By Augusto Semmelroth | Source: DAFF, MLA
Despite the softening demand from China this year, robust demand from other key markets, coupled with a lower A$, provided sufficient support for record lamb exports in 2014/15. While growth in shipments has decelerated compared to previous years, volumes were still 6.8% higher year-on-year, reaching 241,608 tonnes swt in 2014/15.
For regular readers, this will come as no surprise. The larger than expected lamb crop and record slaughter levels since July 2014 has been a major driver behind the robust export levels seen over the last 12 months. Furthermore, the depreciating A$ has also assisted a reshuffle of large quantities of lamb towards overseas markets, despite the relatively more challenging market environment than in 2013/14.
Over the course of 2015, it became clear that demand from China had weakened compared to 2013 and 2014. Increased Chinese lamb production and more comfortable cold storage stocks dampened import demand. This saw Australian exports to the country fall 13% year-on-year to 35,737 tonnes swt in 2014/15. While other Asian markets picked up some of that shortfall, it was not enough to fully offset the Chinese void, resulting in a 6.3% reduction in shipments to the region to 75,018 tonnes swt in 2014/15.
Fortunately, the Middle East, the US and other smaller markets were also able to absorb the Chinese slack. Total lamb exports to the Middle East surged another 15% year-on-year to 69,362 tonnes swt, which is a whopping 50% above the five-year average. A US comeback, mostly driven by improved consumer confidence, record red meat prices and a strong U$, also saw shipments to the country lift by 14% year-on-year to 48,142 tonnes swt in 2014/15 - a record high.
Trade conditions with the EU, on the other hand, deteriorated further in 2014/15 on the back of stagnant demand and stronger competition from New Zealand. As a result, total shipments to the region contracted 12% year-on-year to 12,323 tonnes swt.
In retrospect, the last four years were marked by an exponential growth in lamb exports. Figure 3 aims to put this trend into context. From 2010/11, total lamb exports have surged 54% by 2014/15 (orange line), which equates to an astonishing growth rate of 11.5% per year. While shipments to key markets have increased substantially since 2010/11, the Middle East managed to outdo expectations with a cumulative growth of 90% over four years.
To an extent, it’s hard not to be amazed by the sheer volume of lamb exports in 2014/15. The amount of lamb produced amid a steady decline in sheep numbers in recent years reinforces the ongoing structural change in the sheep industry. As the merino component of the flock diminishes and higher marking rates are achieved, the lamb output capacity of the flock has increased considerably.
This transition has not being fully factored into most industry supply projections in recent years and led to an underestimation of lamb throughput and overall meat production. Meat and Livestock Australia (MLA) will release its mid-year projections in the end of the month, and we believe this trend will be thoroughly assessed in their new calculations.
Leaving the supply side of the story aside and moving back to demand, export markets have performed exceptionally well in 2014/15, despite the Chinese slowdown. The further deterioration of the A$, coupled with a less intense lamb production growth and ongoing robust export demand, will surely support firmer lamb prices in 2014/15.
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