Impact of Australian drought on New Zealand livestock markets

After several years of favorable weather conditions that led to a significant increase in livestock numbers, Australia experienced dry weather conditions in the third quarter of 2023. Australian farmers have rapidly reduced their herds and flocks, resulting in a marked increase in lamb and beef supplies to key markets  in the second half of the 2022-23 season, with the trend expected to continue into 2024. 

In the first 11 months of 2023, Australian lamb and sheep processing increased by 7 percent and cattleprocessing increased by 16 percent compared to 2022. In the year to October 2023, Australia exported 84,000 tonnes more lamb and 173,000 tonnes more beef than in the same period in 2022.

This excess supply has entered the international trading arena at a time when demand is fragile, particularly in China, which has contributed to lower prices for prime livestock in New Zealand, particularly lambs and ewes; This is unusual for this time of year, whenpricesare usually higher.

Prices for mutton and lamb are now 45% and 15% below the five-year average respectively. Beefprices are just 1% below the five-year average. Beefis holding up better because the world market of beef is much larger.

Despite the increase in beef supplies from Australia, some other major producers such as USA and Canada , have been experiencing drought for some time, and their exports are declining, while demand for =7>import remains high.

Unfortunately, these price declines coincide with rising on-farm costs, leaving projected profits on average more than 60 percent lower than two years ago. Many farmers are expected to operate at a loss this year due to this challenging scenario.

The duration of downward pressure on international markets depends on the severity and duration of drought in Australia, as well as the pace of economic recovery and demand in China. Expectations for any improvement in the Chinese market will become clearer as Chinese New Year pre-orders begin to sell, providing insight into the market's trajectory by mid-December.

Australia's drought has caused turmoil in New Zealand livestock markets, affecting prices and threatening the profitability of local farmers. The long-term situation will become clearer in the coming months.