Brexit: lambs to the slaughter

As the clock ticks towards the 31 October deadline, there is not much more certainty about the process than six months ago.

" A no-deal Brexit would cause the greatest disruption to lamb markets as lamb would no longer be able to be freely moved between the UK and EU member countries.”

All options remain on the table, including pushing out the Brexit date, a no-deal Brexit on October 31 or Brexit being delivered with a deal on October 31.

British Prime Minister Boris Johnson’s power has been eroded with Parliament being recalled and a decrease in his support base in the house. Therefore, the likelihood of a no-deal Brexit has now decreased but it still can’t be ruled out.

A no-deal Brexit would cause the greatest disruption to lamb markets as lamb would no longer be able to be freely moved between the UK and EU member countries.

The number of lambs being processed in the UK is tracking ahead of normal. This is due to good growing conditions earlier in their spring and summer, combined with an incentive to finish lambs prior to Brexit in order to minimise potential disruptions. The surge in early-season processing in the UK means the volume of lambs currently being processed has eased. This has coincided with a lift in demand for imported lamb.

Exporters are reporting renewed interest in New Zealand lamb from UK buyers after a long period of lacklustre demand.

Beyond Brexit, China’s appetite for lamb and mutton remains strong as they look for alternative protein sources to fill the void in domestic pork production due to the swine flu. The demand from this market for mutton and the cheaper lamb cuts continues to underpin schedule prices. In-market prices for the higher-value cuts such as French racks and legs are at their highest level in several years.

The market strength in both traditional markets and Asia, combined with the relatively low New Zealand dollar, has allowed meat processors to deliver relatively bullish forecast prices for the season ahead.

Christmas lamb

Back in New Zealand, schedule prices for lamb and mutton are at record levels. Volumes processed at this time of the season tend to be low but there has been a small surge in throughput due to the high prices and the desire to process last season’s lambs before they cut their teeth and are therefore downgraded from the lamb category to mutton.

Prices are expected to hold relatively well and this is reflected in contract prices and forward guidance given by meat processors. Alliance has advised they expect to pay somewhere between $NZ7 and $NZ8.60 per kilogram carcass weight (CW) for lambs processed in the three months leading up to Christmas, and $NZ6.70 to $NZ7.10 per kilogram CW from January to March.