21st February 2011

Opportunities and Challenges On Horizon for Sheep Producers

The current sheep market is offering opportunities to the best producers but farmers shouldn’t let improved prices lull them into complacency, according to Quality Meat Scotland.

Speaking at the NSA Scotland Annual Conference in Dunblane Hydro, Stuart Ashworth, Head of Economics Services, QMS gave an overview of a turbulent global market.

Generally, with the exception of extreme hill systems, sheep production has seen improvements in profitability over the past couple of years - albeit not enough to give a fair reward for labour and capital - and much of this has been fed by a tightening of global supplies.

EU production has been declining with the resulting price rises triggered by a lack of supplies. A similar picture has been seen in the southern hemisphere with both New Zealand and Australia seeing reduced production leading to better producer prices.

“With strong competition for a declining European supply of lamb and the southern hemisphere having little scope to increase supplies to Europe because of quota and production constraints, prospects for continued historically high producer prices through 2011 remain good,” said Mr Ashworth.

“In a globally declining market, there is an opportunity for some of our top producers to grow their flocks and do well out of the current situation but these higher prices should not lull less efficient producers into a sense of complacency as there are challenges on the horizon too.”

Rising commodity prices will mean it will be hard for producers to hang on to the margins they currently have and if prices at retail continue to rise there could be a drop in consumer demand.

Shoppers in Scotland have seen lamb prices rise by more than 5% through 2010. Although this has meant people are buying less per shop, shoppers are still being drawn back to eating lamb, which has balanced out this decline.

“In the longer term, and despite two spells of appalling winter weather within 2010, confidence amongst producers is better than for some time. Nevertheless, producer margins are still wafer thin and concerns over future policy reforms to both the single farm premium and LFASS could quickly damage this confidence,” observed Mr Ashworth.

“However, in the shorter term the basic supply and demand balance remains in favour of producers, the exchange rates continue to favour UK producers and there is little reason for producer prices to fall.

“Improved farm gate prices mean margins are better but with processor margins still under pressure and input costs rising the scale of the challenge to hold on to recent improved margins should not be underestimated.

“Producers have to take this opportunity to home in on their efficiency and ensure that they are well protected against future prices movements,” added Mr Ashworth.

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