Sheep farmers have some decisions to make this spring about rebalancing stock ratios, which along with good lamb prices could potentially push up dairy grazing prices.

With an expectation that lamb prices will stay up around $7/kg, sheep farmers need to decide whether to retain more replacement ewes and try to start increasing stock units again or keep numbers static and make the most of the high lamb prices.

Sheep numbers dropped significantly between 2005 and 2008 when lamb prices crashed.

Nationally, sheep numbers have dropped from 40 million in 2001 to 31.9 million in 2011.

Federated Farmers Meat and Fibre executive member Tim Mackintosh says farmers cut back in numbers and didn't replace.

'Certainly by 2008 there was a real loss of confidence.

'That's a tricky one – how many ewe lambs are retained – as far as rebuilding goes, how it will happen, when it will happen, I don't know.”

Tim says with good lamb prices and farmers getting $160-$180 for hoggets too, it's hard 'not to grab the money when it's there”.
'But then it impacts on next year's flock numbers.”

Farmers usually retain between one fifth to one sixth of the total flock.

'That's to keep numbers static – so potentially a few farmers will increase that ratio to bring numbers up this year.”

Beef and Lamb New Zealand economic service executive director Rob Davison says the industry doesn't see flock numbers increasing by much.

'It's really hard to talk about having a goal to get numbers back up because what's actually happened is when sheep profitability was so low, a lot of land has been shifted into dairy.”

When lamb prices bucketed out, there were a lot of dairy conversions in Southland and Canterbury and in the North Island a lot of sheep farmers went to dairy support.

'So the constraint on any increase is actually the land area. We've reduced the amount of pasture land since 1990,” says Rob.

'The best country for sheep and beef farming has been converted to dairy.

'We don't see the sheep flock being able to increase unless something else gives way – makes room for it.”

A sheep is worth more per hectare than dairy grazing to farmers, however, so if sheep farmers do increase their flock numbers, the supply of grazing land will decrease – pushing up the demand – and ultimately pushing up grazing prices.

The high lamb prices will put 'pressure on lifting the grazing price”, says Rob.

'It depends where the milk solid price is too – milk solid prices still look reasonably good, but their going to have to compete with the higher lamb prices.

'It's a dynamic industry and farmers are having to make business decision responding to the environment as it is.”

It is interesting times with both the dairy industry and the sheep industry bringing in good prices at the moment, but it can be 'fraught with danger,” says Tim.

'In 2009 dairy farmers were stuck paying 2008 grazing prices, prices were set when they had a peak payout – then the payout crashed.

'What it comes back to is farmers would like a bit of consistency.

'A high performing sheep is still out stripping dairy grazing and there is already more demand than supply for grazing, which is going to push up grazing prices too.”

Tim says prices for lambs are still sitting at about $7.40/kg but the price always drops heading into the new season – late October/early November – by about $1.50.
'That's a general rule.

'Although a lot of the rules have gone out the window with these high prices.

'It will be interesting to track and see where the season opens up at.”

He says the biggest variable on the price will be the New Zealand dollar.

'Supply might be up a bit on last year, but not a huge amount.

'The demand is still there, but some of the companies report they are meeting a little bit of resistance on price.”

China, however, are taking an increasing amount of meat.
'Any bit of protein they can get they are grabbing.
'Flaps, which would normally go to the islands and companies would be thankful to get anything for – go to China.

'They're taking such a big portion of the carcass and paying good money for it. It's important for China to keep buying really.”

Rob says Beef and Lamb are currently working on what they estimate lamb prices will be this year.

'We've been all over the place; we've had good lamb prices this year – they've jumped up quite significantly in the world market and our exchange rates strong, but it's increased ahead of the exchange rate which is great.”