up of frozen stocks are likely to have occurred.
“The early Easter may prove beneficial to New Zealand, encouraging deliveries of both fresh and frozen product to Europe. However, it looks likely that overall supplies of lamb on the market may not be greater than last year,” commented Mr Ashworth.