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Tuesday, March 17, 2015

ABARES vs MLA sheepmeat projections – everything but consensus

By Augusto Semmelroth  |  Source: MLA, ABARES

Key points

  • ABARES and MLA projections cover the same production metrics but do not necessarily provide a consensus.
  • ABARES seems a optimistic about the number of lambs available for slaughter until June and in 2015/16 if flock rebuild efforts gathers momentum.
  • Variance between ABARES and MLA supply estimates would lead to very distinct outcomes for markets in the near to medium term.
  • We are still inclined to believe numbers will fall below year-ago levels in autumn and winter to support higher lamb prices.

2015-03-17 ABARES Forecasts FIG 1

2015-03-17 ABARES Forecasts FIG 2

Just over a week ago, ABARES released its commodity outlook report with medium-term forecasts for the sheepmeat industry. Among others, the lamb slaughter estimates are of critical importance in understanding current and future market dynamics. This article takes a closer look at the numbers published by the Bureau and compares it with Meat and Livestock Australia’s (MLA) industry projections released earlier this year.

Although both organisations generate projections covering the same supply/demand metrics, they do not necessarily come out with the same outcomes. Comparing their numbers is always bit tricky as ABARES reports on financial years while MLA provides forecasts for calendar years. Yet, using an arbitrary measure to split yearly supply in two halves (based on historical trends), it’s possible to compare their numbers with a decent degree of accuracy.

With that in mind, MLA’s lamb slaughter estimates (calendar year) were converted into financial year assuming that 49% of lambs are turned off between January and June, and the remaining 51% killed between July and December. This break-down is based on the 5-year average ratios of lamb supply throughout the year.

Figure 1 shows the lamb slaughter rates between 2005-06 and 2013-14, together with ABARES’ and MLA’s forecasts until the end of the decade. The difference between both estimates is also presented to depict the substantial variance in potential supply outcomes over the next few years.

For this financial year (2014-15), ABARES is expecting lamb slaughter rates to reach a record level of 22.3 million head, a 2% increase on 2013-14. Converting MLA forecasts for 2015 to the 2014-15 period, lamb slaughter amounts to 21.2 million head, a 3% contraction from 2013-14. The variance between ABARES and MLA’s estimates for 2014-15 surpasses 1 million head, or 5% of total supply.

Going one step further, figure 2 puts together what lamb slaughter would look like until June based on both scenarios. Between July 2014 and February this year, 15.1 million lambs were killed nationally. Under ABARES forecasts, lamb slaughter would continue tracking around 2% above year-ago levels until the end of the financial year. Under MLA’s estimates, numbers would need to fall around 13% year-on-year between March and June.

For 2015-16, the variance in lamb supply becomes even greater. On the one hand, ABARES forecasts pegged lamb turnoff at 21.5 million head. On the other, MLA’s estimates are around the 20.15 million head mark, a 6% difference between them.  

What does this mean?

Overall, we remain inclined to believe numbers will fall below year-ago levels from now until June. Unless marking rates increased substantially last year to offset a fall in breeding stock numbers, it’s hard to believe the lamb crop of 2014/15 was larger than in 2013/14. Further, once autumn breaks, market dynamics are likely to change rather quickly as more ewe lambs are retained for flock rebuild and lambs finished on grass are carried into winter. 

As far as production forecasts are concerned, we reckon MLA has a better grasp at getting more consistent numbers through producer engagement (via surveys and on the ground reports) and more specialised analytical resources.  But again, medium and long-term production estimates will always have a great deal of uncertainty, be it weather related or the pace of productivity gains as more producers shift towards meat production systems.    

To conclude, we believe lamb slaughter numbers could still fall up to 5% below year-ago levels between now and June. That’s far less than the scenario under MLA’s projections released in early February. However, this would still warrant a solid upside potential for lamb markets in late autumn and winter.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 


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