Birth woes
OPINION: What does the birth rate in China have to do with stock trading? Just ask a2 Milk Company.
In a recent update to farmer suppliers, Alliance Group - the world's largest processor and exporter of sheepmeat - said, "China continues to face significant economic challenges with the medium term outlook remaining weak. Unfortunately, this means weaker market returns in the short to medium term.
"We are taking steps to mitigate our exposure wherever possible through other markets."
However, a significant portion of Alliance's key lamb product still depend on Chinese demand. Alliance says that China remains a 'key influencer' of global pricing across all species.
"In the medium to longer term, there are opportunities to diversify our product mix away from China's wholesale market and into more direct to consumer pathways such as online, retail or food service direct."
Alliance told suppliers that there were some other possible green shoots of positivity for lamb outside of China. It points out that while the Chinese economy remains under pressure, this is affecting consumer confidence.
"While the market is willing to buy volume, prices (lamb) remain weaker. The North American economy continues to improve, which is increasing demand for lamb in the retail and food service sectors."
However, it warns that increased production out of Australia could restrict further upside.
"EU demand is steady with reports that Easter consumption was positive. Commodity levels in the UK remain steady with demand moderate. The Middle East continues to provide a volume alternative for commodity products, although there is some pressure as inventory builds over the slow Ramadan period."
On the mutton front, Alliance says world supply and demand is in balance on the back of reducing supply from New Zealand.
"However, increased supply out of Australia is keeping pricing in check," the company adds.
"We are continuing to diversify away from China into wider Asia, namely Taiwan, Malaysia and Singapore to mitigate the impact of the weaker Chinese market. The EU/UK and North America remain a viable option for certain cuts."
Meanwhile, it appears the price malaise in China is not restricted to sheepmeat.
Alliance has told suppliers that beef prices in China remains soft, with pricing across most items "under pressure".
