Mar­ket volatil­ity now nor­mal

Sen­si­ble pric­ing sought

South Waikato News - - NEWS - By TIM CRON­SHAW

Sheep and beef farm­ers are en­coun­ter­ing as much mar­ket­place volatil­ity as dairy farm­ers, but the per­cep­tion is they are worse off.

Beef+Lamb New Zealand chair­man Mike Petersen said volatil­ity seemed to be high­lighted more in sheep and beef farm­ing than dairy­ing, but it was be­ing ex­pe­ri­enced in both sec­tors, and more could be ex­pected.

‘‘The big story is the volatil­ity and that’s a real is­sue we are grap­pling with,’’ Petersen said at the National Fiel­d­ays in Mys­tery Creek.

‘‘It’s not new, but we have a big rub­ber band of sup­ply and de­mand that is ac­tu­ally cre­at­ing a lot of un­cer­tainty for the sec­tor and that’s a prob­lem.’’

Farm­ers were re­ceiv­ing $113.50 a lamb in the 2011-2012 sea­son and this could drop to the mid-$80 mark.

Petersen said that was a ‘‘mas­sive’’ variation for farm­ers, but they were not alone in deal­ing with volatil­ity.

‘‘This volatil­ity is no dif­fer­ent to what is hap­pen­ing in the dairy sec­tor,’’ he said.

‘‘The dairy sec­tor is at $5.85 (a kilo­gram of milk­solids) with a fore­cast of $7 next year and we are talk­ing a volatil­ity that is sim­i­lar.

‘‘If we look at the pat­terns there’s lit­tle dif­fer­ence be­tween the dairy sec­tor and what has hap­pened with sheep and beef prices.’’

He said volatil­ity was erod­ing con­fi­dence in sheep and beef farm­ing and was dif­fi­cult to plan for while dis­cour­ag­ing young peo­ple from com­ing to the sec­tor.

Yet dairy lead­ers had spo­ken of 35 per cent of farm­ers mak­ing cash losses in Waikato, he said.

Dairy farm­ers could count on more-con­sis­tent cash flows and their sys­tems made it eas­ier for hand­ing over farms to the next gen­er­a­tion.

Though dairy prices might be un­cer­tain, farm­ers got good and trans­par­ent es­ti­mates with forecasts which make it eas­ier to plan farm bud­gets.

Petersen said sheep and beef farm­ers would have to get used to price and mar­ket­place volatil­ity.

‘‘The volatil­ity will stay the same and it doesn’t mat­ter how you struc­ture your in­dus­try,’’ he said. ‘‘Volatil­ity is the new nor­mal and that only seems to be more-so, not less, and it does re­quire farm­ers to build more buf­fers for risk.’’

He said the re­cent fall in the New Zealand dol­lar against the green­back had pro­vided a big re­lief for farm­ers par­tic­u­larly for beef trade in the United States.

‘‘We have ef­fec­tively gone from 84 cents (against the US cur­rency) to US78c . . . and that’s roughly 6c and that trans­lates to 40c a kilo­gram in farm gate prices for beef,’’ he said.

‘‘The rea­son we haven’t seen it

Mike Petersen now is we have some soft in­mar­ket pric­ing in the US, but that won’t stay for long and all the trends are for prices to firm when the US gets into the sum­mer bar­be­cue sea­son. ‘‘The beef out­look is pos­i­tive.’’ There are also op­ti­mistic signs for sheep­meat with sheep num­bers down in Bri­tain and ewe num­bers ex­pected to re­treat from the drought in the North Is­land with re­duc­tions anec­do­tally down 10 per cent to 20 per cent.

Petersen said it was likely the sheep­meat in­dus­try would strug­gle to fill Christ­mas or­ders.

But farm­ers did not want prices Beef+Lamb New Zealand chair­man Mike Petersen weighs in on the mar­ket­place im­bal­ance. to go silly, and wanted sen­si­ble pric­ing that would last longer.

Some farm­ers would take two years to restore ewe num­bers to their pre-drought level and Beef+Lamb’s ini­tial es­ti­mate of farm prof­itabil­ity of about $70,000 would not be reached.

Fair­fax NZ

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