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Monday, July 04, 2016

ABARES still forecasting lamb supply to tighten

By Angus Brown  |  Source: ABARES, ABS, MLA

Key points

  • ABARES are forecasting lamb slaughter to fall, and the sheep flock to rise in 2016-17.
  • The ABARES forecast seems to largely ignore the shift to crossbred sheep which is seeing lamb slaughter rise despite a small flock.
  • ABARES is forecasting lamb prices to rise marginally due to tighter supply.

2016-07-04 Lambs Fig 1

2016-07-04 Lambs Fig 2


With lamb slaughter for 2015-16 heading for a new record, we will have seen lamb supply grow every year for the last five years. However, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) is once again forecasting a tightening in lamb supply for 2016-17. Here we take a look at what is behind the forecast lower supply, and what it might mean for prices.

Forecasting sheep flocks and lamb slaughter levels is no easy task.  There are a wide range of variables which can see the flock size, or slaughter numbers, rise or fall in unpredictable ways.  Figure 1 shows the latest effort from ABARES to forecast the flock and lamb slaughter for 2016-17. 

ABARES are forecasting a second consecutive increase in the flock, expecting it to rise by 1% to 72 million head by the end of June 2017.  While this would be an increase, the flock would only be 1.6% above the low hit in 2014-15, and 2.7% above the record low of 2009-10.  ABARES expect the flock to be 4.7% lower than the high hit in 2012-13.

On lamb slaughter ABARES are expecting lamb slaughter to weaken, despite the fact that the sheep flock actually increased last year.  The 1% fall in lamb slaughter is expected to be due to the continuing flock rebuild, with more lambs retained, and less slaughtered. 

Normally we would expect a larger 2015-16 flock to produce more lambs, but ABARES are suggesting the increase in lamb supply from a larger flock will result in an increase in the pace of the flock rebuild, with 700,000 head added in 2016-17, as opposed to the 400,000 in 2015-16.

This theory seems to ignore the recent trend of rising lamb slaughter despite a falling flock.  In each of the last three years lamb slaughter has been forecast to be lower, but has defied this by rising.  This has been largely driven by the move towards crossbred and dual purpose sheep, which produce more lambs from fewer ewes.  

What does this mean?

ABARES price forecast of 550¢/kg cwt is largely in line with their slaughter forecast, as shown by the red point in figure 2.  However, if the trend of rising lamb supply continues it may place some pressure on prices for 2016-17, and see them average at similar levels to 2014-2016 levels, assuming no movement in demand.

Over the last three years the usual range of lamb prices is around 150¢ from top to bottom, so some seasonality needs to be applied to forecast where monthly prices might be.  But, as always, it’s worth keeping an eye on lamb slaughter levels over the late winter and spring to assess where markets might head in the short term. 

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