Volatility hits lamb market

Volatility hits lamb market

Sheep
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A dry winter across many key production areas and poor seasonal outlook to October will now create further uncertainty for the sheep and lamb market.

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Unfavourable seasonal conditions combined with the planned retention of more ewe lambs for flock rebuilding has prompted a number of revisions to Meat and Livestock Australia’s 2017 Australian Sheep Industry Projections mid-year update.

Despite a strong performance for the first half of the year due to limited stock supplies, the first week of July saw the national trade lamb indicator lose 93 cents a kilogram (carcase weight) from where it started in June, to 579c/kg.

Since then, it bounced back somewhat to 630c/kg mid-July, before finishing the month averaging 580c/kg.

A dry winter across many key production areas and poor seasonal outlook to October will now create further uncertainty for the sheep and lamb market.

MLA Market Information Services manager Ben Thomas said while prices were still strong the market would largely hinge on seasonal conditions and feed availability coming into spring, along with the extent to which processing capacity can absorb the predicted eventual recovery in supplies.

“Processor capacity has been reduced with temporary and permanent plant closures, due to limited supplies over the past year,” Mr Thomas said.

“This poses a risk for when lamb and sheep availability does begin to ramp up, particularly if seasonal conditions don't improve.

“If capacity does not increase with supply, this could put significant downward pressure on prices.”

Mr Thomas said results from the June 2017 MLA and AWI (Australian Wool Innovation) wool and sheepmeat survey indicated Australian producers still had a strong intent to increase or maintain the size of their breeding ewe flock for the next 12 months, but were changing the way they’re undertaking the rebuild.

“The proportion of producers intending to retain older ewes over the next 12 months has eased slightly,” Mr Thomas said.

“This has led to an upward revision to the national sheep slaughter forecast for 2017 of 200,000 to 6 million in 2017, up from the previous April forecast of 5.8 million head.

“This will still be almost one million head less (14%) sheep processed in 2017, compared to 2016.

“This intent to retain more ewe lambs instead will restrict the supply for slaughter until their progeny come through.

“After five months of 2017, Australian lamb slaughter was at 9.2 million head – down 7 per cent from year-ago levels. 

“There have been no revisions since the April update to the national lamb slaughter forecast for 2017, to reach 21.5 million head. While this is a 6pc decline year-on-year, processing levels are anticipated to increase in 2018 to 22 million head, and continue on the long-term growth trajectory.”

Mr Thomas said many of the revisions to the sheep projections were also influenced by heavier lamb and sheep carcase weights in 2017, which have flowed on to production and export volumes.

“Largely underpinning the long-term rise in carcase weights has been the transition from Merinos to meat producing breeds. In 2017, a drier autumn and winter has seen a greater number of producers supplementary feeding their lambs and this has pushed carcase weights even further,” Mr Thomas said.

“The outcome is an upward revision to the average lamb carcase weight forecast for 2017, to 23kg/head, up from the April prediction of 22.4kg, and a 3pc rise from the 2016 average.

“Lamb production for the year-to-May was 212,484 tonnes cwt, down 5pc from the same period last year but remains 4pc above the five-year average. 

“With heavier carcases being processed, production expectations for 2017 have been revised higher since the April update, to 494,500 tonnes cwt - though remaining 3pc lower year-on-year.”

Australian lamb exports for 2017 are anticipated to be higher than previously forecast due to the increase in projected lamb production.

The revision is an increase of 10,000 tonnes (shipped weight), to 235,000 tonnes for 2017, although still 3pc lower than last year's record total. 

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