The bombed-out food service sector has cast a shadow over the outlook for high-value lamb cuts in North America for the foreseeable future, according to a major importer.

A build-up of frozen racks is hanging over the market and is not expected to have cleared by the time New Zealand production gets into full swing in the next few months.

“We have been discounting like everybody else and have run up against some pretty significant price competition,” the Lamb Company’s chief executive Tony Ruffo said.

“Everybody is holding significant stocks and of course more animals are being produced which is producing more racks.”

Owned by NZ and Australian exporters the Lamb Company is the largest importer of NZ sheep meat and beef operating in the North American market with a billion dollars of sales last year.

Its sales slumped 30% overnight in late March as North Americans deserted restaurants and locked themselves in their homes while the coronavirus pandemic took hold across the continent.

A combination of booming retail demand as people were forced to eat at home and meat shortages created by mass closures and production bottlenecks at virus-hit processing plants meant the Lamb Company had been able to claw back much of those losses.

Lamb racks unwanted by food service buyers were unpacked and cut down again into cutlets for supermarket shelves.

However, this fell short of mopping up all of the surplus.

Inventories of frozen boneless legs were also higher than normal.

“A lot of legs are used for events whether it be conventions or meetings or other group functions that have all been pretty much stopped,” Ruffo said.

“Although legs are a pretty large retail item… and [because] there is still good demand at the retail level the impact on that product has not been as significant.”

By mid-September rack prices were $4-5/lb down from their pre-pandemic peak.

A recovery in rack prices was tied to the food service sector getting back on its feet again – the timing of which remained highly uncertain.

Increased takeaway options and more outdoor dining were being used by restaurants but hadn’t been able to make up for the loss in sales created by physical distancing requirements inside their premises.

“Food service is still well back,” Ruffo said.

“I do not know what the official numbers are but in our case it is less than 50% of what it was.

“Certainly a vaccine and treatments when they are readily available to cover off a large majority of the population that will get us a large step forward towards returning to normal but we haven’t factored that into the coming year.

“If anything right now we are concerned about what the impact will be from what most of the health experts here are saying will be a significant second wave.”

The Lamb Company had been talking to NZ exporters nervous about the capacity of the North American market to absorb the volume of racks it had in the past.

Ruffo was hopeful of buying as many racks as last year although he said the proportion of chilled to frozen would need to be higher to cater for increased demand from retailers.

“Right now the plan is to procure in line with what we did last year.

“The challenge is going to be next winter [but] by that time we should have moved through a good chunk of the frozen inventories and we should be able to take a bit of frozen prior to that.”

The lamb company

Set up by the NZ Meat Producers Board in 1964 as DEVECO to develop the North American market.

Shareholders are Alliance Group, Silver Fern Farms, ANZCO and Perth-based exporter WAMMCO.

It buys beef and lamb from shareholder companies as well as non-shareholder suppliers in NZ and Australia.

Supplier of 90% of the NZ lamb sold in Canada and 60% in the US.