Processors struggle in hard times

A potential lambing spike across southern WA this season has coincided with a 'perfect storm' of global trading impediments for local sheepmeat processors.

Most processors are shut for winter or on reduced kill and expect tough market conditions to persist into the spring.

Sheep consultants have forecast a 3.24 per cent increase in the State's sheep numbers in 2012-13 on the back of reduced mutton slaughter last year and a 5 to 10 per cent increase in lambing and survival rates after an above-average spring in 2011 and good ewe management.

This is positive news for an industry striving to rebuild flock numbers that were decimated after the 2010 drought and have bottomed out at about 14.5 million head, well down from about 25 million head in the mid-2000s and a peak of almost 40 million in the early 1990s.

But the start of a turnaround in WA sheep numbers has come at a time when processors are grappling with historically tough trading conditions, including a downturn in major global economies, a volatile Australian dollar and increased lamb supplies coming out of the eastern states and New Zealand.

The introduction of the carbon tax has struck another blow to the sector, which may struggle to pass on increased costs to customers and could put downward pressure on lamb prices paid to farmers.

After dealing with a shortage of stock last year due to the 2010 drought, sheep processors have been operating at reduced capacity for most of this year because of market factors.

Lamb slaughter levels dropped 19 per cent in the 10 months to April 2012 to about 1.4 million head, down from about 2.3 million head in 2010-11 and 2.8 million in 2005-06.

About 650,000 head of mutton was processed in the 10 months to April 2012, a contraction of about 45 per cent from 2010-11 levels of 1.2 million head.

Live exports fell 24 per cent in the same period this year and live transit of sheep to the east has dropped substantially.

Lamb farmgate prices have also come off by more than $1 a kilogram, averaging about $4.40/kg between April and June this year, compared to about $5.80-$6/kg for the same period in 2011.

WAMMCO International supply development manager Rob Davidson said the company had been operating three or four days a week for much of 2012 and would close at the end of next week for annual maintenance until mid-to-late August.

Last year WAMMCO's Katanning plant closed for three weeks during winter.

Mr Davidson expects the plant to be back in full production by mid-spring.

"Market conditions have been really tough and a lot of people in the industry are saying it is the toughest it has ever been," he said.

Mr Davidson said he hoped lamb prices had bottomed but the spring price outlook was uncertain.

He said a lot of frozen meat was in storage, a forecast bumper lambing season in the eastern states would create strong competition in global markets, the Australian dollar remained high and NZ was expected to have good lamb supplies going into WA's major markets of the Middle East and South East Asia.

Fletcher International Exports closed last week for its annual maintenance shutdown and was expected to reopen at the end of July. Last year the plant closed for nine weeks.

Before the winter closure, the company was killing one day and boning the next, according to Fletcher's Albany plant general manager, Greg Cross.

He said the Albany facility had been averaging 12,000-13,000 head per week before the winter shutdown, well short of its maximum capacity of 48,000 sheep per week with two shifts operating.

Mr Cross said it reflected the toughest market conditions he had experienced in 30 years in the business.

He said he was not expecting big numbers of sheep when the plant reopened in August but the outlook for spring was positive, given good seasonal conditions in the south of the State.

"Mother nature has certainly responded favourably for all concerned," he said.

"We hope she continues to do so and we can look at getting the numbers to build back up so processors can get back to capacity, even if its not full capacity, at least to a normal five-day week production scenario."

In the northern agricultural region, lack of goat supply and poor sheep market conditions forced the closure of Geraldton Meat Exports (GME) at the end of April.

Amid speculation that the plant had closed for good, a company directors' meeting was held a fortnight ago but a reopening date was not announced.

Traditionally, GME has a winter shutdown from June to September/October.

It is understood V & V Walsh is continuing sheep processing at its Bunbury plant during winter, a buyer may have been found for Hillside Abattoir in Narrogin and Jack Burton has said he will reopen the Gingin abattoir for sheep and goat processing on July 13.

Beaufort River Meats owner Joe Macri said his 2500-head capacity plant in the Great Southern had been closed since January and was not likely to open until September/October.

He said the high Australian dollar in the past 12 months had been the main driver of the plant's shutdown because the company predominantly sold boxed product into the US.

"We expect supply to be much better than last year when we open in spring but our processing capacity will depend on what happens in terms of sales," he said.

"And we expect a colossal impact from the carbon tax. Our direct power bills will go up 10 per cent and we expect our total production costs will rise by about 15-18 per cent as other suppliers pass on their higher costs of production.

"I don't think we will be able to pass this on to customers and so the likelihood is that it will go back on to producers in lower prices if we can't absorb the increase but that will depend on our sales margins."

WAMMCO's Katanning manager, Tony Bessell, said his company was bracing for heavy non-refundable cost increases of about $300,000 per year from the carbon tax.

He said that figure included about $170,000 in direct power cost hikes, $12,000 in annual carton cost rises and other cost imposts passed on by other supply companies.